Most nations have followed a risky trajectory of indebtedness after the 2008 financial crisis. When the COVID-19 pandemic struck, their borrowing shattered records.

Author: Luca Ventura

Governments spend money on health care, education, infrastructure, defense activities and a plethora of other services and goods. But why do governments have to borrow money, especially those of the richest nations? For the simple reason that things do not always go as planned. 

Sometimes tax revenues are less than predicted and by borrowing a government can cover the temporary shortfall without cutting back on spending. Sometimes the shortfall is not temporary and the government is running a structural deficit. Sometimes a pandemic on a scale not seen in over 100 years threatens the lives and livelihoods of millions across all regions. To sustain the economy amid lockdowns and other disease-fighting measures, governments had to borrow and borrow big. The IMF said in its September 11 Fiscal Monitor report that fiscal expenditures prompted by the pandemic amounted globally to $11.7 trillion. This figure—along with all the supplemental economic stimulus measures that are already in the pipeline—is forecast to push the total public worldwide debt to a record level of about 100% of the GDP, up from about 83.0% in 2019. This ratio, the IMF added, will stay with us until at least 2025.

The only way to dig the world out of debt now appears to be: more debt. “High public debt levels are not the most immediate risk,” said the director of Fiscal Affairs Department at the IMF, Vitor Gaspar, during a recent press briefing: “The near‑term priority is to avoid premature withdrawal of fiscal support. Support should persist at least into 2021 to sustain the recovery and to limit long‑term scarring.” Emergency countermeasures—he said—must continue to be deployed to restore orderly financial market conditions and consumer spending, support health and education, provide a lifeline to millions of vulnerable individuals and prevent them from falling into poverty. The implication is that since raising taxes on more affluent individuals and corporations and finding new revenue in the middle of the crisis is close to impossible, it can—and must—be done at a later time to pay down the debt incurred in the meantime.

How well policymakers manage the pandemic-driven global depression also explains the skepticism of many economists when it comes to establishing a fixed debt-to-GDP ratio—often simply referred to as the “tipping point”—after which productivity rates decline or the risk of default increases substantially. Certain empirical evidence substantiates this agnostic position. A country like Japan has been able to sustain debt above 200% of GDP for more than a decade. While such a level of debt is certainly not healthy, just this year, Argentina and Ecuador—with debt ratios that are roughly half and a third of that—defaulted on their obligations. While the size of the debt matters, the ability to make the payments is even more important. Who is owed money is also crucial. Most of Japan's debt is internal—meaning that the country’s debt is held by its own citizens—diminishing greatly the risk of defaulting. Many other countries owe mostly to foreign creditors and these foreign creditors can be either trusted allies or rivals using loans as leverage to extend their strategic or military reach, a situation aptly called “debt trap.”

So how much debt is too much debt? There is no consensus among economists: some—while agreeing that national accounts must be kept in check—reject the idea that there is an optimal “one size fits all” debt-to-GDP ratio. Other economists economists argue that negative effects on economic growth begin as soon as the national debt reaches about 60% of the GDP in developing and emerging economies and about 80% in developed nations while others say 40% and 60%, respectively, are prudential thresholds to be wary of. When interest rates are low and a country is going through an economic slowdown, borrowing money may be a more attractive option politically and economically than raising taxes which can dent growth. However, the key to government is that a government must be able to run a primary surplus (the excess of tax revenues over program spending) sufficient to pay back what was borrowed by a set deadline. Public debt, also called “government debt” or “national debt,” includes money owed by the government to creditors within the country (domestic, or internal debt) as well as to international creditors (foreign, or external debt).

Debt is a double-edged sword. It is often used to generate future growth, but fiscal discipline is crucial: persistently running deficits means sooner or later the default point will be reached—not considering that even when default is avoided, the snowballing cost of financing debt becomes an unaffordable burden over the shoulders of future generations. 

Borrowing to finance public spending requires a careful balancing act. Doing so can either promote growth or lead to fiscal imbalances that stifle it. The IMF estimates that an increase of just 1% of GDP in high-quality public investment in both advanced economies and emerging markets could raise productivity by 2.7%, private investment by 10%, and create between 20 million and 33 million jobs. To use the words of Vitor Gaspar, fiscal policy can be a bridge out of this crisis to “smart, resilient, sustainable, and inclusive growth.”


Percentage of Public Debt to GDP

Country 2014 2015 2016 2017 2018 2019 2020
Afghanistan 8,700 9,154 8,437 7,998 7,384 6,130 7,848
Albania 71,992 73,716 73,324 71,895 69,509 67,748 83,288
Algeria 7,673 8,747 20,452 27,259 38,174 46,278 57,218
Angola 39,810 57,093 75,663 69,265 89,000 109,210 120,290
Antigua and Barbuda 104,575 100,293 87,628 92,322 90,718 84,468 113,687
Argentina 44,697 52,563 53,060 57,028 86,431 90,382 96,693
Armenia 39,362 44,133 51,929 53,704 51,233 49,945 60,710
Aruba 81,586 81,326 84,371 86,741 83,412 81,286 127,142
Australia 34,027 37,699 40,493 41,076 41,664 46,277 60,411
Austria 83,758 84,401 82,620 78,405 73,964 70,347 84,757
Azerbaijan 8,533 17,980 20,608 22,509 18,685 17,703 20,113
The Bahamas 47,587 49,558 50,571 53,014 60,955 58,841 68,709
Bahrain 44,397 66,355 81,333 88,138 95,018 103,363 128,282
Bangladesh 35,273 33,681 33,331 33,376 34,561 35,819 39,619
Barbados 139,252 147,021 149,454 158,264 125,585 122,222 134,094
Belarus 38,791 53,007 53,482 53,160 47,515 41,863 50,896
Belgium 106,986 105,167 104,903 101,765 99,898 98,748 117,696
Belize 78,994 82,633 91,318 104,397 101,458 105,081 134,609
Benin 22,282 30,900 35,923 39,598 41,080 41,230 41,786
Bhutan 98,834 98,565 117,275 111,724 110,469 104,405 121,263
Bolivia 37,603 40,905 46,490 51,260 53,850 59,000 69,447
Bosnia and Herzegovina 45,859 45,531 44,081 39,240 34,271 32,804 38,869
Botswana 17,346 17,190 15,606 13,397 14,197 15,101 20,571
Brazil 62,310 72,573 78,286 83,659 87,071 89,471 101,399
Brunei Darussalam 3,231 2,953 3,005 2,826 2,586 2,575 3,208
Bulgaria 26,357 25,426 27,080 23,003 20,116 18,576 24,070
Burkina Faso 26,555 31,373 33,276 33,498 37,654 42,672 46,616
Burundi 36,215 38,080 43,987 44,720 50,506 57,371 65,033
Cabo Verde 115,924 126,648 128,363 127,218 125,592 124,981 136,789
Cambodia 31,901 31,157 29,124 29,995 28,638 28,613 31,472
Cameroon 21,534 31,981 33,255 37,679 39,474 42,669 44,727
Canada 85,580 91,192 91,733 90,548 89,747 88,619 114,648
Central African Republic 62,240 59,790 53,887 50,275 50,031 47,177 46,574
Chad 39,506 43,882 51,344 50,268 49,055 44,286 46,371
Chile 14,957 17,276 21,011 23,598 25,558 27,907 32,806
China 39,969 41,489 44,305 46,358 48,796 52,629 61,702
Colombia 43,319 50,419 49,796 49,436 53,685 52,285 68,231
Comoros 13,496 14,598 17,187 18,445 21,053 25,237 30,424
Democratic Republic of the Congo 16,803 16,995 21,748 19,053 15,298 14,750 16,140
Republic of Congo 42,325 74,190 91,048 94,224 78,557 83,672 104,518
Costa Rica 38,403 40,874 44,921 48,336 53,078 58,380 70,052
Côte d'Ivoire 32,403 34,194 35,637 36,854 39,662 37,888 41,732
Croatia 84,688 84,314 80,802 77,756 74,717 73,236 87,670
Cyprus 109,222 107,500 103,372 93,884 100,561 95,507 118,402
Czech Republic 41,859 39,700 36,589 34,236 32,071 30,246 39,133
Denmark 44,270 39,774 37,200 35,820 34,214 29,393 34,544
Djibouti 26,929 40,163 45,948 48,184 46,508 38,474 40,556
Dominica 78,628 75,284 76,455 83,806 78,822 85,718 90,758
Dominican Republic 44,911 44,941 46,818 49,163 50,661 53,758 68,771
Ecuador 27,075 33,798 43,166 44,617 46,139 51,825 68,921
Egypt 85,127 88,458 96,841 103,161 92,652 83,800 86,590
El Salvador 63,041 64,325 65,371 67,184 68,000 69,402 88,987
Equatorial Guinea 12,560 31,657 41,139 36,235 39,151 41,063 51,174
Eritrea 136,562 180,712 167,511 202,536 185,607 189,351 185,790
Estonia 10,448 9,792 9,059 9,124 8,296 8,396 18,687
Eswatini 13,848 17,748 23,104 25,115 33,836 38,049 47,926
Ethiopia 47,550 54,455 55,826 57,723 61,106 57,603 56,072
Fiji 44,508 43,045 44,041 43,745 46,155 48,996 83,789
Finland 59,826 63,642 63,176 61,267 59,626 59,011 67,912
France 94,889 95,582 97,958 98,318 98,060 98,120 118,738
Gabon 34,063 44,703 64,199 62,886 60,914 62,401 73,857
The Gambia 71,086 69,369 80,948 87,008 84,611 80,010 83,102
Georgia 33,333 38,784 42,173 40,760 39,952 42,641 58,655
Germany 75,669 72,207 69,192 64,993 61,630 59,525 73,278
Ghana 51,159 54,830 57,117 58,306 59,129 62,763 76,668
Greece 180,212 177,825 181,074 179,275 184,759 180,915 205,249
Grenada 101,764 90,100 81,568 70,109 64,358 59,079 71,496
Guatemala 24,651 24,803 24,939 25,091 26,490 26,591 32,229
Guinea 35,090 41,938 42,453 40,483 37,956 34,498 44,883
Guinea-Bissau 57,466 54,069 56,967 50,734 60,184 67,616 79,810
Guyana 38,674 37,428 39,642 38,909 43,114 39,792 36,981
Haiti 35,523 38,526 40,342 37,970 39,659 47,686 54,363
Honduras 37,054 37,114 38,174 38,912 40,083 40,287 45,957
Hong Kong SAR 0.065 0.062 0.059 0.055 0.052 0.269 0.290
Hungary 76,801 76,153 75,498 72,903 70,233 66,344 77,420
Iceland 78,770 65,031 51,249 43,246 37,376 36,997 51,732
India 66,827 68,776 68,712 69,423 69,575 72,344 89,330
Indonesia 24,682 27,013 27,955 29,396 30,069 30,490 38,477
Islamic Republic of Iran 11,822 39,717 46,153 38,187 40,327 44,743 45,367
Iraq 32,862 56,802 64,252 58,887 48,885 46,904 68,265
Ireland 104,305 76,734 74,196 67,411 62,915 57,331 63,676
Israel 65,746 63,826 62,113 60,607 60,877 59,979 76,521
Italy 135,369 135,283 134,782 134,145 134,808 134,804 161,849
Jamaica 137,905 121,891 113,693 101,292 94,405 93,861 101,334
Japan 235,786 231,340 236,394 234,462 236,568 237,955 266,176
Jordan 75,013 78,423 77,432 76,022 75,061 78,015 88,382
Kazakhstan 14,496 21,882 19,677 19,869 20,259 19,944 23,441
Kenya 42,858 48,612 50,534 56,881 60,235 62,099 66,389
Kiribati 8,698 19,899 21,941 21,423 19,708 18,344 17,722
Korea 39,707 40,784 41,217 40,050 40,022 41,924 48,410
Kosovo 10,703 13,116 14,394 16,232 16,953 17,529 23,379
Kuwait 3,429 4,653 10,018 20,485 14,838 11,771 19,255
Kyrgyz Republic 53,597 67,087 59,073 58,786 54,818 54,144 68,082
Lao P.D.R. 53,534 53,052 54,474 57,198 59,650 62,643 70,937
Latvia 40,874 36,655 40,249 40,327 36,509 36,756 44,063
Lebanon 138,287 140,812 146,246 149,668 154,907 174,482 171,666
Lesotho 40,553 45,209 39,540 38,005 46,521 46,460 47,168
Liberia 23,494 25,763 28,175 33,901 39,419 53,274 61,750
Lithuania 40,574 42,713 39,917 39,344 34,078 37,665 48,252
Luxembourg 22,743 21,986 20,094 22,348 20,996 22,056 26,906
Macao SAR 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Madagascar 37,848 44,062 40,281 40,031 39,894 38,422 44,171
Malawi 54,743 61,168 61,343 61,488 63,117 63,431 70,663
Malaysia 55,373 56,971 55,788 54,395 55,543 57,243 67,581
Maldives 55,065 53,389 57,704 61,299 71,254 77,987 118,318
Mali 26,907 30,661 35,993 35,985 37,718 40,464 44,797
Malta 61,592 55,873 54,465 48,793 45,185 42,570 56,697
Marshall Islands 35,196 33,704 29,399 26,635 24,547 22,626 27,433
Mauritania 48,471 58,747 56,555 55,100 61,389 58,115 65,565
Mauritius 60,620 64,993 64,987 64,340 66,223 82,804 85,653
Mexico 48,853 52,775 56,724 53,963 53,606 53,749 65,541
Micronesia 28,101 25,629 24,191 21,923 18,761 16,998 16,495
Moldova 34,961 42,381 39,232 34,300 31,640 28,378 37,847
Montenegro 63,360 68,760 66,390 66,207 71,885 79,343 90,848
Morocco 63,339 63,688 64,879 65,106 65,294 65,784 76,888
Mozambique 64,341 87,426 119,881 102,443 106,246 104,378 121,331
Myanmar 35,222 36,262 38,334 38,470 40,415 38,844 42,375
Namibia 26,929 40,956 44,834 43,507 49,811 54,660 67,615
Nauru 105,880 105,838 79,556 76,689 74,316 61,992 59,739
Nepal 28,175 25,581 27,863 26,087 30,238 30,069 39,220
Netherlands 68,006 64,637 61,891 56,913 52,391 48,384 59,319
New Zealand 34,229 34,318 33,474 31,267 28,518 31,542 48,023
Nicaragua 28,690 28,911 30,916 34,080 37,550 42,139 48,255
Niger 22,013 29,867 32,820 39,530 38,939 41,726 48,350
Nigeria 17,541 20,328 23,410 25,340 27,657 29,142 34,978
North Macedonia 38,015 38,077 39,810 39,383 40,599 40,166 50,254
Norway 29,859 34,544 38,126 38,636 39,915 41,250 40,000
Oman 4,925 15,470 32,712 46,416 53,168 63,056 81,529
Pakistan 63,527 63,320 67,646 67,060 72,077 85,555 87,203
Panama 35,997 35,497 34,839 34,784 36,777 41,037 54,951
Papua New Guinea 26,895 29,931 33,740 32,484 36,782 40,059 46,702
Paraguay 15,628 18,637 19,409 19,841 22,243 26,107 35,453
Peru 20,644 24,066 24,484 25,413 26,164 27,122 39,482
Philippines 40,240 39,640 37,343 38,108 37,134 36,969 48,858
Poland 50,788 51,293 54,266 50,626 48,843 45,969 60,001
Portugal 132,941 131,179 131,506 126,143 122,004 117,737 137,240
Puerto Rico 54,546 52,736 49,877 51,628 55,251 56,206 64,806
Qatar 24,912 35,547 46,707 51,552 46,543 56,182 68,059
Romania 40,494 39,352 38,875 36,811 36,427 36,761 44,833
Russia 15,136 15,286 14,849 14,311 13,520 13,915 18,942
Rwanda 28,198 32,222 36,382 41,317 44,991 51,361 61,604
Samoa 57,758 58,929 51,725 49,655 52,894 47,525 55,606
San Marino 32,863 33,503 35,246 76,641 78,769 85,708 97,408
São Tomé and Príncipe 69,457 85,797 95,297 85,839 83,079 73,069 73,637
Saudi Arabia 1,562 5,800 13,093 17,160 18,980 22,790 33,418
Senegal 42,366 44,509 47,524 61,139 63,198 64,051 65,405
Serbia 67,586 71,282 68,878 58,727 54,452 52,836 59,546
Seychelles 72,731 67,026 69,090 62,275 57,682 55,260 88,562
Sierra Leone 35,089 45,686 60,725 69,155 69,089 70,049 77,366
Singapore 97,754 102,296 106,516 108,403 110,447 130,023 131,186
Slovak Republic 53,507 51,887 52,025 51,312 49,463 48,000 61,792
Slovenia 80,299 82,588 78,669 74,122 70,425 66,130 80,956
Solomon Islands 10,462 8,964 7,071 8,386 8,199 8,913 15,346
South Africa 46,988 49,335 51,465 53,022 56,710 62,151 78,821
South Sudan 37,707 59,367 114,250 65,209 48,189 65,427 71,737
Spain 100,700 99,303 99,166 98,556 97,601 95,466 123,038
Sri Lanka 72,217 78,487 79,016 77,902 83,769 86,781 98,255
St. Kitts and Nevis 75,251 67,007 59,633 59,413 57,212 56,220 69,069
St. Lucia 61,694 60,567 60,285 59,869 59,979 61,321 85,096
St. Vincent and the Grenadines 79,420 79,361 83,530 73,501 75,642 75,196 87,927
Sudan 67,762 66,508 58,558 159,180 186,708 201,578 259,385
Suriname 27,184 44,334 76,937 77,986 75,563 82,295 145,268
Sweden 44,872 43,739 42,259 40,696 38,803 34,826 41,863
Switzerland 43,088 43,032 41,932 42,703 40,956 42,138 48,749
Taiwan Province of China 37,488 35,941 35,364 34,514 33,978 32,769 35,602
Tajikistan 27,651 34,691 42,093 50,293 47,819 43,087 47,768
Tanzania 34,552 37,137 37,024 37,671 38,699 38,220 38,507
Thailand 43,335 42,559 41,738 41,782 41,957 41,095 50,448
Timor-Leste 1,460 2,839 4,572 6,618 9,246 11,394 11,707
Togo 62,785 72,110 81,356 75,952 76,152 70,854 73,458
Tonga 47,476 51,176 49,415 43,647 45,871 41,281 41,928
Trinidad and Tobago 23,490 27,241 37,147 42,502 42,164 45,116 57,460
Tunisia 51,529 55,402 62,282 70,595 78,176 72,333 84,765
Turkey 28,488 27,362 27,999 28,027 30,173 32,986 41,666
Turkmenistan 16,813 22,096 25,134 30,592 31,366 32,783 30,911
Tuvalu 65,357 57,640 43,645 34,564 25,258 19,524 16,002
Uganda 24,768 28,803 31,188 33,800 35,122 38,229 46,048
Ukraine 70,317 79,503 81,176 71,620 60,551 50,055 65,692
United Arab Emirates 14,195 16,650 19,366 21,623 20,906 27,272 36,929
United Kingdom 86,193 86,923 86,789 86,245 85,724 85,352 108,026
United States 104,508 104,643 106,604 105,746 106,890 108,679 131,177
Uruguay 55,829 63,172 61,683 60,986 63,401 65,911 69,496
Uzbekistan 6,420 7,081 8,628 20,226 20,433 29,316 36,131
Vanuatu 18,805 36,034 42,284 46,360 48,083 45,342 47,688
Venezuela 25,142 11,045 5,054 26,004 180,789 232,786 n/a
Vietnam 43,642 46,116 47,637 46,309 43,580 43,365 46,623
West Bank and Gaza 33,985 37,086 31,033 31,806 33,097 34,635 44,217
Yemen 48,722 57,031 72,255 77,426 74,544 76,527 81,651
Zambia 36,137 65,558 60,572 65,523 77,243 91,898 119,974
Zimbabwe 40,287 41,806 54,164 52,866 37,343 10,806 2,358

Source: International Monetary Fund, World Economic Outlook Database, October 2020.