Debt-to-GDP ratio

In economics, the debt-to-GDP ratio is the ratio between a country's government debt (a cumulative amount) and its gross domestic product (GDP) (measured in years). A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt. 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.

In 2016, United States public debt-to-GDP ratio was at 104.8%. The level of public debt in Japan 2013 was 243.2% of GDP, in China 22.4% and in India 66.7%, according to the IMF, while the public debt-to-GDP ratio at the end of the 2nd quarter of 2016 was at 70.1% of GDP in Germany, 89.1% in the United Kingdom, 98.2% in France and 135.5% in Italy, according to Eurostat.

Two thirds of US public debt is owned by US citizens, banks, corporations, and the Federal Reserve Bank; approximately one third of US public debt is held by foreign countries - particularly China and Japan. Conversely, less than 5% of Japanese public debt is held by foreign countries.

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 generally expressed as a percentage, but properly has units of years, as below.

By dimensional analysis these quantities are the ratio of a stock (with dimensions of currency) by a flow (with dimensions of currency/time), so they have dimensions of time. With currency units of US dollars (or any other currency) and time units of years (GDP per annum), this yields the ratio as having units of years, which can be interpreted as "the number of years to pay off debt, if all of GDP is devoted to debt repayment". Thus, 90% refers to a debt which would take 90% of a year's GDP to pay off.

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Wikipedia