Global debt has escalated to a record-high of $300 trillion, implying a 349% leverage on Gross Domestic Product. Federal debts held by the public have risen just as aggressively, with Congregational Budget Office (CBO) predicting such debts to reach 118% of GDP by 2033. CNBC notes that alleviating the debt overhang amidst bloating inflation and slowed economic growth will be excruciatingly painful for economies. Meanwhile, a strong US dollar has added to the interest rates, making it even more expensive to raise money and repay debts. During this period, mandatory spending and rising costs will continue to outpace revenue and economic growth. As a result, several dozens of economies will likely be pushed into default, while many more already have.
The 2020 global pandemic-driven economic downturn is largely to blame for the jump to decades-high government debt. While 2021 did help in a growth rebound with advanced and global economies experiencing 5.3% and 5.9% growth respectively, it was short-lived. Ballooning inflation, in part, due to overcorrection in post-lockdowns stimulus packages, led to economies tightening their monetary policies once more, while Russia’s invasion of Ukraine has been impacting commodity markets, further taking a toll on the global economy. The result has been a deceleration in global growth to 2.9% in the year 2022.
In this context, inflation reaching a 27-year high of 9.6% in October 2022 hasn't been all bad news. Coupled with strong growth, high inflation has led government debts to decline for more than 70% of advanced economies between 2020-2022. 60% of Emerging and Developing Market Economies (EMDEs), excluding China, Russia, and Ukraine, also witnessed lower government debts. Brookings estimates that inflation has reduced government debts for advanced economies by 6 percentage points of GDP, and economic growth was responsible for half of the impact. While debt in advanced economies is steadily decreasing, supportive policies are still required to stabilize inflation, improve growth, and provide overall debt relief.
The Debt-Distress Territory
Growth recovery bringing debt levels down hasn’t been as compassionate for low-income economies as the rest of the world. Poor countries pay a high price of international debt to rich countries, the World Bank, and the International Monetary Fund (IMF). As such, over 60% of low-income and at least 25% of middle-income countries are at risk of debt distress. Developing countries in such debt distress eventually pay off their debts, so international economies hardly consider them a threat. This is an alarming tendency, considering the poor people living amidst such conditions are victims of a major social catastrophe.
Over 5 years, developing nations may need as much as $2.5 trillion to meet their external debt service costs. Poor people within these nations will be the hardest hit, forgoing investment in education, lack of health spending, and skipping meals to pave the way for interest payments. Furthermore, as inflation continues to rise, import prices of food and energy spike and natural disasters become more frequent, debts will continue plunging the economy further into a debt shock.
The first Asia-pacific country to default has been Sri Lanka for the first time in 2022. Bearing an external debt burden of $52 billion as of December 2022, economists and leaders worldwide are urging Sri Lanka's lenders to forgive its debt. A $2.9 billion bailout with the IMF has been negotiated, with cash released on the terms that the island's debt becomes sustainable.
The war-torn country of Ukraine has been in severe debt distress, too, and needs about $750 billion for reconstruction. Another country facing severe debt and liabilities is Pakistan. External debt for the country has surged by 38% due to soaring inflation, diminishing foreign reserves, plunging currency, and a severe balance of payments crisis. The government has been failing to comply with IMF conditions related to guarantees of external financing; therefore, consensus with the IMF on a bailout package is yet to be achieved. Meanwhile, the poorest nations in debt distress also include the Republic of Congo, Malawi, Grenada, Zimbabwe, and Zambia. Yet other countries, such as Afghanistan, Ethiopia, Dominica, Ghana, etc., are at high risk of the same.
To compile the list of 25 countries with the highest debt-to-GDP ratios, we have used statistics from Trading Economics. Countries were then listed in ascending order of high debt to GDP ratio.
Here are the 25 countries with the highest debt-to-GDP ratios:
25. Bahamas
Debt to GDP Ratio: 95.6%
The end of 2021 saw government debt level in the Bahamas reaching 100% of GDP. Standing at more than $11.5 billion, the national debt in the country is approximately six times as big as its revenue base. A tourism-led rebound is likely to improve levels of GDP, with real GDP growth close to 14% in 2021. The economy is also projected to expand by 8% in 2022.
24. United Kingdom
Debt to GDP Ratio: 101%
The United Kingdom has been taking quite a little longer as compared to other countries to manage its COVID-injured public finances. Debt owed by the country is over $2 trillion, with borrowing increasing by 15% in 2023 as compared to the last year. The COVID pandemic and the financial crash have together been responsible for such a high ratio.
23. Mozambique
Debt to GDP Ratio: 101%
Mozambique's economy is reported to have a debt-to-GDP ratio of approximately 101%, with the country's debt level standing at $16 billion. The country's debt-to-GDP ratio has been over 100% since 2016, but forecasts regarding falling debt levels are underway. Accelerating the economy, higher debt revenues, and appreciation of its currency Metical are all reasons driving this decline.
22. Belgium
Debt to GDP Ratio: 105%
Belgium's debt levels are approximately $617 billion, with the debt to GDP ratio standing at 105%. The energy crisis has been increasing spending in the country, and there are forecasts that the debt levels will rise. The country's public finances began facing deterioration in the pandemic, and public debt is expected to widen to 5.8% of GDP as of 2023.
21. France
Debt to GDP Ratio: 112%
France has one of the largest debt levels in the world at $3.1 trillion dollars. Its debt to GDP ratio stands at 112%, with persistent primary budget deficits a prime cause of high debt levels. Economic growth has also been sluggish, adding to the increasing debt-to-GDP ratio. French fiscal policy has certainly been lazier in tackling rising debt than other nations.
20. Spain
Debt to GDP Ratio: 113%
Spain's debt levels are approximately $1.6 trillion, with the debt to GDP ratio standing at 113%. This ratio has fallen by 5 percentage points from 118% in the year 2022, thanks to a responsible fiscal policy and flourishing economic growth.
19. Canada
Debt to GDP Ratio: 113%
National government debt for Canada reached $1.4 trillion in 2022, with provincial and federal debt standing at $2.1 trillion from $1 trillion in 2007/8. A major cause of this rise has been the government running large deficit runs in the pandemic.
18. Sri Lanka
Debt to GDP Ratio: 114%
Sri Lanka's debt levels hover around $116 billion, with a debt-to-GDP ratio of 114%. The country announced default in April 2022, depicting a classic case of the debt trap. The country plunged itself into this trap due to high-interest borrowing from international capital markets. These borrowings eventually ate the country's currency cash flows and plunged it into default.
17. Portugal
Debt to GDP Ratio: 114%
Low GDP and productivity growth are prime reasons for the high debt-to-GDP ratio in Portugal. However, economic activity increased in early 2023, with tourism aiding the pace. Ongoing investments and tenders are launching soon, enhancing the country's economic outlook soon.
16. Cuba
Debt to GDP Ratio: 117%
The pandemic has devastated world economies, and Cuba is no different. International tourism collapsed during the period, crippling an economy already in crisis. Increased financial problems between remitting émigré communities also saw declines in foreign revenue.
15. Bahrain
Debt to GDP Ratio: 120%
High levels of government spending, weakening economic growth, and declined oil prices are all responsible for Bahrain's high debt-to-GDP ratio. The year 2024 is expected to witness budget savings of around 5% of GDP, largely owing to a VAT increase boosting non-oil revenues.
14. Zambia
Debt to GDP Ratio: 123%
Zambia has had large debt-to-GDP ratios, largely owing to reckless lending by Western banks. UK government loans to tackle climate change have also added to its debt distress. Restructuring such mounting debts in the country means it is heading towards critical negotiations. As such, IMF has agreed to a bailout plan worth $1.3 billion, with strict measures imposed on the Zambian people.
13. Suriname
Debt to GDP Ratio: 124%
Suriname's debt levels approximate $4 billion, with a debt-to-GDP ratio of 124%. Many years of economic mismanagement have led the country to face external and fiscal imbalances. As a result, inflation has escalated, and the exchange rate has suffered considerable depreciation. All in all, high debts are unsustainable for this country.
12. Bhutan
Debt to GDP Ratio: 125%
Bhutan heavily relies on its hydro-power exports, which is why its debt-to-GDP ratio is so high.
11. United States
Debt to GDP Ratio: 129%
The United States has also been facing a debt that is larger than its GDP for several years. The country reached its debt ceiling in January at $31 trillion-plus, which brings the debt-to-GDP ratio to about 129%. However, the US often increases its debt limit to continue borrowing. Revenue drops, government war funding, and a wide range of tax cuts have been responsible for the large debt-to-GDP ratio for the country.
