Shubham Rana’s Post

How Debt-to-GDP Ratios Have Changed Since 2000 Government debt levels have grown in most parts of the world since the 2008 financial crisis, and even more so after the COVID-19 pandemic. To gain perspective on this long-term trend, we’ve visualized the debt-to-GDP ratios of advanced economies, as of 2000 and 2024 (estimated). All figures were sourced from the IMF’s World Economic Outlook. Data and Highlights The data we used to create this graphic is listed in the table below. “Government gross debt” consists of all liabilities that require payment(s) of interest and/or principal in the future. The debt-to-GDP ratio indicates how much a country owes compared to the size of its economy, reflecting its ability to manage and repay debts. Percentage point (pp) changes shown above indicate the increase or decrease of these ratios. Countries with the Biggest Increases Japan (+116 pp), Singapore (+86 pp), and the U.S. (+71 pp) have grown their debt as a percentage of GDP the most since the year 2000. All three of these countries have stable, well-developed economies, so it’s unlikely that any of them will default on their growing debts. With that said, higher government debt leads to increased interest payments, which in turn can diminish available funds for future government budgets. This is a rising issue in the U.S., where annual interest payments on the national debt have surpassed $1 trillion for the first time ever. Only 3 Countries Saw Declines Among this list of advanced economies, Belgium (-2.8 pp), Iceland (-21.2 pp), and Israel (-20.6 pp) were the only countries that decreased their debt-to-GDP ratio since the year 2000. According to Fitch Ratings, Iceland’s debt ratio has decreased due to strong GDP growth and the use of its cash deposits to pay down upcoming maturities.

UNPACKING THE ECONOMIC PARADOX OF RISING NATIONAL DEBT--- India's national debt is projected to increase to ₹168,72,544.16 crore in 2024, with a debt-to-GDP ratio of 81%. **Understanding National Debt** National debt accumulates when a government's expenditures exceed its earnings, resulting in a deficit. To cover this deficit, the government borrows money by issuing bonds to individuals, banks, investors, and other countries. This borrowing helps fund various projects, particularly infrastructure development, which is essential for the nation's growth. **Benefits and Risks of Government Borrowing** Borrowing can be used to fund infrastructure projects,which can stimulate growth and create jobs. It can also sometimes lead to lower borrowing costs. When investors see government debt as a safe investment, the demand for government bonds increases, driving down interest rates. However, there are significant risks associated with high national debt, such as: 1. **Debt Servicing Costs**: The government must not only repay the principal amount but also the interest, which can become a substantial financial burden. 2. **Inflation and Currency Devaluation**: Excessive borrowing can lead to inflation and devaluation of the national currency. 3. **Loss of Investor Confidence**: In the event of a default, investors may lose confidence, leading to economic instability. **Case Studies: Greece and Sri Lanka** - **Greece**: Greece's financial crisis was exacerbated by high national debt and deficits, leading to severe austerity measures and economic hardship. The country received multiple bailouts but faced high unemployment and social unrest. - **Sri Lanka**: Sri Lanka's debt crisis led to a significant economic downturn, with rising inflation and shortages of essential goods. The country struggled with debt servicing costs, leading to political and economic instability.

The central government debt increased to Rs48.4 trillion in August 2024, 21 percent higher than the same period last year. However, the debt-to-GDP ratio has decreased from 74 percent to 66 percent. This paradox—rising debt alongside a falling debt-to-GDP ratio—can be attributed to inflation outpacing debt growth, implying that the improved debt numbers come at the cost of diminishing purchasing power. Over the past two years (July 22- Jun 24), public debt (both domestic and external) has risen by 45 percent, while the headline inflation index has increased by 49 percent, and GDP (at market prices) has grown by 58 percent. This shows that inflation has outpaced debt growth over the last two years. It’s important to note that central public debt figures do not include substantial government unfunded pension liabilities, which stand at Rs11 trillion for Punjab alone. The total federal (including military) and provincial pension liabilities are estimated to be around Rs30–35 trillion, exceeding the country’s total external debt. Therefore, there is little cause for celebration regarding the improved debt-to-GDP ratio, as it excludes all liabilities the state faces, and the reduction is primarily due to high inflation. As inflation subsides, the debt-to-GDP ratio may not continue to decline at the same pace. https://lnkd.in/djWrBi_5

India’s debt-to-GDP ratio was at 81% in FY22, compared with 260.1% for Japan, 121.3% for the US, 111.8% for France and 101.9% for the UK. India's share of short-term debt in the total external debt is 18.7%, which is lower than that of China, Thailand, Turkey, Vietnam, South Africa, and Bangladesh. The Centre’s fiscal deficit had gone up to 9.2% of GDP in the pandemic year of FY21 from 4.6% in the year before, but subsequently moderated to 5.8% in the revised estimates for FY24. For the current fiscal, the estimate is 5.1%.

The outstanding NG debt level in pesos could continue to post new record highs amid continued budget deficits that would be financed by additional NG borrowings. Noted that an offsetting factor could be the country’s gross domestic product (GDP) growth. Relatively faster GDP growth would help reduce the NG debt-to-GDP ratio to below the international threshold of 60% to help maintain the country’s favorable credit ratings. The government should intensify tax collections, impose new or higher taxes and ensure efficient spending to narrow the budget deficit and further bring down the debt-to-GDP ratio. https://lnkd.in/gz7CGz8Z

Debt to GDP Ratio - Lower the Better! The debt-to-GDP ratio is the comparison between a country's total government debt and its Gross Domestic Product. Think of it as how much a country owes compared to what it produces in goods and services each year. It's a way to measure a country's ability to pay off its debts. 📌 A lower debt-to-GDP ratio indicates a strong economy that can easily manage its debts. 📍 A high ratio, however, raises concerns about a country's ability to repay its lenders. This can lead to higher interest rates, reduced investment, and even financial crises. In challenging situations, governments tend to increase borrowing to stimulate growth and boost aggregate demand. - Which factors Influence the Debt-to-GDP Ratio? 🔹️A strong and growing economy generates more revenue, making it easier to manage debt. 🔸️ Higher spending, especially on social programs or military, can increase debt. 🔹️ Rising interest rates make it more expensive to service existing debt, leading to a higher debt-to-GDP ratio. 🔸️ Lower tax collection reduces the government's ability to repay debt. 🔹️ A weakening currency can increase the burden of foreign debt. Which State do you belong to and How is your State performing in terms of Debt-to-GDP Ratio? Image credit - School Of Intrinsic Compounding P.S. - Make sure to follow Raj Sanghvi for more such content.

India’s Debt Rs 205 lakh crore India's overall debt surged to Rs. 205-lakh crore in the September quarter, with the total outstanding bonds reaching USD 2.47 trillion. This marked an increase from the previous fiscal's March quarter, where the total debt stood at USD 2.34 trillion (Rs 200 lakh crore). According to Vishal Goenka, Co-Founder of Indiabonds.com, citing data from the Reserve Bank of India, the central government's debt rose to USD 1.34 trillion (Rs 161.1 lakh crore) in the September quarter, up from USD 1.06 trillion (Rs 150.4 lakh crore) in the March quarter. Indiabonds.com, a Sebi-registered online bond platform launched in 2021, compiled the report using data from the RBI, Clearing Corporation of India, and the Securities and Exchange Board of India. The central government's debt accounted for the highest share of 46.04 percent at Rs 161.1 lakh crore, while state governments' debt constituted 24.4 percent at USD 604 billion (Rs 50.18 lakh crore). Treasury bills amounted to USD 111 billion (Rs 9.25 lakh crore), representing 4.51 percent of the total debt. Corporate bonds held a 21.52 percent share of the total debt at USD 531 billion (Rs 44.16 lakh crore) in the second quarter of the current fiscal year.

Global debt has already hit a record $307 trillion in 2023. It is nearly 3 times Global GDP ie we are living in highly leveraged world. The rising debt is not good sign as it creates systemic risk to financial systems . Interestingly  80%+ of the 2023 debt build-up has come from the developed world. For India , Debt-GDP ratio soared to 75% in 2019-20 and peaked at 88.5% in 2020-21, before easing to 83.8% and 81% in the following two fiscal years (April-March). What is Global debt ? It is borrowing by governments, businesses and people. Why it is rising ? 1. During economic downturns ( Pandemic ), governments intensified borrowing to stimulate economic activity and provide financial support. 2. Due to rising interest rates . What is the consequence ? 1. US now spends more on servicing interest than it does on national defense.  2. India has mounting interest payments , inflationary pressure and crowding out effect leading to lack of growth in private investments. 3. In Indian context rising household debt and falling savings could weigh on long-term GDP growth sustainability. How to  alleviate? 1. Investments in economic growth ( Human capital , Innovation , Infrastructure ) 2. Inflating way out of debt ( Inducing controlled inflation and reduce interest rate )

Debt-to-GDP ratio: A misunderstood metric? When understanding a country's financial health, the debt-to-GDP ratio often enters the conversation. But are we interpreting this indicator correctly, especially when comparing nations like India, Japan, and the USA? First off, it's crucial to distinguish between government debt and private debt. Government debt refers to the public sector's borrowings, while private debt encompasses the liabilities of households and businesses. Each tells a different story about economic health and potential risks. So, why does a high debt-to-GDP ratio spell trouble for some countries but not for others? The answer lies in the economic context and investor confidence. Japan, for instance, holds a staggering debt-to-GDP ratio, yet it's deemed low-risk. This paradox is due to Japan's unique situation: a significant portion of its debt is owned domestically, and it has a strong track record of stability and investor trust. Contrast this with emerging economies, where a high ratio can signal vulnerability. For these nations, reliance on foreign investment and a history of volatility can turn high debt levels into a red flag for investors. But here's where it gets interesting. The narrative is evolving. Countries like India are challenging the traditional perceptions of debt sustainability. With strategic reforms and a focus on growth, the question isn't just about how much debt a country has but how it utilises that debt for development. The key takeaway? The debt-to-GDP ratio is not a standalone measure of risk. The underlying factors - investor confidence, economic policies, and the composition of debt - truly matter. Let's shift the dialogue. Instead of fixating on the numbers, should we focus on the stories behind them? How can nations leverage their debt for sustainable growth? Hi, I am @asheeshchatterjee, a CA, CMA (India & UK) and an alumnus of Kellogg School of Management; I love talking about building blocks for the next level of growth and excellence.