Japan’s national debt to Gross Domestic Product (GDP) ratio is significantly higher when compared to the United States and China. Data gathered and calculated by Learnbonds.com indicates that Japan’s ratio is at least five times higher than China and two and half times more in contrast to the US. This ratio is a key indicator for investors to measure a country’s ability to manage future payments of its debts.
From the data, among the selected countries Japan’s ratio is highest at 279.34% while the United States ranks fourth at 111.41%. On the other hand, China’s ratio is the lowest at 52.30%. Italy has the second-highest rate after Japan at 156.54% followed by France at 114.34%.
Canada has the highest national debt to GDP ratio in North America at 107.65%, which is almost three times less than Japan. The United Kingdom occupies the fifth slot at 104.27% followed by Brazil’s 93.22%. In the seventh spot, India scores 82.05% followed by Germany at 80.39%.
Interpreting national debt-GDP ratio
From an economic perspective, the ratio between a country’s national debt and its gross domestic product (GDP) is generally defined as the debt-to-GDP ratio. For example, a low debt-to-GDP ratio means that an economy produces and sells a sufficient amount of goods and services to pay back any existing and future debts.
Among the developed countries, Japan still displays the highest debt-to-GDP ratio, something that can also be attributed to its low annual growth rate. This huge figure has sparked fears that the economy might suffer the same fate as Greece.
At some point, the country has been turning to fiscal stimulus to jump-start the economy over the last two decades. Additionally, most Japanese government bonds are in the hands of citizens and the government has taken advantage of extremely low-interest rates. With low-interest rates, Japan does not have very high-interest payments about its level of debt.
As one way of lowering the debt, the Japanese Central Bank has lowered the interest rate and purchased government bonds to supply the financial system with additional money. In theory, such a strategy lowers the total interest repayment.
On the other hand, when the ratio is low it translates that the economic output is enough to make payments for debts owed. One country in such a position is China. Over recent years, China’s ratio has remained lower compared to other countries in its economy class. China has relied heavily on credit financing to spur rapid economic growth. However, the country might see an increase in the debt-to-GDP ratio due to the stimulus plan to invest in infrastructure projects.
In the United States, the rising national debt has been a crisis with both sides of the political divide showing a willingness to engage on how to lower the $24.12 trillion debt. The US national debt is driven by mandatory spending initiatives like Social Security and Medicare
UK’s external debt to GDP ratio is 17x higher than China
The data also overviewed the top 10 countries’ external debt to GDP ratio where the United States figures are six times higher when compared to China. On the Other hand, the UK’s ratio is at least seventeen times higher when compared to China.
Generally, the United Kingdom and France have a high rate of 293.13% and 250.53% respectively. Germany occupies the third slot at 171.86% followed by Italy’s 148.85% while Canada closes the top five categories at 129.04%.
The United States’ external debt to GDP ratio is 99.17% which almost three times less when compared to the UK. Japan is sixth with a rate of 95.55%. Brazil has a relatively low ratio of 35.52% followed by India’s 22.02%. China has the lowest external debt to GDP ratio at 16.59%.
External debt is the amount owed by the government, businesses, and people of a country to foreign lenders including commercial banks, organizations such as the IMF, foreign companies and other creditors. External debt as a percentage of Gross Domestic Product refers to the ratio between the debt a country owes to non-resident creditors and its nominal GDP.