National debt is an ongoing dilemma for many nations. This number represents all the money that a nation’s government has borrowed in order to keep functioning. National debt is acquired when countries borrow from each other, from federal agencies, and from private investors. You might think that large countries like the US would actually have little national debt because they are so big and powerful. In fact, the opposite is the case. When you look at the percentage of world debt, the US holds the greatest amount, followed by Japan, China, Italy, France, Germany and Brazil.
National debt is commonly expressed as a percentage that represents the country’s debt compared with its ability to pay it back. This is a ratio of the country’s debt to its gross domestic product or GDP. In 2017 the US debt-to-GDP ratio was about 105%, which is of concern. The highest the US national debt has ever been was when it reached 113% after World War II, setting a record. Debt fluctuates from year to year, but experts say they worry about a country defaulting on their national debt, meaning not being able to pay it back, when it rises over 77%. Somewhat shockingly, the US national debt has been over 100% since 2013.
Nations like the US go into debt when the government spends more than it receives in tax revenue in any given year. When this happens in the US, the Treasury Department borrows funds to compensate for the difference. The government does this by issuing notes, bonds, and bills that people and other institutions buy.
Unfortunately, the US has been in debt since 1836. Early on, the nation borrowed substantial amounts in order to fight off the British and gain independence, which it succeeded in paying off, causing the country to be debt-free for the last time in 1835. By the end of the US Civil War, the US had already acquired billions of dollars in debt.
Which countries have been able to avoid accruing large amounts of debt and why? Hong Kong, Brunei, and Estonia are all in the top ranks. Here is a look at how they did it.
Hong Kong 0.5%
Nations can reduce their debt by doing two main things: increasing taxes or reducing how much money they spend. Both of these approaches can slow down economic growth, but they are roads to getting the job done. Hong Kong is a country that has watched its spending closely, resulting in very little national debt, with a level of 0.5%. This is possible in part because Hong Kong has a market-driven economy with a banking sector that does very well. The country operates under well-regulated financial controls, and while it takes taxes from its citizens, it offers next to nothing in the way of welfare relief, social security, or government-supported healthcare. This keeps the budget balanced, but may not be good for all people living in the country.
Some countries have little national debt because they are very rich in natural resources that are valued throughout the world. Brunei is an example of this. Brunei’s economy is run largely by exporting oil and gas. As long as the world needs these resources, it will remain prosperous. Unlike Hong Kong, Brunei has a robust welfare state that pays for its citizens' medical services and provides subsidies for housing and food expenses. Poverty does still exist in the country, but reports say that rates are not extremely high and may be lower than half that found in the US at 5%.
It may sound surprising but Estonia is home to one of the leading economies of Europe. The nation achieved this by following a path of aggressive liberal market reform following its independence from Russia after the First World War in 1918. Estonians now enjoy a balanced budget as well as a flat-rate income tax, whereby everyone pays the same amount. The country has a small homeless population and subsidized healthcare. Estonia does have a lot of people living in poverty, however, with an at-risk poverty rate slightly above 21%, and 2.4% living in absolute poverty.
In the 21st century, no country is without debt, and some of the most advanced countries also have the most debt by far. With the cases of Hong Kong, Brunei and Estonia, we can see that having little debt does not demonstrate any trends or pose any guarantees in terms of the quality of life for its residents, the type of government a country has, or its status and leadership on the world stage.