Editor’s note: This article was first published in August 2014; the debt-to-GDP ranking uses IMF figures published that year, and the low interest rates and crisis described are those of 2014. The ranking and percentages have changed since.
Every year the International Monetary Fund reviews government debt. The main conclusion is that debt in developed countries has kept rising in the vast majority of cases. Japan’s debt now stands at 237% of GDP.
In the past, the heavy borrowing of many of these countries led some economists to predict that they might default. Others, more optimistic, argued that high debt is not necessarily a bad thing when countries are borrowing to finance their way out of the crisis.
The problem is that high debt in the United States, a country that can print its own money, is not the same as in countries such as Greece, Italy or Spain, which cannot do so because they are in the eurozone.
Debt is played down because interest rates are low, but free money won’t last forever, and at some point rates will go up. If many of these countries have not managed to reduce their debt by then, their situation could become unsustainable. That is just my personal opinion, though. These would be the 10 most indebted countries in the world.
Debt as a share of GDP:
- Japan: 237%
- Zimbabwe: 202%
- Greece: 158%
- Jamaica: 146%
- Eritrea: 125%
- Italy: 126%
- Portugal: 122%
- Ireland: 117%
- Grenada: 112%
- United States: 106%
Source: International Monetary Fund.
Countries such as Spain and Portugal have doubled their debt since we went into this financial crisis. Spain is not in this ranking at the moment, but we wouldn’t rule out seeing it there soon. Once you enter the cycle of growing debt and policy focuses solely on that, with no room for other kinds of stimulus, the situation gets more complicated.
High government debt is among the main concerns of the economist Jonathan Tepper, who predicts a new global crisis that will probably be worse than the last financial crisis.
Featured image: Rs1421, CC BY-SA 3.0, via Wikimedia Commons.
