World’s Debt-to-GDP Ratio At All-Time High

The world’s debt-to-GDP ratio reached all-time high to 322 per cent in the first nine months of 2019. This is marginally higher than the 2016 level. Global debt stands at US$253 trillion, an increase of US$9 trillion from the previous year. To learn the definition of debt-to-GDP ratio and its significance in evaluating a country’s financial health, you may sign up for economics tuition Singapore at Economics Cafe Learning Centre, the best economics tuition centre in Singapore.

Developed Countries Versus Developing Countries

Comprising borrowings from households, governments and corporations, the majority of the global debt comes from developed countries such as the United States, Japan and European countries such as Greece and Italy. Overall, debt-to-GDP ratio is as high as 383 per cent across developed countries. Among all the developed countries, Japan’s debt-to-GDP ratio is the highest, followed by Greece, Portugal and Italy. The United States ranks 8th on the top 10 list. With guidance from your economics tutor Singapore in economics tuition Singapore, discuss the various different reasons which have led to the high debt-to-GDP ratio for the United States, Japan and Greece.

To many people’s surprise, Singapore also makes into the top 10, 2 notches behind the United States. However, Singapore’s situation is in no way similar to that of other countries. Unlike Japan, Greece and the United States which issue government bonds to fund their year-on-year budget deficit, Singapore runs a budget surplus. It only issues government bonds for two purposes. One is to provide an essential tool for its Monetary Authority of Singapore (MAS) to manage its currency. The other is to sell to the Central Provident Fund (CPF) with an assured reasonable return to all CPF members. CPF members receive an annual return ranging from 2.5 per cent to 6 per cent from their CPF funds. Mr Edmund Quek, principal economics tutor Singapore of Economics Cafe Learning Centre is the best economics tutor Singapore. The economics tutor Singapore is well-known for incorporating current affairs into his economics tuition Singapore. You may join the economics tuition Singapore conducted by this economics tutor Singapore for a detailed analysis of the debit situation in Singapore.

Total debt levels of developing countries are much lower at US$72 trillion. However, in recent years, their debt levels have grown at a much higher rate as compared with developed countries. The most notable country among all is China. Its current debt-to-GDP ratio is approaching 310 per cent, which is the highest among all developing countries. A large proportion of the borrowings in China are from corporations. You may consult your economics tutor Singapore in your economics tuition class on the risk of default of corporate debt in China.

Potential Risks Of High Debt-to-GDP Ratio

A consistently high debt-to-GDP ratio will pose a real risk for the world economy. Greece, for example rocked the world economy with its debt crisis in 2009. The country was ultimately bailed out by the International Monetary Fund, the European Central Bank and the European Commission with a massive package totalling over 240 billion Euros. You may sign up for Mr Edmund Quek’s economics tuition Singapore to learn more about the debt crisis in Greece. The economics tutor Singapore will also cover the bail-out package and various restrictions. One may ask, why Japan, with the world’s highest debt-to-GDP ratio is able to avoid a debt crisis. This is because Japanese people are known for their patriotism. Despite its government’s dangerously high debt level, its people are still willing to support by subscribing to the government issued bonds. In fact, over 90 per cent of the bonds issued by the Japanese government are bought by the Japanese people. In contrast, only 10 per cent of the bonds issued by the Greek government are bought by the Greek people.

Greece’s debt crisis in 2009 is not the worst-case scenario. If not dealt with properly, the high debt-to-GDP ratio may lead to the world’s worst-ever recession triggered by a series of government bankruptcy.

Linda Geng

Click to Read Next Post

economics tuition, back to homepage

Economics Tuition Singapore @ Economics Cafe
Principal Economics Tutor: Mr. Edmund Quek