During the financial crisis, many national economies have looked to their government and foreign lenders for financial support, which has translated to increased spending, borrowing, and, in most cases, growing national debt. Overleveraged consumers and companies struggled to survive their crippling debts, while highly indebted governments enacted austerity measures and sought the aid of international organizations for bailouts in the face of soverign defaults.
Deficit spending, government debt and private sector borrowing are the norm in most Western countries, but due in part to the rough economy, some nations are in considerably worse debt positions than others.
One way to get the big picture of the level of borrowing is through external debt. External debt is a measure of a total debt in a country that is owed to creditors outside that country; foreign liabilities, capital plus interest that the government, institutions and people within a nation’s borders must eventually pay. In short, this number extends beyond simply government debt, but also debt owed by corporations and individuals. For instance, debt owed by the U.S. governmentis not only held by countries such as China and Japan, but also by institutions within the U.S., such as financial instutitions, mutual funds and intragovernmental organizations. These domestic holdings would not factor into external debt totals.
So, how does the U.S. debt position compare to that of other countries? A useful measure of a country’s debt position is by comparing gross external debt to gross domestic product. By comparing a nation’s total debt to what it produces, this ratio can be used to help determine the likelihood that a country as a whole will be able to repay its debt.
This report takes a look at the world’s 75 largest economies to see which ones have the highest external debt-to-GDP ratio, calculated using the most recent numbers (Q3 2011) from the World Bank. We’ve listed the top 20 here.
Since the first time this report was published in April 2009, the debt situations of many countries have become of increasingly influential in the markets. In many European nations, these debt levels have caused international organizations and bond investors to pressure governments to cut public debt through austerity measures and additional reductions in spending. The countries in the most dire need are the ones in which government debt is a large proportion of external debt, such as the Portugal, Ireland, Italy, Greece and Spain, the so-called PIIGS.
So, what are the world’s biggest debtor nations? Click ahead to find out.
By Paul Toscano
Updated 13 March 2012
Originally published in April 2009