National debt in international comparison

Most indebted countries

Looking at the top end of the table, a huge proportion of rich industrialized countries catches the eye. In terms of nominal debt, the entire group of G7 countries is among the top 9. There are structural and economic reasons for this: Highly developed economies have stable governments, reliable legal systems and strong currencies. For this reason, they are attractive to investors and find it much easier and cheaper to obtain loans from other countries. At the same time, they finance extensive social benefits, pension, healthcare and education systems, which generate enormous costs and regularly exceed revenues.

For the purposes of comparability, government debt is expressed as a percentage of gross domestic product (GDP), i.e. annual economic output. All liabilities of the state, including its federal states, cities and municipalities, are taken into account.

Central government and general government debt

When it comes to debt, it is important to distinguish where it originates. Most debt is usually accumulated by the state itself. In federal states such as the USA, this is the federal government. This is referred to as central government debt. However, federal states, cities, and municipalities also incur debt. Adding these together gives the general government debt. Our figures always include the total amount of all debts incurred by a country. This means the debts of the central government as well as those of the subordinate states, provinces, and municipalities.

In several countries, mostly communist ones such as China and Russia, it is difficult to make this distinction. This is because international organizations like the International Monetary Fund, the World Bank, and the OECD take their debt statistics from the respective national financial reports, provided that these are differentiated according to international standards (Government Finance Statistics, "GFS"). However, Russia and China do not publish complete statistics broken down by government level. In the case of China, provincial debts are also indirectly guaranteed or controlled by the central government, so that a distinction would not make sense in terms of content.

If no official figures are available, they must be estimated. In our data, these estimates come from the International Monetary Fund.

Analytical debt types

There is no established classification system. However, most countries can be divided into the following four debt types:

1. Highly developed, creditworthy debtor countries

From a political perspective, these are mostly stable democracies with fiscal transparency. These countries often have a high level of political tolerance for high levels of government debt.

• Very high gross debt ratios, but stable refinancing
• Debt predominantly in own currency, mostly held by domestic investors
• Central banks with high credibility, liquid capital markets
• Debt serves economic policy purposes (interest rate control, investment, crisis intervention)

2. Growth-oriented, risk-prone debtor countries

These are mostly democratic or hybrid systems with fluctuating fiscal discipline.

• Debt ratio usually moderate, but financing costs high
• Mix of domestic and foreign borrowing
• High vulnerability to capital outflows and exchange rate risks
• Growth policy takes precedence over debt limitation

3. Commodity-based surplus countries with strategic debt

These countries often have authoritarian or state capitalist leadership. Above all, control over resources is extremely pronounced. Examples include Saudi Arabia, Kuwait, and Qatar, but also Norway.

• Low or negative net debt.
• Use of debt instruments despite budget surpluses in order to maintain capital markets or manage sovereign wealth funds.
• Revenues from oil, gas, or raw materials structurally exceed financing requirements.

4. Highly indebted, credit-dependent countries

These countries share a low tax base, high external dependence, and low productivity. Politically, their governments are often considered unstable or weakly institutionalized.

• Debt often denominated in foreign currency
• High vulnerability to defaults, restrictive access to capital markets
• Dependence on multilateral or bilateral support

Gross or net debt?

Let's assume that California grants Nevada a loan of $10 million to build schools. At the same time, Nevada grants California a loan of the same amount to build a hospital. In this case, mutual claims and liabilities are consolidated. The gross debt of each of the two states would be $10 million individually. In the consolidated debt balance sheet of the federal state, these mutual claims cancel each other out, so they do not appear there.

Now California receives another loan from Mexico for $10 million and itself grants a loan for the same amount to a Mexican municipality to build kindergartens. California's net debt would again be zero here, as both loans cancel each other out.

Something now changes in the national budget: the liabilities to Mexico are included in the gross debt of the US, but the claims of the same amount against the Mexican municipality are not. As a result, the reported gross debt increases by 10 million, although the country's net position remains unchanged.

So, when comparing political entities (states with states, federal states with federal states, etc.), debts are always reported as gross debt. Debts that another state owes to the respective country are not deducted.

Total government debt vs. net debt

As the previous section shows, although gross debt is a commonly used international measure, it only reflects part of the reality. A country does not necessarily have a poor economic balance sheet just because it has high gross debt. Only when you deduct all the debts that other countries, banks, institutions, or companies owe it can you move on to the next step.

For the vast majority of countries, this does not look rosy either. Very few countries have a net zero balance or even a positive result. Currently, there are only 4 such countries. Norway is by far the most outstanding of these. Its net debt ratio is -163.74 percent of GDP. This means that the state has lent out 2.1 times its annual economic output.

However, even the net balance does not provide any information about when, at what interest rates, or with what degree of reliability the money lent will be repaid.

Money isn't gone, it's just in someone else's hands

If you add up the global net position of all sectors (government, businesses, households), the result is zero by definition: every debt is offset by a claim. However, the net debt of governments is only one side of the overall economic balance sheet. If almost all countries have debt, this does not mean that no one is a creditor. It just means that the creditors are outside the government sector. The main counterparties are:

• Private households via government bonds in pension funds, life insurance policies, or savings plans
• Companies, especially banks, that hold or trade government bonds
• International funds that hold government bonds
• Central banks that own large portions of national debt through bond-buying programs (e.g., ECB, Fed, BoJ)

The fact that all countries are “net debtors” therefore only means that the private and external sectors are net creditors. Global financial assets are thus predominantly in private hands - in banks, funds, insurance companies, and wealthy households.

Impact of high debt on the economy and fiscal policy

High debt levels restrict a country's financial flexibility. The greater the debt, the higher the interest payments in the budget tend to be. This reduces the scope for investment and social spending. At the same time, dependence on capital markets increases, whose confidence is crucial for refinancing. If this confidence declines, financing costs rise or there is a risk of losing access to credit. High debt can also increase the risk of political instability and economic uncertainty if governments are forced to implement austerity measures. However, debt also has positive effects: with moderate interest charges and stable economic development, it can promote growth if it is used to finance productive investments. The decisive factor is therefore not only the level of the debt ratio, but also its structure, purpose, and long-term sustainability in relation to economic growth.

Role of central banks

Central banks are government institutions that control a country's monetary policy. Their task is to ensure price stability, regulate the money supply, and stabilize the financial system. Although they are not allowed to grant direct loans to governments, they can buy government bonds on the secondary markets. These purchases lower interest rates, stabilize markets, and facilitate public sector refinancing. During the financial crisis and the pandemic, such measures significantly increased demand for government bonds. This enabled countries to borrow at historically low interest rates. However, excessive monetary financing of government debt can also fuel inflation and jeopardize the independence of central banks. In addition, tying up large volumes of bonds in central bank balance sheets can distort market mechanisms. The role of central banks therefore remains a balancing act between stabilization and maintaining monetary policy neutrality.

Historical sovereign defaults and debt restructuring

Sovereign defaults are not a new phenomenon. As early as the 16th century, Spain declared insolvency several times because its war financing exceeded its revenues. In the 19th century, it affected the Ottoman Empire and several Latin American countries. There were also spectacular cases in the 20th century, such as in Mexico in 1982 and Russia in 1998.

Probably the best-known recent case is Greece in 2010, whose debt crisis led to comprehensive debt restructuring under the supervision of the EU and the IMF. What these cases have in common is that excessive borrowing, political instability, or currency problems made repayment impossible. Debt restructuring usually took the form of maturity extensions, interest rate cuts, or partial debt forgiveness.

For creditors, a sovereign default means significant losses: loans are not repaid in full or in part, interest payments are not made, and they often have to participate in debt restructuring, which involves extending maturities or lowering interest rates. In practice, this puts a strain on public finances and can also affect the creditworthiness of the creditor country.

* The marked countries are not independent and sovereign states, but dependent territories of other states. Cf. also our article What is a country?

Data sources:
World Economic Outlook (WEO), International Monetary Fund
International Debt Report, World Bank Group
Global Debt Report, OECD