Significance of Debt to GDP Ratio
It is the ratio of a country’s debt to its gross domestic product. The ratio is used to gauge a country’s ability to repay its debt
The higher the debt-to-GDP ratio, the less likely the country will pay back its debt and the higher its risk of default. A study by the World Bank found that if the debt-to-GDP ratio of a country exceeds 77% for an extended period of time, it slows economic growth.
Top 3 countries with highest Debt to GDP
Japan – 237.54%
Venezuela – 214.45%
Sudan – 177.87%
Japan’s Debt-To-GDP Ratio
As indicated above, a high debt-to-GDP ratio is undesirable. However, a high ratio is acceptable if a country is able to pay interest on its debt without refinancing or adversely impacting its economic growth. Like Japan is able to sustain and remain afloat.
India recorded a government debt equivalent to 69.62 percent of the country’s Gross Domestic Product in the 2019-20 fiscal year.
Advantage of Debt to GDP ratio
📌 It is very helpful for investors, economists, and leaders. Countries investing in sovereign bonds of other nations take a close look at this ratio before investing in any economy.
📌 It is also a key indicator of recession.
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