The Covid-19 dilemma has resulted in a massive increase of government debt across the globe. India is no different. While financial markets have been tolerant of increased debt levels, rating agencies and investors, particularly in emerging markets, are keeping a close eye on the route to debt sustainability.
In FY21, India’s debt-to-GDP ratio increased to 87.8%. It is expected to fall to 87.4 percent in FY22, with high nominal growth helping to bring it down.
In November 2021, the rating agency confirmed India’s rating at ‘BBB-‘ with a negative outlook, citing rising public debt as a factor in its decision. The rating agency has previously stated that “higher debt levels hinder the government’s ability to respond to shocks and could lead to a crowding out of funding for the private sector.”
Government debt ratios climbed in nearly every sovereign country during the pandemic, Zook added, as governments gave fiscal help to combat the virus. The median ‘BBB’ debt ratio increased from roughly 42% of GDP in 2019 to 60% in 2021, while it is predicted to drop to 55% in 2022.
What is an acceptable debt-to-GDP ratio?
A high ratio, such as 101 percent, indicates that a country is unable to repay its debt. A ratio of 100 percent shows that there is just enough output to pay debts, whereas a lower ratio suggests that there is enough economic output to cover debts. GDP is equivalent to a country’s income if it were a family.
Why is Japan so in debt?
The Japanese public debt is predicted to be around US$12.20 trillion (1.4 quadrillion yen) as of 2022, or 266 percent of GDP, the largest of any developed country. The Bank of Japan holds 45 percent of this debt.
The collapse of Japan’s asset price bubble in 1991 ushered in a long period of economic stagnation known as the “lost decade,” with real GDP decreasing considerably during the 1990s. As a result, in the early 2000s, the Bank of Japan embarked on a non-traditional strategy of quantitative easing to inject liquidity into the market in order to promote economic growth. By 2013, Japan’s public debt had surpassed one quadrillion yen (US$10.46 trillion), more than twice the country’s yearly gross domestic product and already the world’s highest debt ratio.
Japan’s public debt has continued to climb in response to a number of issues, including the Global Financial Crisis in 2007-08, the Tsunami in 2011, and the COVID-19 epidemic, which began in late 2019 and has consequences for Tokyo’s hosting of the 2020 Summer Olympics. In August 2011, Moody’s downgraded Japan’s long-term sovereign debt rating from Aa2 to Aa3 due to the country’s large deficit and high borrowing levels. The ratings drop was influenced by substantial budget deficits and government debt since the global recession of 2008-09, as well as the Tohoku earthquake and tsunami in March 2011. The Yearbook of the Organisation for Economic Co-operation and Development (OECD) noted in 2012 that Japan’s “debt surged above 200 percent of GDP partially as a result of the devastating earthquake and subsequent reconstruction efforts.” Because of the growing debt, former Prime Minister Naoto Kan labeled the issue “urgent.”
Which country has the most debt?
Venezuela has the highest debt-to-GDP ratio in the world as of December 2020, by a wide margin. Venezuela may have the world’s greatest oil reserves, but the state-owned oil corporation is thought to be poorly managed, and the country’s GDP has fallen in recent years. Simultaneously, Venezuela has taken out large loans, increasing its debt burden, and President Nicolas Maduro has tried dubious measures to curb the country’s spiraling inflation.
Which country has the most debt?
What countries have the world’s largest debt? The top 10 countries with the largest national debt are listed below:
With a population of 127,185,332, Japan holds the world’s biggest national debt, accounting for 234.18 percent of GDP, followed by Greece (181.78 percent). The national debt of Japan is presently $1,028 trillion ($9.087 trillion USD). After Japan’s stock market plummeted, the government bailed out banks and insurance businesses by providing low-interest loans. After a period of time, banking institutions had to be consolidated and nationalized, and other fiscal stimulus measures were implemented to help the faltering economy get back on track. Unfortunately, these initiatives resulted in a massive increase in Japan’s debt.
The national debt of China now stands at 54.44 percent of GDP, up from 41.54 percent in 2014. China’s national debt currently stands at more than 38 trillion yuan ($5 trillion USD). According to a 2015 assessment by the International Monetary Fund, China’s debt is comparatively modest, and many economists have rejected concerns about the debt’s size, both overall and in relation to China’s GDP. With a population of 1,415,045,928 people, China currently possesses the world’s greatest economy and population.
At 19.48 percent of GDP, Russia has one of the lowest debt ratios in the world. Russia is the world’s tenth least indebted country. The overall debt of Russia is currently about 14 billion y ($216 billion USD). The majority of Russia’s external debt is held by private companies.
The national debt of Canada is currently 83.81 percent of GDP. The national debt of Canada is presently over $1.2 trillion CAD ($925 billion USD). Following the 1990s, Canada’s debt decreased gradually until 2010, when it began to rise again.
Germany’s debt to GDP ratio is at 59.81 percent. The entire debt of Germany is estimated to be around 2.291 trillion ($2.527 trillion USD). Germany has the largest economy in Europe.
Who is the biggest debtor to China?
Djibouti, Laos, Zambia, and Kyrgyzstan all owe China at least 20% of their annual gross domestic product. Much of the debt owing to China is related to President Xi Jinping’s Belt and Road Initiative, which includes huge infrastructure projects such as roads, railroads, and ports, as well as the mining and energy industries.
How much does the United States owe?
“Parties in power have built up the deficit through increased spending and poorer tax collection, regardless of political affiliation,” says Brian Rehling, head of Global Fixed Income Strategy at Wells Fargo Investment Institute.
While it’s easy to suggest that a specific president or president’s administration led the federal deficit and national debt to move in a given direction, it’s crucial to remember that only Congress has the power to pass legislation that has the greatest impact on both figures.
Here’s how Congress responded during four major presidential administrations, and how their decisions affected the deficit and national debt.
Franklin D. Roosevelt
FDR served as the country’s last four-term president, guiding the country through a series of economic downturns. His administration spanned the Great Depression, and his flagship New Deal economic recovery plan aided America’s rebound from its financial abyss. The expense of World War II, however, contributed nearly $186 billion to the national debt between 1942 and 1945, making it the greatest substantial rise to the national debt. During FDR’s presidency, Congress added $236 billion to the national debt, a rise of 1,048 percent.
Ronald Reagan
Congress passed two major tax cuts during Reagan’s two administrations, the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986, both of which reduced government income. Between 1982 and 1990, Congress passed Acts that reduced revenue as a percentage of GDP by 1.7 percent, resulting in a revenue shortfall that contributed to the national debt rising 261 percent ($1.26 trillion) during his presidency, from $924.6 billion to $2.19 trillion.
Barack Obama
The Obama administration oversaw both the Great Recession and the recovery that followed the collapse of the mortgage market throughout his two years in office. The Economic Stimulus Act of 2009, which pumped $831 billion into the economy and helped many Americans avoid foreclosure, was passed by Congress in 2009. When passed by a strong bipartisan vote, congressional tax cuts added extra $858 billion to the national debt. During Obama’s two terms in office, Congress increased the national deficit by 74% and added $8.6 trillion to the national debt.
Donald Trump
Congress approved the Tax Cuts and Jobs Act in 2017, slashing corporate and personal income tax rates, during his single term. The cuts, which were seen as a bonanza for the wealthiest Americans and corporations at the time of their passage, were expected by the Congressional Budget Office to increase the government deficit by $1.9 trillion at the time of their passing.
The federal deficit climbed from $665 billion in 2017 to $3.13 trillion in 2020, despite the Treasury Secretary’s prediction that the tax cuts would reduce it. Some of the rise was due to tax cuts, but the majority of the increase was due to successive Covid relief programs.
The public’s share of the federal debt has risen from $14.6 trillion in 2017 to more than $21 trillion in 2020. The national debt is made up of public debt and intragovernmental debt (amounts owed to federal retirement trust funds such as the Social Security Trust Fund). It refers to the amount of money owed by the United States to external debtors such as American banks and investors, corporations, people, state and municipal governments, the Federal Reserve, and foreign governments and international investors such as Japan and China. The money is borrowed in order to keep the United States running. Treasury banknotes, notes, and bonds are included. Treasury Inflation-Protected Securities (TIPS), US savings bonds, and state and local government series securities are among the other holders of public debt.
“The national debt is growing at a rate it hasn’t seen in decades,” says James Cassel, chairman and co-founder of Cassel Salpeter, an investment bank. “This is the outcome of the basic principle of spending more money than you earn.” Cassel also points out that while both major political parties have spoken seriously about reducing the national debt at times, discussions and strategies have stopped.
When both sides pose discussing raising the debt ceiling each year, the national debt is more typically utilized as a bargaining chip. The United States would default on its debt obligations if the debt ceiling was not raised. As a result, Congress always votes to raise the debt ceiling (the maximum amount of money the US government may borrow), but only after parties have reached an agreement on other legislation.
Who is responsible for Pakistan’s debt?
The total public debt of Pakistan consists of obligations owing by the government (including the federal and provincial governments) and debts owed to the International Monetary Fund, which are serviced out of the consolidated fund.
Is it India or Pakistan that has the most debt?
* In 2019, India’s GDP (in current dollars) was $2.875 trillion, whereas Pakistan’s was $278.22 billion, according to World Bank estimates.
Bankrupt certainly
Despite the State Bank of Pakistan’s (SBP)’sunny side up’ attitude, the numbers speak for themselves. Pakistan’s overall debts and liabilities have surpassed PKR 50.5 trillion, representing a PKR 20 trillion growth under the current Imran Khan administration. According to SBP data, the current account deficit has risen to 4.7% of GDP, well beyond the objective of 2-3% for 2021. The State Bank’s foreign exchange reserves wobble from crisis to crisis, stabilizing considerably after a recent $3 billion loan from Saudi Arabia, part of a total of $4.3 billion in aid. Pakistan’s currency rate was predicted to improve as a result of this. It didn’t work. The rupee fell much further against the dollar, reaching 179, reflecting weak economic fundamentals.
The State Bank attributes the fiscal strain on heavy debt servicing as well as food imports such as wheat, sugar, and vegetables. The high cost of cotton imports to keep Pakistan’s textile sector afloat has depleted the country’s foreign exchange reserves. Previously, Pakistan had agreed to import all of these from India owing to trade pressure, but the effort was thwarted due to political pressure. Former FBR head Syed Shabbar Zaidi has declared explicitly that Pakistan’s debt levels are unsustainable. He claimed that ‘bankruptcy’ is a condition in which loans cannot be paid from expected revenues in a lengthy Twitter debate. That is a logical viewpoint that is difficult to refute. However, there is clear evidence of Pakistan’s deteriorating creditworthiness in terms of the Saudi financing for the argumentative. The new loan has a higher interest rate, with Pakistan paying $120 million in interest – up $24 million from the previous identical arrangement in 2018. Other clauses are considerably more draconian. Any time Saudi Arabia makes a written request, the loan must be returned within 72 hours. Any delay in interest payments or servicing public debts, as well as a withdrawal from the International Monetary Fund, would be considered breaches of the agreement (IMF).
Meanwhile, Pakistan is said to have paid China PKR 26 billion in interest for a $4.5 billion credit facility that was diverted to reimburse the Saudis, among others, instead of promoting commerce. Pakistan turns to the IMF to bail it out of loans that are three times the amount borrowed in order to pay China. In other words, Islamabad has created a typical debt trap for itself, which is only becoming worse over time as it flits from one loan to the next. It’s past the point of bankruptcy. It’s on the verge of collapsing.