This guide explains what national debt is and what a country’s national debt figures represent. We explain what a debt-to-GDP ratio means and explore which countries have the highest and lowest national debt-to-GDP ratios in the world.
If you want to learn about the reasons why national debt occurs, head over to the section on the reasons for national debt. More, you can learn about why foreign investors buy the national debt of other nations.
National Debt by Country
Here’s an overview of all national debt clocks you can find on Commodity.com with the country’s GDP figure and population.
What Is National Debt?
National debt is the amount of money owed by a national government.
This is different from public debt, which includes money owed by all levels of government and also publicly owned institutions.
Which Country Has The Most National Debt?
According to the IMF, Japan is the most indebted country in the world in terms of a debt-to-GDP ratio.
To learn more about Japan’s economy and trade, see our Economic Overview Of Japan. We discuss top imports and exports along with GDP figures.
Debt-to-GDP is expressed as a percentage. GDP is a county’s annual income and it is usually expected that the debt of a nation should be less than 100 percent of that GDP figure.
However, in many countries, the national debt is higher than the GDP.
Here are the ten most indebted nations in 2020:
Which Countries Have The Lowest National Debt?
Does national debt matter? Is it an indication of financial stability? Not always.
There is only one “debt-free” country as per the IMF database. For many countries, the unusually low national debt could be due to failing to report actual figures to the IMF.
Another instance where low national debt might be a bad sign is if a country’s economy is so underdeveloped that nobody would want to lend to them.
Here the ten least indebted nations in the world in 2020 as per the IMF’s reported data:
|2||Hong Kong SAR||0.3%|
|9||Congo, Dem. Rep. of the||16.1%|
|10||Federated States of Micronesia||16.5%|
Why Does Larger National Debt Attract Bond Buyer?
Having a large national debt doesn’t always discourage buyers of bonds. For example, the United States has a debt to GDP ratio of 108% and a lot of people want to buy US Treasury bonds.
Some countries, such as the USA are always considered a good place to invest, and the government bonds of those countries are always in high demand.
Do Foreign Countries Own National Debt?
For example, Japan owns $1.276 trillion’s worth of US government debt.
The ten largest holding nations of US government debt as of September 2020 are shown in the table below:
|Rank||Country||Debt Owned ($bn)|
Source: US Department Of Treasury
Why Is There National Debt?
The bottom line is that government borrowing is a tax on unborn generations.
However, loan-funded government investment in infrastructure will reap economic benefits for generations to come.
What Is Capital Expenditure?
Debt-to-fund infrastructure projects are called “capital expenditure” and are generally encouraged by investors. This is because they are likely to generate direct income or raise the productivity and GDP of the nation.
Examples Of Capital Expenditure
Examples of infrastructure spending that improve an economy are:
- The development of transport infrastructure, such as motorways and railways
- Investment in universities to create more educational institutions or crate centers of excellence from existing establishments.
- Improvements in communication infrastructure, such as a fibre optic backbone to expand the nation’s internet bandwidth availability and speed.
If you are thinking of investing in a country’s economy, or if you are considering moving there, researching the national debt of that place and how the government spends money may be insightful.
A country’s national debt is one of many economic indicators that interplay to create a judgment on a country’s prospects for success.
Other Reasons For National Debt
Other obvious reasons for national debt are more mundane costs which occur as a result of culture and lifestyle.
For example, the healthcare costs in the United States have been rising for years and is one of the highest in the world.
Another reason for rising debt is the economic infrastructure we live in, which relies on productivity in individuals. As people live longer, more money is paid out in pensions.
The sustainability of such expenses largely depends on the country’s economic infrastructure, which in many cases, is lagging behind and adding to rising national debt-to-GDP ratios.
How Is Government Deficit Different From Government Debt?
Government debt is a figure that represents the money owed by a national government. However, when a government spends more than its revenue in a year, it runs a budget deficit that fiscal year. It has to fill the funding gap with debt.
Politicians tend to attract votes by promising large sections of the population more payments from the government than they pay in through tax.
They don’t want to scare off those people who pay in more than they take out, and so they try to avoid increasing tax levels.
Do Government Deficits Recover?
This situation creates an annual deficit that is unlikely to end until the accumulated debt becomes unsustainable and the government’s finances collapse.
Other governments only borrow to stimulate the economy during a recession, calculating that they can repay that debt once expansion returns and produces a government budget surplus.
If the country and its government have a good reputation, the instruments that it issues in order to raise debt to cover a deficit represent a safe investment. See our example on foreign investors in U.S debt.
Governments that run constant deficits to buy votes find it difficult to attract loans.
Why Is National Debt A Problem?
If a government increases its national debt to a level that the market thinks is too high, it will have to increase the interest it pay in order to find lenders.
With the backstop of a high return from a safe source, banks do not need to lend to businesses to make a profit. When banks are less interested in offering loans, they raise interest rates for all borrowers.
High interest on loans increases business costs and the return on investment that is funded on debt reduces. In this instance, businesses cease to expand and unemployment rises.
Other Impacts Of Rising Interest Rates
When interest rates rise, the cost of mortgages on properties rise and so the cost of rents also rise. The increase in the cost of premises forces businesses to increase their prices in order to remain in profit.
This in turn increases the cost of living and causes inflation without economic growth. A workforce faced with an increased cost of living will demand higher wages.
This increases business costs and the price of goods, stoking inflation further. It doesn’t help that companies tend to cut costs through employee salaries.
Eventually, businesses will be squeezed to the point of bankruptcy or move their production abroad to save their profitability.
How Is National Debt Rated?
Rating agencies score governments on a range of metrics. Countries with higher ratings can offer lower interest rates on their bonds because they are considered to be safe investments.
When investigating a country’s economy, the national debt is one metric that rating agencies note.
They also look at the debt-to-GDP ratio, the national debt per head of population, the interest rates on government debt, and the average bank lending rate.
What Other Factors Impact National Debt Rating?
A country’s rating is also influenced by the:
- Rate of population growth
- Distribution of income in the country
- Levels of private debt
- Value of the housing stock
- Rate of homeownership
- Country’s trade balance
- Annual inward investment in a country
- GDP growth
The above factors show whether the economy is likely to grow. A growing economy can bear the burden of tax that is needed to comfortably repay national debt.
Why Do Governments Lower Interest Rates On Growing Economies?
This knowledge in the financial community enables governments to lower the interest rates that it offers on its debt and reduce the cost of financing deficits.
Thanks to economic indicators, you can work out whether a country’s national debt will trigger a virtuous cycle of investment and expansion, or a destructive debt spiral.
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How We Gather National Debt Data
Most of our data is directly obtained from official government agencies and central banks. When this is not possible, we use data from:
This raw data is then processed through our algorithms. Among other variables, these algorithms consider the average 10-year interest rate paid on the debt to calculate the current debt amount at the time you are viewing the debt clock.
We update our exchange rates using data from the European Central Bank.
How Are Debt Clocks Calculated?
We’ll use the United Kingdom as an example:
1 — We obtain the latest data regarding the country’s national debt and the 10-year average interest rate they pay on it, like:
National Debt: $1,717,879,000,000 10-Year Interest Rate: 2.50
2 — Using these two figures we can then calculate how much the debt increases per year and subsequently per second.
Increase per Year: $42,946,975,000 Increase per Second: $1,362
3 — We then work out the time difference between when the data was obtained and when the debt clock is being viewed by a visitor.
Time Difference = Time and Date of Visit – Time and Date of Official Figure
4 — The current debt is then calculated by adding the increase over this time to the official figure.
Current National Debt = Official Figure + (Time Difference in Seconds x Increase per Second)
5 – The debt clock then updates every two seconds, increasing according to the figures calculated in step 2.
Current National Debt = (Current National Debt + (Increase per Second x 2)) x Exchange Rate
What is the difference between federal debt and national debt?
The figure presented as a country’s national debt is the total sum which the national government owes it’s creditors. In the case of the US, the national debt is the net figure of the federal government’s budget deficits for a fiscal year. Taking the US as an example, the federal debt and national government debt are of the same nature, since the federal government is part of the national government.
What are the causes of national debt?
National debt accumulates as a result of government budget deficits, meaning when a nation’s government spends more money than it’s economy produces. This results in a rising debt-to-GDP ratio because the national government borrows more money from creditors with increasing interest rates.
See our explanation on other reasons for national debt, like the types of capital expenditure.
Why does national debt matter?
National debt figures represent how much a government owns it’s creditors. This number is an indicator of the countries economic future. For example, if a country’s national debt-to-GDP ratio keeps rising, it’s an indicator that the country’s expenses outweigh the income and rate of production.
Among other factors, national debt is an important indicator of economic health and sustainability.
Who owns the national debt?
A nation’s national debt is owned by several groups of investors. In a debt overview or national debt report provided by a country’s treasury department, these owners of a country’s national debt are divided into groups like domestic financial institutions and non-financial institutions, foreign investors, and public debt owners. For example, see the breakdown of who holds New Zealand’s debt.
How does national debt relief work?
A national debt relief agency is a type of debt settlement company that’s responsible to negotiate with creditors for lower interest rates on behalf of indebted parties. Naturally, the company charges a fee for reducing interest rates for their clients, who in turn save money on the amount of debt that needs to be repaid to creditors.
Does social security add to the national debt?
Yes, social security impacts national debt figures. In the US, a significant chunk of government debt is owed to the Social Security Program. In 2000, this figure was already more than one trillion dollars. By 2015, $5.1 trillion of an $18.2 trillion national debt was attributed to the Social Security Program.
Which country has the highest national debt-to-GDP ratio?
As of 2020 September, the country with the highest national debt-to-GDP ratio is Japan. According to the IMF, Japan has a current gross government dept-to-GDP ratio in excess of 260%. In second place is Sudan, followed by Greece with the third-highest national debt-to-GDP ratio. For exact figures, see our table of the ten highest national debt-to-GDP ratios in the world.
Why does the interest rate on national debt rise?
When a country’s national debt increases, it means that the country is borrowing more money due to lack of production power, namely lack of GDP and GDP growth. When a country is in need of money, creditors like the IMF have the financial advantage of leveraging higher interest rates. This results in increasing interest rates.
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