In The Know: Debt-to-GDP ratio

Debt-to-GDP ratio compares what a country owes with what it produces for a given period.

It indicates the country’s ability to pay back its debt and is one of the closely watched indicators used by investors and credit rating firms in evaluating a government’s credit-worthiness.

A lower debt-to-GDP ratio is generally seen as a more favorable sign as it shows that a country is producing enough to eventually pay its debt. Conversely, a higher ratio indicates that it is less likely that a country can pay its debt back and there is a higher risk of default.

In August last year, National Treasurer Roberto Tan said  the country’s debt-to-GDP ratio was targeted to be reduced to nearly 50 percent in six years in a bid to improve the country’s credit standing.

The country’s debt-to-GDP ratio of 56 percent, Tan said, was still higher than the international threshold of 50 percent. The Philippine’s debt-to-GDP ratio was 55.4 percent in 2010, 57.3 percent in 2009 and 57 percent in 2008.

At the end of 2010, 14 countries in the European Union had public debts exceeding 60 percent of their GDP, according to a July 2011 CNN report.

Quoting Eurostat, the statistical office of the European Union, CNN said that Greece topped the “European debt league” with a 142.8 percent government debt-to-GDP ratio, followed by Italy (119 percent), Belgium (96.8 percent), Ireland (96.2 percent), Portugal (93 percent), Germany (83.2 percent), France (81.7 percent), Hungary (80.2 percent), the United Kingdom (80 percent) and Spain (60.1 percent).

The US debt exceeded 100 percent of GDP  after the government’s debt ceiling was lifted in August.

US President Barack Obama had signed the debt-ceiling deal into law to avoid the country’s first-ever default. With that authority, the public debt has climbed to $14.58 trillion, putting it just over the $14.53-trillion size of the US economy in 2010.

Japan’s debt-to-GDP ratio is 234.1 percent, according to 2011 estimates of the International Monetary Fund. Inquirer Research

Source: Investopedia.com, Inquirer Archives, CNN, IMF, Eurostat