Most governments have some debt on their books. It helps fund the country’s public expenditure, capital investment, and crisis response. So a country’s debt-to-GDP ratio is key to measuring its fiscal health and economic stability. A high debt-to-GDP ratio means more money going into interest payments, making countries vulnerable in times of crisis and downturns. 

In this edition of Chart of the Week, we take a look at the government debt-to-GDP ratios of various countries.

India’s debt to GDP improves from pandemic peak

India’s quarterly debt-to-GDP ratio stands at 55.7% as of March 2023, according to the latest estimates by the Ministry of Finance. During the COVID-19 pandemic in March 2021, the debt to GDP ratio reached 58.7% (an increase of 11.6 percentage points from the previous year) as the government borrowed more to cover additional expenses, amid declining revenues and a sharp fall in GDP. The quarterly ratio has fallen by 300 bps since the pandemic peak in March 2021. The country’s government debt levels have stabilized, with low risks of currency fluctuations and high interest rates. 

India’s annual debt to GDP is estimated to fall from 84.5% in 2022 to 83.8% by 2025, driven by capex-led growth planned in the 2023 fiscal budget. For reference, the annual 10-year average ratio of the country hovers around 74.2%.

The United States made headlines recently for blowing past its debt limit. As of March 2023, its quarterly debt-to-GDP ratio stands at 121.3%, a significant jump from 108.1% in March 2020. The pandemic in the US played a starring role in this escalation, with the ratio surging by 25.7 percentage points to 133.8% in March 2021. This jump was due to the government's aggressive spending on stimulus measures and the public health crisis. 

Japan, US and UK see soaring debt levels 

As a result, US debt crossed $31 trillion for the first time, raising concerns that it would breach the $31.4 trillion debt ceiling. However, a fresh debt limit bill signed on June 3 raised the ceiling and averted a default.

The United Kingdom has rejoined “100% debt to GDP ratio club” after 60 years, with a quarterly ratio of 100.1% as of May 2023. Debt  has been increasing since the pandemic due to rising costs post-Brexit, energy subsidy schemes, inflation-linked benefit payments, and interest payments on debt. 

In contrast, France has shown a declining debt trend post-pandemic, despite increased social security payments and an ageing population. Finance Minister Bruno Le Maire expects the debt to GDP ratio to decline to 108.3% by 2027 on the back of plans to control spending and use 30 billion euros in savings from the relief fund for the energy crisis towards lowering the debt.

Let’s now focus on Asian countries. As of March 2023, Japan's quarterly debt-to-GDP ratio stands at 226.1%, the highest globally, and its debt has hit $9.2 trillion. 

Over the past three years, its ratio has risen by 25.9 percentage points due to social welfare packages and the costs of an ageing population. As a result, last year, Japan allocated 22% of its annual budget to debt redemption and interest payments, which exceeded the combined 15% spending on public works, education, and defence. 

China’s debt to GDP still the lowest, Brazil’s falls

Meanwhile, China’s debt ratio is at 21.4%, the lowest among the countries in focus. However, it has increased by 4 percentage points since the pandemic, driven by local authorities borrowing heavily to support the economy amid the central government's zero-COVID policy. As a result, credit to the nonfinancial sector reached $51.87 trillion, accounting for 295% of GDP in 2022. China’s debt as of April 2023 stands at $14.4 trillion.

Moving on to countries with relatively lower debt-to-GDP ratios, Brazil’s figure as of March 2023 stands at 72.8%, which is well under its general threshold limit of 77%. Crossing this threshold could result in a 1.7 bps decrease in annual real growth for each additional percentage point of debt. Despite higher government spending, Brazil has managed to reduce its debt to GDP ratio by approximately 15.8 percentage points since the pandemic. The Brazilian central bank says this was due to a higher-than-expected economic growth (3%) in 2022, the rise of the Brazilian currency against the US dollar, and net debt redemption. As of December 2022, total government debt stands at $36.6 billion, the lowest in five years. 

South Korea and Indonesia are the other two countries with low debt-to-GDP ratios, at 47.8% (December 2022) and 39.1% (March 2023) respectively. However, South Korea’s annual ratio has also increased since the pandemic and is estimated to reach 57.2% by 2026. The government has proposed spending cuts for the first time in 13 years to cope with the pandemic’s effects and inflationary pressure. 

Indonesia has reduced its ratio by 120 bps in the past year, thanks to a 7.6% YoY fall in external debt as of December 2022. This declining trend is because of the government moving its bonds to local markets amid unstable global financial conditions. Currently, the country is facing loan default problems from various construction companies, including the $8.3 billion default by Waskita Karya. As of April 2023, the total government debt stands at $532.2 billion.

Recently hit by recession, Germany has a quarterly debt-to-GDP ratio of 65.9% as of March 2023. The country has maintained a stable ratio over the years, but the pandemic caused an abrupt increase of 9 percentage points. Currently going through an energy crisis, the government has allocated $800 billion to address the situation. To manage the situation better, the Finance Ministry is also planning to restore the borrowing cap known as the debt brake. As a result, the annual ratio is expected to fall by another 220 bps to 64.1% in 2024.