Debt-to-GDP Ratio

It is a ratio tool used for representing the amount of debt taken up for each unit of GDP produced

The debt to GDP ratio is nothing but a ratio tool used for representing the amount of debt taken up for each unit of GDP produced, or in other words, how much debt is required to produce a particular amount of GDP in a country.

Debt-to-GDP Ratio

To fully understand this concept, we would first have to look at both the constituents of this tool separately, Debt and GDP.

Debt is the money owed by a person either to his holding, external holding, or people other than himself.

Gross Domestic Product (GDP) is value in terms of money of output produced by a country within its territories and within a particular time, generally one financial year.

GDP indicates the health of a country's economy and shows the productivity of its sectors of the economy directly.

This ratio is a great tool for determining the economic condition of an economy. It shows the capability of a country to pay off its current debt without taking extra or more debt.

  • A lower Debt-GDP ratio indicates that the economy is in a good position to pay off existing debts and is less likely to default on any payments while maintaining healthy GDP growth.
  • A higher Debt-GDP ratio indicates the economy may need more debt to finance its existing debt and may also get into a debt trap. The country may be moving towards an economic disaster and is unstable to invest additional money into it.

Countries with low GDP output and high debt are not attractive for investment choices. 

Line Graph

Countries with lower debt to GDP are preferable. Still, if a government abstains from taking any debt, it also raises alarms as it is missing out on the opportunity costs if it would have taken debt to foster growth.

Generally, large economies like the USA, India, Japan, etc., have higher Debt-GDP ratios because they invest heavily into their economic growth

But some countries like Sri Lanka and many African states are taking up a huge amount of external debts, mainly from countries like China, and they are using that to fuel their revenue expenses which in the long term entrenches them into a vicious cycle of a debt trap.

Big countries intentionally do this to threaten small nations and even take advantage of high ground and capture resources from those countries. 

This process is known as Debt-Trap Diplomacy and is used by the People's Republic of China constantly to take hostage small nations and make them economic colonies of China.

Who has the Highest Debt to GDP ratio?

The list of only major countries with the highest Debt-GDP ratio is in descending order. (Some small African and Asian states are not included in this list)


  1. Japan (237.54%)
  2. Venezuela (214.45%)
  3. Greece (174.15%)
  4. Italy (133.43%)
  5. Portugal (119.46%)
  6. Singapore (109.37%)
  7. United States (106.70%)
  8. Belgium (99.57%)
  9. France (99.20%)
  10. Spain (95.96%)
  11. Brazil ( 90.36%)
  12. Canada (88.01%)
  13. United Kingdom (85.67%)
  14. Pakistan (77.00%)
  15. Austria (71.17%)
  16. India (69.04%)
  17. Ireland (62.42%)
  18. Finland (59.88%)
  19. Israel (58.96%)
  20. South Africa (57.81%)


Now we will take a closer look at big economies with either a high debt ratio or a higher debt. We will also look at some specific exceptional cases like one in Japan.

This analysis is done on geopolitical and economic grounds and is based on the world financial situation, ignoring domestic issues. This analysis also provides possible remedies for economic problems and includes the global market analysis after such domestic turnouts.

The 2008 Financial crisis also played a major role in pushing these economies toward taking up more debt. As a result, the big and small nations were also forced to take hefty loans to sustain their economy.

We will start our analysis with exceptional cases of Japan and Greece and then move towards relatively stable economies like the USA and India.


Why does a country like Japan have so much debt? And why has Japan still not collapsed like many of its Asian and African counterparts?

Debt in Japan has crossed 230% of its GDP, which is an alarming situation indeed, but not a problematic situation as more than half of its debt is owed to the Japanese people in the form of government bonds and not to outsiders and other nations.

Japan's Debt

This is mainly because of the financial crisis of 2008. The crisis hit Japan severely, and its exports fell significantly over the years. As a result, the central bank of Japan rolled out huge stimulus packages for its economic recovery, which increased the Debt-GDP ratio significantly for the first time around 2008-2009.

Growth inflation in Japan is almost non-existent now. Domestic demand has been weak ever since the crisis. To foster growth, Japan's government rolls out high-interest government bonds to its citizens to pump money into the economy and get it back on track.

This is the main reason behind the mammoth debt of Japan and why despite that debt, it hasn't collapsed into a failed state like many small countries.


Greece is a unique case study for economists. Greece is a part of the European Union and the Eurozone which means it uses the Euro as its national currency.

Greece is situated above the African continent and on the lower side of western Europe. The Immigrant crisis destabilized Greece after the wars in the Middle East and the US invasions in Iraq took place.


People from all over the Middle East and Africa came to seek refuge in Europe, and they found Greece at its gateway to Europe because of its geographic location.

On top of all this, the 2008 crisis-hit Greece as well, and it toppled the already unstabilized economy of Greece. Then, in 2010, when Greece had not even fully recovered from the crisis, the economy of Greece tumbled due to overspending by the government.

The government ignored inflationary pressures and started spending way more than sustainable levels because of the eurozone agreement. As a result, Greece could not float its currency or common currency into the free market to save its economy and grow its export like most developing Asian countries use today.

This worsened the crisis, and now the economy of Greece stands at a lofty level of 175% in its debt ratio.


The largest democracy in the world has a Debt-GDP of almost 70%, which is comparatively higher than most of its peers in the developing economy club. India is the world's second-largest oil consumer after China; most comes from Imports from the Middle East, the US, and Africa.

India relies heavily on oil imports for its power generation needs as well. Each year India pays almost $120 billion for just oil. This creates immense pressure on its current account deficit.


India has a wide deficit almost every year, and it just keeps on widening every passing year. This is because India imports much more than it exports, creating an outflow of funds. Because of this, it has to borrow huge amounts of money from investors.

Keeping in mind that its economy is in its developing stage and needs capital expenditure on the part of the government, the government needs to spend more to grow the economy, and taxpayers in India are not able to compensate the government in the form of tax revenues.

This, in turn, depreciates the Rupee (₹) against the US Dollar and creates more pressure on the CAD.

United States of America

The US is the largest economy in the world. The US Dollar, or USD, is the global reserve currency worldwide, and all major international transactions are done in USD. 

Also, the US can print as much money into circulation as it wants as there are no short-term implications, as happens with every other country in this world.

Many times people all over the world thought that the US had unlimited power when it came to money in circulation as it could print money without any consequences. Still, these assumptions ended up being proved wrong.

US Debt

Research shows that this action has severe long-term impacts on the economy, not only in the US but the world economy as a whole.

As the US is considered to never default on its payments, it took as much debt as it wanted, but it created various market bubbles, creating instability, and we all have seen the consequences of the crisis in 2008. 

Also, more money in circulation means increased inflation which is bad for the USD and the economy, jobs are lost, and exports take a hit. 

Imports also become more expensive, and commodity prices of everyday items rise significantly. This hurts the middle class's savings, resulting in fewer investments.

Implications of high debt to GDP ratio.


Except for some exceptions like Japan, there can be severe implications and long-term consequences of high debt in economies.

  • Interest payments for previously taken up loans take up the major chunk of government spending; hence, there is little to no amount left for expenditure in public infrastructure space. This problem is more significant in emerging economies.
  • It makes taking further debt harder as investors are now more on their toes and alert when providing loans to an already debt-full country. It can prove fatal in times of need, like in times of global recession, civil war, or even a pandemic.
  • Taking up more debt increases the chances of default on payments which can significantly decrease a country's credit ratings.
  • A country should try to limit its foreign institutional and governmental debt more seriously than its internal debt to GDP ratio. As we have seen in the case of Japan, domestic debt is easier to deal with concerning external debt.
  • Cycles, when the debt is taken up, are also important. Cycles where debt is cheap and can be paid off easily are preferable to cycles with higher interest obligation rates.


However, how much debt is a bearable amount in this ratio? Neither too much nor too little could be assumed.

There is no absolute answer, and it differs according to the economy and the state in which its growth is projected in the future. 

There can always be exceptions like Japan and the US. But according to the World Bank and IMF, a country's GDP should not exceed 90% if it wants to foster economic growth rapidly.

Generally, developed economies can handle high debts, but emerging economies can get into a vicious cycle of a debt trap; emerging economies should vary in taking debt, how much debt and debt from who is the main question. 

You do not want to take loans from an autocratic nation like China which can even colonize small countries economically.

Countries like Japan and the UK provide loans at a very low-interest rate, especially Japan. Its developmental loans are as low as 0.1% per annum and can go up to 1-1.5%.

United States

To conclude, debt is a very useful and powerful tool as it can initiate a series of rapid growth in economies and change a nation's fate. Still, debt is as risky as it is powerful if not used properly. Short-term goals are never to be financed with debt; debt is only for the long-term game.

Also, while taking up huge amounts of debt, a country should determine its capabilities to pay that debt off; if they take up too much debt against their capacity of payment, they can face serious consequences, as seen with many African countries like Djibouti and Somalia.

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Researched and authored by Aditya Murarka | LinkedIn

Edited by Colt DiGiovanni | LinkedIn

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