A Thread on Debt to GDP Ratio 🧵
The debt-to-GDP ratio compares a country's debt to its total economic output measure by GDP for the year.
This ratio tells how the economy is doing and allows comparison.
Lets Look at where the world stands
@sahilkapoor @dugalira
The debt-to-GDP ratio compares a country's debt to its total economic output measure by GDP for the year.
This ratio tells how the economy is doing and allows comparison.
Lets Look at where the world stands
@sahilkapoor @dugalira
What does % Mean
>100 : Country not producing enough to pay debt
100 : Just enough to pay off debt
<100: Enough economic output to make debt payments
>100 : Country not producing enough to pay debt
100 : Just enough to pay off debt
<100: Enough economic output to make debt payments
If The % > 100: Higher risk of default and country will get loan at higher interest rate.
That further perpetuates the cycle by increasing debt —> looming financial crisis
Like the Hedonic Treadmill
That further perpetuates the cycle by increasing debt —> looming financial crisis
Like the Hedonic Treadmill
World Bank in 2013
FM >77% for every 1% rise, Growth goes down by 0.017 points
EM are more sensitive to this. >64% for every 1% rise, Growth goes down by 0.02 points
As a country's debt-to-GDP ratio rises, it often signals that a recession is underway.
@WorldBank
FM >77% for every 1% rise, Growth goes down by 0.017 points
EM are more sensitive to this. >64% for every 1% rise, Growth goes down by 0.02 points
As a country's debt-to-GDP ratio rises, it often signals that a recession is underway.
@WorldBank
Comparison Between Countries
In 2017: Germany Ratio was 64%, Greece was 193%. Helped Germany Bail out Greece. (Germany GDP - 44.2 Trillion, Greece GDP - $299 Billion)
#Greece #Germany
In 2017: Germany Ratio was 64%, Greece was 193%. Helped Germany Bail out Greece. (Germany GDP - 44.2 Trillion, Greece GDP - $299 Billion)
#Greece #Germany
Why Did Greece Default ?
Foreign Govt & banks held Greece debt. As Greece banknotes became due > debt downgraded by S&P > Interest Rates rose > To raise revenue it increased taxes, decreased spending> further slowed economy, reducing revenue & its ability to pay down debt.
Foreign Govt & banks held Greece debt. As Greece banknotes became due > debt downgraded by S&P > Interest Rates rose > To raise revenue it increased taxes, decreased spending> further slowed economy, reducing revenue & its ability to pay down debt.
The Interesting Case of Japan
In 2020, its debt-to-GDP ratio was 257%.
But most Debt is held domestically + It has large foreign assets.
Making it at lesser risk of default
#Japan
In 2020, its debt-to-GDP ratio was 257%.
But most Debt is held domestically + It has large foreign assets.
Making it at lesser risk of default
#Japan
Bringing Bond yield Into the Picture
The best determinant of faith in a government's solvency is yield to debt.
When yields are low, there is a lot of demand for its debt.
It won't have to pay as high a return to attract investors.
#Bond
#yields
The best determinant of faith in a government's solvency is yield to debt.
When yields are low, there is a lot of demand for its debt.
It won't have to pay as high a return to attract investors.
#Bond
#yields
The United States had been fortunate in that regard, and it could offer bonds with relatively low yields.
Now Market is Spooked as Bond Yield is rising.
Now Market is Spooked as Bond Yield is rising.
India
We are at 91% and growing. Signs of Concern
@FinMinIndia
@nsitharaman
End of Thread.
Do RT if you enjoyed reading this thread.
We are at 91% and growing. Signs of Concern
@FinMinIndia
@nsitharaman
End of Thread.
Do RT if you enjoyed reading this thread.
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