Debt-To-GDP Ratio

AAA

DEFINITION of 'Debt-To-GDP Ratio'

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 'Debt-To-GDP Ratio'

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 ...
  2. Debt Ceiling

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

    The ratio of tax collection against the national gross domestic ...
  4. Peak Debt

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

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

    A measure of a company's ability to meet its financial obligations. ...
Related Articles
  1. Successful Ways That Governments Reduce ...
    Economics

    Successful Ways That Governments Reduce ...

  2. What The National Debt Means To You
    Economics

    What The National Debt Means To You

  3. Why And When Do Countries Default?
    Economics

    Why And When Do Countries Default?

  4. How Countries Deal With Debt
    Credit & Loans

    How Countries Deal With Debt

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center