What Is Debt-to-GDP?
Why a country that owes fewer dollars can be more indebted, with a worksheet built on live figures.
About 20 minutes · high school
The idea
A country’s gross domestic product (GDP) is the value of everything it produces in a year. Its government debt is what its government owes, built up over many years of borrowing. The debt-to-GDP ratio divides the first into the second, so it compares the debt with the size of the economy that has to support it, the way you might compare a mortgage with a household’s income.
That is why the country that owes the most dollars is not necessarily the most indebted. Here are six large economies right now:
| Country | Government debt | Debt to GDP |
|---|---|---|
| United States | $40.66 trillion | 124% |
| China | $22.03 trillion | 99% |
| Japan | $8.72 trillion | 205% |
| United Kingdom | $4.32 trillion | 102% |
| Italy | $3.69 trillion | 137% |
| Germany | $3.48 trillion | 63% |
Japan’s government owes about 21% as many dollars as the United States’, but its debt is 205% of its GDP against 124% for the US, because Japan’s economy is much smaller than America’s.
Worksheet
- Which country in the table owes the most in dollars?
- Which has the highest debt-to-GDP ratio?
- Japan owes fewer dollars than the United States. Explain in one sentence how its ratio can still be higher.
- Germany’s debt is 63% of its GDP. If its debt stayed exactly the same and its economy grew by 10%, what would the ratio be?
- Italy owes about $3.69 trillion and its ratio is 137%. Roughly how big is Italy’s economy?
Answer key
- United States, at about $40.66 trillion.
- Japan, at 205% of GDP.
- The ratio compares debt with the size of the economy. Japan’s debt is large compared with its economy, even though the United States owes more dollars in total.
- About 57%: 63 ÷ 1.1. The debt has not shrunk; the economy carrying it has grown.
- About $2.69 trillion: $3.69 trillion ÷ 1.37.
To discuss
- Is there a level of debt-to-GDP that is too high? Economists disagree, and no single ratio works as a line; see why 90% isn’t a magic line.
- Japan has the highest ratio of any large economy and still borrows cheaply. Why might lenders be comfortable? (One explanation.)
- Which matters more to a government’s budget, the size of its debt or the interest it pays on it?
Words to know
- Gross domestic product (GDP)
- The value of all goods and services an economy produces in a year.
- Government debt
- The total a government owes, built up from past borrowing.
- Debt-to-GDP ratio
- Debt divided by GDP, written as a percentage.
- Percentage point
- The difference between two percentages: going from 60% to 63% is a rise of 3 percentage points.