When you think of debt you might normally think about your mortgage, your student loan, or the bank loan you took out to buy that car. However the amount of money owed by individuals is truly very small when compared to the huge debt owed by many countries. With the economic crisis as serious as it is now, many countries owe huge amounts of ‘external debt’ meaning they have huge amounts of public (public debt meaning debt owed by the government) and private debt (debt owned by individuals, households and private companies) – plus interest – that they owe to non-residents – organisations, individuals and governments in other countries.
To put this in perspective, the United States currently has a gross external debt of $13.45 trillion which really makes most mortgages seem not that bad in comparison. However the number alone really doesn’t mean that much as owing that much money is fine as long as you have the resources to pay it off. This is why the best way to calculate a countries debt is to look at the debt to GDP ratio where ‘GDP’ stands for ‘Gross Domestic Product’. Sometimes called ‘GDI’ – Gross Domestic Income – this is the total market value of goods/services that are produced in a year made within that countries borders. This tends to correlate with standard of living as it means that both the public and private sectors have more income.
So if the external debt is high, but the GDP is high then this isn’t quite as serious – the more a country earns the more it is expected to spend and in fact spending is necessary for a country to earn. The real problem is when a country has a high external debt, but not the GDP necessary to repay this. That big number that the US owed? The ratio of that is only 94.3% as the US has an annual GDP of $14.26 trillion.
The countries with the highest external debt then are the United States, the United Kingdom and Germany. With $13.45 trillion (USD), $9.08 trillion and $5.20 trillion respectively. However in a survey of the world’s top 75 economies, it was found that the top three were Ireland (1,267%), the UK (408%) and Switzerland (422%) had the worst external debt to GDP rates in the world – these are the countries currently in the most trouble. Of course these figures though leave out smaller economies that may be outliers due to their smaller populations/lack of produce.