In economics, the debt-to-GDP ratio is the ratio between a country's government debt (measured in units of currency) and its gross domestic product (GDP) (measured in units of currency per year). A low debt-to-GDP ratio indicates that an economy produces goods and services sufficient to pay back debts without incurring further debt.[1] Geopolitical and economic considerations – including interest rates, war, recessions, and other variables – influence the borrowing practices of a nation and the choice to incur further debt.[2]
It should not be confused with a deficit-to-GDP ratio, which, for countries running budget deficits, measures a country's annual net fiscal loss in a given year (Government budget balance, or the net change in debt per annum) as a percentage share of that country's GDP; for countries running budget surpluses, a surplus-to-GDP ratio measures a country's annual net fiscal gain as a share of that country's GDP.
Particularly in macroeconomics, various debt-to-GDP ratios can be calculated. The most commonly used ratio is the government debt divided by the gross domestic product (GDP), which reflects the government's finances, while another common ratio is the total debt to GDP, which reflects the finances of the nation as a whole.
The debt-to-GDP ratio is technically not a dimensionless quantity, but a unit of time, being equal to the amount of years over which the accumulated economic product equals the debt.
- ^ Kenton, Will. "What the Debt-to-GDP Ratio Tells Us". Investopedia. Archived from the original on 2020-09-22. Retrieved 2020-09-22.
- ^ "Budget Deficits and Interest Rates: What is the Link?". Federal Bank of St. Louis. Archived from the original on 2014-02-01. Retrieved 2013-10-09.