Governments exist by borrowing to fund the various activities that are necessary including public education, roads, hospitals and other projects. Borrowing is a positive thing for working economies unless it goes unchecked and gets out of hand. It is particularly damaging for a country to borrow when the economy is in an economic downturn. The cheap debt that is amassed can quickly become unaffordable if it becomes too high and there is not enough money being generated within the country.
Having debt doesn’t mean that a country is poorly run or financially unstable – in fact, some of the world’s biggest economic powers have a lot of it. But there is a fine line between a healthy and unhealthy amount. The gross domestic product (GDP) is an economic indicator regarding the economy of a certain country. So, debt to GDP ratio can give some insight as to whether the indebted country is able to pay out the outstanding debt.
When interest rates are low and a country is going through an economic slowdown, borrowing money may be a more attractive option politically and economically than raising taxes which can dent growth. However, the key to government is that a government must be able to run a primary surplus (the excess of tax revenues over program spending) sufficient to pay back what was borrowed by a set deadline.
Sometimes tax revenues are less than predicted and by borrowing a government can cover the temporary shortfall without cutting back on spending. Sometimes the shortfall is not temporary and the government is running a structural deficit. The negative effects on economic growth begin as soon as the national debt reaches about 60% of the GDP in developing and emerging economies and about 80% in developed nations.
Here are the top 20 most indebted countries in the world.
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