In much the same manner that proper budgeting is important at the household level, the economic environment of a country can be greatly enhanced, or severely harmed, depending upon how well its leaders and financiers are able to establish and implement effective money management practices. Having too much debt means that an economy can’t function properly, and the consequences that originate from carrying too much debt may ultimately result in the financial burden of such being handed down to taxpayers.
A country’s public (or national) debt refers to the total amount of money that is owed by its government to creditors both domestically (internal debt) and internationally (external debt). At times, governments use debt financing to fund their operations by selling \ bonds and bills of security, or even by borrowing from international institutes of finance such as the World Bank or International Monetary Fund. The Gross Domestic Product of a country is measured by the financial worth of all the services and goods it produces in a specific time (usually a year). As such, it is used as one of the primary indicators of the size as well and health of a country’s economy.
The proportion of a country's public debt is compared to its gross domestic product (GDP) with two factors: 1) what the country owes, in relation to 2) what it produces. This proportion will show the country’s chance of paying back what it owes with its capacity to produce and sell goods. Therefore, the lower the ratio the better. That being said, it may seem strange to see that countries like the United States and France have some of the highest national debt to gross domestic product ratios. Even though economists have said that in order for a country to be more stable countries should be able to produce more without damaging its economic growth, these examples of major world economic leaders prove that having a high ratio does not necessarily harm an economy. In fact, debt can foster development by stimulating the economy if the borrowed funds are applied in an effective manner. A good example of the concept that a low debt-to-GDP is generally desirable is well illustrated by the case of Saudi Arabia. Here, due to export rates placed on its petroleum goods, it has managed to achieve one of the lowest debt to gross domestic product ratios, as the practice limits the Saudi government from obtaining large amounts of unnecessary debt.
For many countries, debt continues to grow and, because of the weakened nature of the global economy over the past seven years, fulfilling payment schedules has become even more difficult for many developing countries than before. Nonetheless, even many advanced countries have incurred huge public debt levels in relation to their GDPs, as we see with Japan. The Japanese have attempted to pay off portions of this huge debt by way of the monies realized from increased taxing of the Japanese citizenry. Greece has become world-renowned for economic struggles and incurring a public debt that almost doubles its GDP, while another Mediterranean country, Italy, is not faring much better, with public debts of its own totaling 134% of the Italian GDP.
When a country pays interest on its debt without damaging its internal economic growth it is considered to be stable. When a country can’t continue to pay for its debts, it may have to declare a default on it (essentially claiming bankruptcy), which gives some relief via some degree of debt cancellation and refusals to repay creditors. Such actions, however, may ultimately damage the reputation of the country, and hinder its ability to obtain credit and conduct international trade in the future. With such fractured relations resulting from defaults and untimely repayments of debt, the majority of global economists and financial analysts concur that the current debt situations many countries have found themselves in pose imminent risks to the stability of international trade and finance.
Countries With The Biggest Public Debt
|Rank||Country||In Relation to GDP|
|8||Cape Verde||121.08 %|
|12||Antigua and Barbuda||106.91 %|
|15||United States||105.06 %|
|17||The Gambia||100.01 %|