The debt to GDP ratio or Debt to GDP Ratio is the ratio used to measure a country’s ability to pay debts. The debt ratio is generated by dividing the total debt owned by the government by the Gross Domestic Product (GDP). A higher value indicates that the amount of debt has become much greater than the economic productivity of a country and is an indication that the country will experience difficulties in paying off its debts.
The debt to GDP ratio is an indicator that is often used, especially as a consideration for the government in making debt, by creditors before deciding to provide loans to countries that apply for credit and by investors who want to buy bonds issued by a country.
So, here is a list of 5 countries with the highest Debt to GDP ratio:
1. Japan
Japan is the country with the first highest debt ratio because its total debt has reached 229.7 percent of GDP (September 2022). The highest debt ratio ever achieved was 231.1% in June 2022. Meanwhile, the lowest data was 55.9% in December 1994.
Even so, Japan cannot be classified as a country that will have difficulty paying debts. Because most of Japan’s government debt is domestic debt, through bonds issued by the government.
In addition, both the Japanese government and the private sector also have large assets overseas. So that when the Japanese economy is unstable, the government can issue policies to restore the flow of funds into the country. So, even though Japan has a very high debt ratio, it is not a country that will go bankrupt because it cannot pay its debts.
2. Greece
Greece is the second country with the highest debt to GDP ratio. Greece’s debt ratio in June 2022 reached 182.1 percent of GDP.
In contrast to Japan, Greece’s debt ratio truly reflects the country’s ability to repay its debts. Greece even failed to pay debts worth 138 billion US dollars in 2012. And held bankrupt status in 2015 because the value of his debt continued to increase.
The Greek government’s own debt, based on June 2022 data, reached 375.9 billion US dollars. This value is actually lower than in April 2022 which reached US$396.7 billion and from January 2022 which reached US$400.0 billion.
3. Singapore
Singapore is a country in Southeast Asia with the highest debt-to-GDP ratio. Meanwhile, in the global ranking, Singapore ranks third after Greece.
Singapore’s debt ratio as of June 2022 has reached 176.2 percent of GDP. This figure increased from the previous 159.8% in April 2022 and 145.% in January 2022. Singapore’s own government debt in the third quarter reached USD 743.1 billion. This figure also increased compared to the second quarter of 2022.
Even though it has a high debt ratio, Singapore is also not a country that will go bankrupt because it cannot pay its debts. Because most of the debt issued by the Singaporean government was purchased by Singaporeans themselves. And it is these debts that are the backbone of Singapore’s development to become the developed country it is today.
4. Italy
The next country that has a high debt-to-GDP ratio is Italy. Italy’s debt ratio in June 2022 is 150.2 percent of GDP. This ratio has decreased from the previous quarter which reached 152 percent.
Unlike Japan and Singapore, Italy’s debt-to-GDP ratio also really describes the slumping condition of the Italian economy. Italy has been experiencing economic problems since 2010. Even Italy’s GDP in that year experienced a deficit of up to 4.6 percent.
In 2012 Italy fell into recession and the public debt increased by 120% of GDP at the end of 2011. Italy’s debt ratio continues to increase from year to year. And reached a high of 159.6 percent in March 2021. After a long period of an upward trend, Italy’s debt-to-GDP ratio tends to decrease and reaches its current level.
5. United States
The United States is the next country that has a fairly high debt ratio. The United States ranks fifth with a debt ratio of 124.9 percent to GDP. This ratio is already considered very high and should indicate that the United States will have difficulty paying its debts.
However, in reality the United States is one of the countries with the highest debt ratios, but it is believed that it will not experience difficulties in paying debts. In addition, the United States is also not like Japan, where most of its debt is owed to the Japanese people themselves. The United States actually carries out debts to other countries and one of its main creditors is Japan.
The reason why America is believed to be able to pay its debts is because the United States has great power in the world. Not only in the economic sector but even in other sectors such as the military and technology. These advantages make market confidence in the US very high. So that almost all parties believe that the US will not be able to go bankrupt.
Conclusion
So, those were the 5 countries that have the highest Debt to GDP ratio. Some countries are still safe even with high debt ratios. One of the factors is because the debt owned by the majority is domestic debt, through bonds issued to citizens.
But, even so, the Debt to GDP ratio is criticized as an indicator that does not make sense. Because these indicators are considered not to show the actual ability of a country to pay off debts.
GDP which is a comparison of the debt ratio is a value that shows production activity in a country. This value is also not in the form of cash that can be spent and is also not state income. An increase in GDP is indeed an indication of an increase in state revenue from the tax sector. However, an increase in GDP does not accurately tell how high or how much a country’s tax revenue will increase.
Instead of using the debt-to-GDP ratio, an alternative indicator for assessing a country’s ability to pay debts is to compare the amount of debt owed by the government to the amount of revenue received by the government. It is the same as the liquidity ratio and solvency ratio used on a company scale. In these two indicators, the company’s ability to pay off all of its obligations is measured by comparing debt with total assets, profits and company capital (Equity).
