Debt-to-GDP Ratio

In economics, the debt-to-GDP ratio is one of the indicators of the health of an economy. It is the amount of national debt of a country as a percentage of its Gross Domestic Product (GDP). A low debt-to-GDP ratio indicates an economy that produces a large number of goods and services and probably profits that are high enough to pay back debts. Governments aim for low debt-to-GDP ratios and can stand up to the risks involved by increasing debt as their economies have a higher GDP and profit margin. In 2011 United States public debt-to-GDP ratio was about 100%. The level of public debt in Japan in 2011 was 204% of GDP. The level of public debt in Germany in the same year was 85% of GDP. Almost a third of US public debt of USD 16 trillion 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.