Debt-To-GDP Ratio

A A A

DEFINITION

The ratio of a country's national debt to its gross domestic product (GDP). By comparing what a country owes to what it produces, the debt-to-GDP ratio indicates the country's ability to pay back its debt. Often expressed as a percentage, the ratio can be interpreted as the number of years needed to pay back debt if GDP is dedicated entirely to debt repayment.

INVESTOPEDIA EXPLAINS



Economists have not identified a specific debt-to-GDP ratio as being ideal, and instead focus on the sustainability of certain debt levels. If a country can continue to pay interest on its debt without refinancing or harming economic growth, it is generally considered to be stable. A high debt-to-GDP ratio may make it more difficult for a country to pay external debts, and may lead creditors to seek higher interest rates when lending. If a country were unable to pay its debt, it would default, which could cause a panic in the domestic and international markets. The higher the debt-to-GDP ratio, the less likely the country will pay its debt back, and the higher its risk of default.

While governments may strive to have low debt-to-GDP ratios, government borrowing may increase in times of war or recession - a macroeconomic strategy attributed to Keynesian economics. 


RELATED TERMS
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output ...
  2. Debt Ceiling

    The maximum amount of monies the United States can borrow. The debt ceiling ...
  3. Tax-To-GDP Ratio

    The ratio of tax collection against the national gross domestic product (GDP). ...
  4. Peak Debt

    The point at which a household or economy's interest payments become so high ...
  5. Country Risk

    A collection of risks associated with investing in a foreign country. These ...
  6. Coverage Ratio

    A measure of a company's ability to meet its financial obligations. In broad ...
  7. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a ...
  8. Fiscal Deficit

    When a government's total expenditures exceed the revenue that it generates ...
  9. Federal Debt

    The total amount of money that the United States federal government owes to ...
  10. Stabilization Policy

    A macroeconomic strategy enacted by governments and central banks to keep economic ...
Related Articles
  1. How Countries Deal With Debt
    Credit & Loans

    How Countries Deal With Debt

  2. Why And When Do Countries Default?
    Economics

    Why And When Do Countries Default?

  3. What The National Debt Means To You
    Economics

    What The National Debt Means To You

  4. A Look At National Debt And Government ...
    Bonds & Fixed Income

    A Look At National Debt And Government ...

  5. Does High GDP Mean Economic Prosperity?
    Economics

    Does High GDP Mean Economic Prosperity?

  6. Successful Ways That Governments Reduce ...
    Economics

    Successful Ways That Governments Reduce ...

  7. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  8. Current Account Deficits: Government ...
    Budgeting

    Current Account Deficits: Government ...

  9. What is GDP and why is it so important?
    Investing

    What is GDP and why is it so important?

  10. Giants Of Finance: John Maynard Keynes ...
    Active Trading

    Giants Of Finance: John Maynard Keynes ...

comments powered by Disqus
Hot Definitions
  1. Cash and Carry Transaction

    A type of transaction in the futures market in which the cash or spot price of a commodity is below the futures contract price. Cash and carry transactions are considered arbitrage transactions.
  2. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  3. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  4. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  5. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  6. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
Trading Center