What Is Net Debt Per Capita?
Net debt per capita is a measurement of the value of a government's debt expressed in terms of the amount attributable to each citizen under the government's jurisdiction.
- Net debt per capita is simply a country or other jurisdiction's total debt divided by the population living there.
- Net debt per capita can give an indication of how leveraged the government in question is.
- Net debt per capita is often used to make a political statement about current fiscal policy rather than as a true economic indicator.
Understanding Net Debt Per Capita
In simple terms, the net debt per capita is how much debt a government has per citizen. This is often calculated at the national level, but it also applies at the state and even municipal government levels. The level of net debt per capita can be an important factor to consider when analyzing a government's ability to continue to pay its debt service costs through its current levels of tax revenue. In other words, net debt per capita can be used to help evaluate the default risk of government bonds and give an indication of overall economic health.
Net debt per capita is a relatively simple calculation to perform. The formula is:
Net Debt Per Capita = (Short-Term Debt + Long-Term Debt – Cash & Cash Equivalents)/Population
For example, if a country with a population of 300 million people has a total debt of $950 billion and cash of $20 billion, its net debt per capita is:
Net Debt Per Capita = ($950 Billion – $20 Billion)/300 Million = $3,100
Technically, this means that each taxpayer would owe the country $3,100 if the country were to pay off its national debt. This is assuming, of course, that every citizen became liable for the outstanding debt of the country, which doesn't happen in practice. In this sense, net debt per capita is simply an indicator by which to measure a country rather than an actual approximation of real individual liability. More importantly, net debt per capita figures can usually be obtained without having to gather the inputs and do the calculations, as many public sources and economic think tanks publish these figures.
Significance of Net Debt Per Capita
Net debt per capita is more commonly used for political statements than it is as an economic indicator in and of itself. Expressing the national debt in terms of a citizen's share makes a figure that is often too large to comprehend as a whole much more real to people. In a sense, the liability of every taxpayer, present, and future, rises as the national debt grows.
In 2019, for example, the net debt per capita of the United States was around $69,060, almost twice what the average American taxpayer who filed as a single adult made that entire year. Other countries with high net debt per capita include Japan, Ireland, Italy, Belgium, Austria, France, Greece, the United Kingdom, and Portugal.
Again, these figures are generally used in domestic politics to push for some change in fiscal policy. That said, net debt per capita may be plotted against GDP per capita to compare several regions around the world to determine the most promising area to invest in internationally. However, the debt to GDP ratio is more commonly used for this purpose as it simplifies two data sets into a single plotted line for each country. This makes visualization and comparison much easier.