Debt-to-GDP Ratio

The Debt-to-GDP Ratio is a macroeconomic indicator that compares a country’s total government debt to its Gross Domestic Product (GDP). It measures the country’s ability to repay its debt by comparing it to the size of its economy. A higher debt-to-GDP ratio indicates that a country may have difficulty managing its debt, while a lower ratio suggests more fiscal stability.

Example

If a country has $1 trillion in government debt and a GDP of $2 trillion, its debt-to-GDP ratio is 50%, indicating that the debt is half the size of the economy.

Key points

• The debt-to-GDP ratio compares a country’s total debt to the size of its economy (GDP).

• A higher ratio suggests greater debt burden and potential difficulties in repaying debt.

• It is used to assess a country’s fiscal health and debt sustainability.

Quick Answers to Curious Questions

What does a high debt-to-GDP ratio indicate?

A high debt-to-GDP ratio indicates that a country’s debt is large relative to the size of its economy, which may raise concerns about its ability to repay the debt.

How is the debt-to-GDP ratio calculated?

It is calculated by dividing a country’s total government debt by its Gross Domestic Product (GDP).

What is a healthy debt-to-GDP ratio?

A ratio below 60% is often considered manageable, while higher ratios may signal potential debt sustainability issues, depending on the country’s economic conditions.