Debt-to-GDP ratio

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In the economy, the debt-to-GDP ratio is the ratio between a country's government debt (cumulative amount) and gross domestic product (GDP) (measured in years). A low debt-to-GDP ratio shows an economy that produces and sells enough goods and services to repay debt without incurring further debt. Geopolitical and economic considerations - including interest rates, wars, recessions, and other variables - affect the practice of a country's lending and the option to bring in further debt.

Video Debt-to-GDP ratio

Statistik Global

At the end of the 2nd quarter of 2017, the debt-to-GDP ratio of the United States was 103.8%. The level of public debt in Japan in 2013 is 243.2% of GDP, in China 22.4% and in India 66.7%, according to the IMF, while the debt-to-GDP ratio at the end of the 2nd quarter of 2016 is 70.1 % of GDP in Germany, 89.1% in the UK, 98.2% in France and 135.5% in Italy, according to Eurostat.

Two thirds of the US public debt is owned by US citizens, banks, companies, and Federal Reserve Banks; about one-third of the US public debt is held by foreign countries - mainly China and Japan. In contrast, less than 5% of Japan's public debt is held by foreign countries.

Especially in macroeconomics, the various debt ratios to GDP can be calculated. The most commonly used ratio is government debt divided by gross domestic product (GDP), which reflects government finance, while the other general ratio is total debt to GDP, reflecting the overall state finances.

Maps Debt-to-GDP ratio

Unit

The debt-to-GDP ratio is generally expressed as a percentage, but has years of units, as below.

With this dimension quantity analysis is the ratio of stock (with the currency dimension) by a stream (with the currency/time dimension), so they have a time dimension. With units of the US dollar (or other currency) and unit time of year (GDP per year), this yields the ratio as a year unit, which can be interpreted as "the number of years to repay debt, if all GDP is devoted to debt repayment". So, 90% refers to debt that will take 90% of GDP a year to pay off.

This interpretation must be based on the understanding that GDP can not be entirely devoted to debt repayment - some must be spent on survival, minimum, and in general only 5-10% will be devoted to debt repayment, even during episodes like the Great Depression, which has been interpreted as debt deflation-and thus the actual "debt-to-GDP" dividing years are divided by a "GDP devoted to payments", which would generally be 10 times longer or more from debt to simple GDP.

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Changes

The debt-to-GDP change is about "net increase in debt as a percentage of GDP"; for government debt, this is a deficit or (surplus) as a percentage of GDP.

This is only an estimate because of GDP change from year to year, but generally changes year-to-year GDP (e.g., 3%), and thus this is roughly true.

However, with significant inflation, or especially hyperinflation, GDP may increase rapidly in nominal terms; if the debt is nominal, then the ratio to GDP will decline rapidly. A deflationary period will have the opposite effect.

The debt-to-government GDP ratio can be analyzed by looking at how it changes or, in other words, how debt evolves over time:

Sisi kiri persamaan menunjukkan dinamika utang pemerintah. ${\ textstyle {\ frac {B_ {t}} {Y_ {t}}}}  ÂÂ$ adalah utang-terhadap-PDB pada akhir periode t, dan ${\ textstyle {\ frac {B_ {t-1}} {Y_ {t-1}}}}  ÂÂ$ adalah rasio utang terhadap PDB pada akhir periode sebelumnya (t-1). Oleh karena itu, sisi kiri persamaan menunjukkan perubahan dalam rasio utang terhadap PDB. Sisi kanan persamaan menunjukkan penyebab utang pemerintah. ${\ textstyle (r-g) ({\ frac {B_ {t-1}} {Y_ {t-1}}})}  ÂÂ$ adalah pembayaran bunga atas stok utang sebagai rasio PDB sejauh ini, dan ${\ textstyle {\ frac {G_ {t} -T_ {t}} {Y_ {t}}}}  ÂÂ$ menunjukkan rasio defisit-terhadap-PDB primer.

If the government has the ability to print money, and therefore monetize the debt, the budget constraint becomes:

Istilah ${\ textstyle {\ frac {M_ {t}} {Y_ {t}}} - {\ frac {M_ {t-1}} {Y_ {t-1} }}}  ÂÂ$ adalah perubahan dalam saldo uang (yaitu pertumbuhan uang). Dengan mencetak uang, pemerintah mampu meningkatkan saldo uang nominal untuk melunasi utang (akibatnya bertindak dengan cara utang yang dilakukan pembiayaan utang, untuk menyeimbangkan pengeluaran pemerintah). Namun, efek bahwa peningkatan saldo uang nominal pada seignorage adalah ambigu, karena sementara itu meningkatkan jumlah uang dalam perekonomian, nilai riil setiap unit uang menurun karena efek inflasi. Efek inflasi ini dari pencetakan uang disebut pajak inflasi.

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Aplikasi

Debt-to-GDP measures the financial leverage of an economy.

One criterion of Euro convergence is that government debt to GDP is below 60%.

The World Bank and the IMF argue that "a country can be said to achieve sustainability of external debt if it can fulfill its current and full debt obligations of its current and full debt, without the aid of debt rescheduling or accumulated arrears and without sacrificing growth." According to these two institutions, the sustainability of external debt can be obtained by a country "by bringing the current net value (NPV) of external public debt down to about 150 percent of a country's export or 250 percent of a country's income." [1] High external debt is believed to have harmful effects on the economy.

In 2013, Herndon, Ash, and Pollin reviewed an influential and widely quoted research paper entitled, "Growth in debt time", by two Harvard economists, Carmen Reinhart and Kenneth Rogoff. Herndon, Ash and Pollin argue that "coding errors, selective exclusion of available data, and the weighting of unconventional summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among the 20 developed countries in the postwar period. " Their research has a significant basic miscalculation, when corrected, undermines the overriding claims of books with too much debt causing a recession. Rogoff and Reinhardt claim that their fundamental conclusions are accurate, despite errors. More recently, the controversy Growth in a Time of Debt is debated to be an instantiate phenomenon of 'incidence of conflicting results'. The following arguments support this thesis: (1) the point of view according to which weighted average schemes are superior to those not weighted are not justified by the cliometric methodology; (2) excluding post-war statistics based on the lack of reliable estimates and (3) ) Famous spreadsheet errors affect summary statistics in minor ways. Therefore, none of the two opposite results obtained by Reinhart and Rogoff and Herndon, Ash and Pollin is superior and the question of whether there is a threshold in the relationship between public debt and economic growth remains open.

There is a difference between foreign debt in domestic currency, and foreign debt in foreign currency. A nation may serve foreign debt in the domestic currency through tax receipts, but in order to service foreign currency debt, it must convert tax revenue in the foreign exchange market into foreign currency, which puts downward pressure on the value of its currency.

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See also

• Credit bubble
• Debt and flow rate
• Leverage (finance)
• List of countries by public debt
• List of countries with external debt
• List of countries by tax revenue as a percentage of GDP

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Note

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References

Source of the article : Wikipedia