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Just Four Large Countries Have a Higher Debt Burden Than the U.S.
With a new tax overhaul, U.S. government deficits are expected to rise. Here's how we rank now among the world’s largest debtors.
Japan's Prime Minister Shinzo Abe has focused on economic revitalization as the nation’s debt-to-GDP ratio approached 250% of GDP.PHOTO: JORGE SILVA/AFP/GETTY IMAGES
By
Josh Zumbrun
Dec 29, 2017 12:29 pm ET
55 COMMENTS
One of the lingering questions about the overhaul of the U.S. tax code is what will happen to the U.S. national debt, already one of the world’s largest debt burdens.
As of 2017, the general government gross debt of the U.S. stood at 108.1% of gross domestic product, according to estimates from the International Monetary Fund. Only four large countries have more debt for the size of their economies.
While the nations differ in many ways, they have the sort of debt the U.S. could have in coming years, particularly if rapid economic growth fails to materialize, if revenue fallsmore than expected or if government costs remain near current levels.
Japan’s government carries debts at 240.3% of gross domestic product, far and away the world’s largest burden. Japan has struggled in recent decades to tackle its debt, in part because its economy has been stagnant. Attempts to raise revenue via higher taxes have often knocked the economy into recessions. Tax cuts haven’t generated enough growth to ease debt burdens.
The Bank of Japan has embarked on the world’s most aggressive monetary policies, including decades of rates near zero, and the world’s largest asset-purchase program. None of it has revived growth or inflation, meaning Japan’s debt burden has been slowly grinding higher. (Although the low rates have meant the costs to the government of servicing that debt have remained under control.)
Japan’s government debt has been a persistent fiscal challenge, but never quite blossomed into a full-blown crisis.
The next three nations haven’t been so lucky. Greece’s debt-to-GDP stands at 180.2% of GDP, Italy’s at 133% and Portugal’s at 125.7%. When the global financial crisis struck, and government revenues plunged around the world, Greece and Portugal found themselves unable to manage debts on their own. Both nations turned to international bailouts to make it through the years of weak growth that followed. All three nations have had to bail out some of their largest banks in order to keep their financial systems from collapsing.
All three have also turned to painful budget cuts in an attempt to control their debts’ rise. Some have argued these austerity measures, however, often backfire. Cutting pensions and government employees might relieve long-term debt, but do so at the cost of additional joblessness and economic stress.
All three nations are part of the eurozone, which like the Bank of Japan has kept rates low and engaged in large stimulus programs. But unlike Japan, the three highest-debt European nations do not directly control their own currency.
Portugal, Italy, Greece and Spain have earned the derogatory moniker PIGS in some financial circles, for their rising debts and weak economic growth.
But the country with the next-largest debt burden isn’t Spain, but rather the U.S. Spain’s debt-to-GDP climbed above 100% in 2014, but has since slowly dipped to 98.7%, about 10 percentage points lower than the U.S.
(A handful of smaller nations also have debt burdens, relative to the size of economies, that are bigger than the U.S. Those are Lebanon, Cabo Verde, Eritrea, Bhutan, the Gambia, Singapore and the Republic of Congo. Those countries aren’t among the world’s 100 largest by population, and thus face quite different debt dynamics than large countries.)
The U.S. hasn’t always been among the highest-debt nations—not even close. As recently as 2001, the U.S. debt for the size of its economy was 93rd out of 169 nations ranked by the IMF that year. By 2008, the U.S. debt had risen to 23rd out of 184, thanks to a combination of factors including a recession in 2001, the start of the global financial crisis in 2007, a pair of massive tax cuts in the early 2000s that did not produce the hoped-for growth benefits, and two expensive wars.
Over the past decade, the U.S. debt has grown. Government revenues plunged during the recession. Spending soared on safety-net programs. The 2009 stimulus package cost nearly $1 trillion. The U.S. debt is now 12th out of 185, and fifth among large countries. In recent years, the U.S. debts have eclipsed those of nations including France, Spain, Argentina, Ireland, Canada and Brazil.
That’s why the new tax bill is something of a gamble. Estimates differ on how much economic growth the legislation will generate, and thus the ultimate cost is unclear. But even estimates that use the preferred Republican methodology, and expect the new tax code to significantly boost economic growth, still estimate the legislation will grow the debt by an additional half trillion dollars.
For now, the U.S. looks to be moving further from its low-debt past.
RELATED
With a new tax overhaul, U.S. government deficits are expected to rise. Here's how we rank now among the world’s largest debtors.
Japan's Prime Minister Shinzo Abe has focused on economic revitalization as the nation’s debt-to-GDP ratio approached 250% of GDP.PHOTO: JORGE SILVA/AFP/GETTY IMAGES
By
Josh Zumbrun
Dec 29, 2017 12:29 pm ET
55 COMMENTS
One of the lingering questions about the overhaul of the U.S. tax code is what will happen to the U.S. national debt, already one of the world’s largest debt burdens.
As of 2017, the general government gross debt of the U.S. stood at 108.1% of gross domestic product, according to estimates from the International Monetary Fund. Only four large countries have more debt for the size of their economies.
While the nations differ in many ways, they have the sort of debt the U.S. could have in coming years, particularly if rapid economic growth fails to materialize, if revenue fallsmore than expected or if government costs remain near current levels.
Japan’s government carries debts at 240.3% of gross domestic product, far and away the world’s largest burden. Japan has struggled in recent decades to tackle its debt, in part because its economy has been stagnant. Attempts to raise revenue via higher taxes have often knocked the economy into recessions. Tax cuts haven’t generated enough growth to ease debt burdens.
The Bank of Japan has embarked on the world’s most aggressive monetary policies, including decades of rates near zero, and the world’s largest asset-purchase program. None of it has revived growth or inflation, meaning Japan’s debt burden has been slowly grinding higher. (Although the low rates have meant the costs to the government of servicing that debt have remained under control.)
Japan’s government debt has been a persistent fiscal challenge, but never quite blossomed into a full-blown crisis.
The next three nations haven’t been so lucky. Greece’s debt-to-GDP stands at 180.2% of GDP, Italy’s at 133% and Portugal’s at 125.7%. When the global financial crisis struck, and government revenues plunged around the world, Greece and Portugal found themselves unable to manage debts on their own. Both nations turned to international bailouts to make it through the years of weak growth that followed. All three nations have had to bail out some of their largest banks in order to keep their financial systems from collapsing.
All three have also turned to painful budget cuts in an attempt to control their debts’ rise. Some have argued these austerity measures, however, often backfire. Cutting pensions and government employees might relieve long-term debt, but do so at the cost of additional joblessness and economic stress.
All three nations are part of the eurozone, which like the Bank of Japan has kept rates low and engaged in large stimulus programs. But unlike Japan, the three highest-debt European nations do not directly control their own currency.
Portugal, Italy, Greece and Spain have earned the derogatory moniker PIGS in some financial circles, for their rising debts and weak economic growth.
But the country with the next-largest debt burden isn’t Spain, but rather the U.S. Spain’s debt-to-GDP climbed above 100% in 2014, but has since slowly dipped to 98.7%, about 10 percentage points lower than the U.S.
(A handful of smaller nations also have debt burdens, relative to the size of economies, that are bigger than the U.S. Those are Lebanon, Cabo Verde, Eritrea, Bhutan, the Gambia, Singapore and the Republic of Congo. Those countries aren’t among the world’s 100 largest by population, and thus face quite different debt dynamics than large countries.)
The U.S. hasn’t always been among the highest-debt nations—not even close. As recently as 2001, the U.S. debt for the size of its economy was 93rd out of 169 nations ranked by the IMF that year. By 2008, the U.S. debt had risen to 23rd out of 184, thanks to a combination of factors including a recession in 2001, the start of the global financial crisis in 2007, a pair of massive tax cuts in the early 2000s that did not produce the hoped-for growth benefits, and two expensive wars.
Over the past decade, the U.S. debt has grown. Government revenues plunged during the recession. Spending soared on safety-net programs. The 2009 stimulus package cost nearly $1 trillion. The U.S. debt is now 12th out of 185, and fifth among large countries. In recent years, the U.S. debts have eclipsed those of nations including France, Spain, Argentina, Ireland, Canada and Brazil.
That’s why the new tax bill is something of a gamble. Estimates differ on how much economic growth the legislation will generate, and thus the ultimate cost is unclear. But even estimates that use the preferred Republican methodology, and expect the new tax code to significantly boost economic growth, still estimate the legislation will grow the debt by an additional half trillion dollars.
For now, the U.S. looks to be moving further from its low-debt past.
RELATED
