The debt-to-GDP ratio compares total government debt as a percentage of the country’s gross domestic product (GDP). It shows how much a country owes compared to what it produces. A lower ratio means a country is better positioned to manage its debt, while a higher ratio raises concerns about its economy. A country with a high debt-to-GDP ratio often has trouble repaying external debts, which are called public debts.
Hypothetically, if a country’s government debt is $1000 and its GDP is $350, the debt-to-GDP ratio will be 2.857, or 285.7 percent. This ratio is a key measure of financial stability and future growth potential.
Based on the data sourced from the International Monetary Fund (IMF), here’s the list of the top 20 economies and their government debt-to-GDP ratios:
India’s debt-to-GDP ratio has remained stable over the years. In 2024, the ratio recorded was 83.1 percent, reflecting a total debt of over $2,144 billion. The ratio has increased from 75 percent in 2019 to 83 percent in 2023, the post-COVID era. India recorded the lowest debt-to-GDP ratio in 1990, which was 50.7 percent.
But what does this value mean for India’s economy and its ability to repay debts? According to the press release report, India’s external debt-to-GDP ratio was 19.4 percent as of September 2024. Meanwhile, India’s forex reserves reached $640+ billion in December 2024, sufficient to manage nearly 11 months of imports and about 90 percent of external debt.
These numbers tell us that while India’s debt levels are fairly high, the economy remains stable, with strong foreign exchange reserves and a balanced external debt position. The steady economic growth and development in various sectors continue to attract investments and the ability to manage its debts effectively.
Of course, just looking at the ratio isn’t enough — it’s the bigger picture that matters. The debt-to-GDP ratio must be analysed alongside other factors like economic growth, interest rates, and government policies.
A high ratio, usually above 75 percent, can be a warning sign. Some experts believe that economic growth may slow down when debt stays high for a long time, but it’s not always the case. For example, Japan has a debt-to-GDP ratio of nearly 250 percent and is one of the leading countries in tech advancements and quality of life. This is because citizens hold Japan’s government bonds, which results in low interest rates and strong investment opportunities.
Similarly, a low debt-to-GDP ratio (15 to 30 percent) doesn’t always mean a country is doing well. Nations like Saudi Arabia, Türkiye, and Russia maintain a low public debt but still face infrastructure, employment, and industrial growth challenges compared to the US, UK, India, and others.
So, how does a high debt-to-GDP ratio impact the economy? Some challenges include:
