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Government Debt to GDP

Government debt to GDP is a macroeconomic indicator that is calculated as the ratio of a country’s public debt to its gross domestic product (GDP). Government debt to GDP is a relative indicator calculated as a percentage of GDP and is used for a more objective and reliable comparison of the debt burden of different countries of the world.

Government debt, in turn, means debt obligations of the state to individuals, legal entities, and other states, as well as various international organizations. This indicator is absolute and can be calculated both in the national currency (Canada, Botswana, and Australia can be cited as examples) and in its equivalent in the currency of another country (for example, in Nigeria, Paraguay, and Zambia, the debt is measured in US dollars).

The main reason for the formation of government debt is the budget deficit, as a result of which the state begins to borrow from various sources to cover it. There is a concept of government net debt, which is the difference between the total government debt and the government’s reserves for repayment. Net government debt can be positive or negative. Its negative value indicates that government reserves are sufficient to pay off obligations.

As examples of indicators of government debt to GDP, one can cite indices for Canada, Belgium, Egypt, Finland, Russia, Poland, Saudi Arabia, Bulgaria, and Belarus.

Data on the ratio of public debt to GDP can be calculated and published by national statistical offices (for example, in the Czech Republic), central banks of various countries (for example, in the United Arab Emirates), ministries of finance (for example, in Chile), and treasuries (for example, in Russia).

According to a study by the World Bank conducted in 2010, the value of the government debt to GDP ratio exceeding 77% is problematic for the country’s economy. At the same time, public authorities independently establish the maximum possible values of this indicator, which can be changed. For example, in European countries, according to the Maastricht criteria, the government debt limit to GDP ratio is set at 60%.

As of the end of 2020, the highest values of government debt to GDP (at more than 100%) were observed in Venezuela, Japan, Sudan, Greece, and Lebanon. The graph below shows the dynamics of the government debt to GDP in these countries for 2016-2020.

The smallest values of the government debt to GDP ratio as of 2020 are typical for the Democratic Republic of the Congo, Kuwait, Afghanistan, the Cayman Islands, and Brunei. The graph shows data on the government debt to GDP in these countries for 2016-2020.

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