Special Report: Ballooning debt problem of countries around the world

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Understanding government debt and deficit.
Things have been changed dramatically in the backwash of the “Great Recession" of 2008-09. Public debts and deficits of various countries have skyrocketed. Recession have drained out money from the system of many countries around the world. Post-recession residues prompted countries to look for lenders to feed their system which resulted into inflated spending, borrowing and growing national debt.

Government borrowing and deficit spending are quite natural for most of the western countries but some have extremely worst debt-to-GDP ratios.

What is Government Deficit?
Government deficit is the amount by which some measure of government revenues falls short of some measures of government spending. Deficits usually occur when government's expenditures exceed the revenue that it generates.

What is Deficit Spending?
When government's expenditures exceed its revenues, causing a deficit, governments are required to borrow from foreign governments to finance their excess spending. Though, increased government spending can stimulate the economy as more money flows in, but jump in borrowing can have an adverse effect of raising interest rates. The higher rates make borrowing money more costlier and can smother growth.

What does the term Government Debt mean?
Government debt is the amount that a country or nation owes to other countries. Countries across the world take different types of loans from foreign governments like World Bank, IMF, etc in order to carry out different development activities. Government debt is normally categorized into external debt as it is taken from other countries or international development and finance agencies. The debt is normally provided by way of loans and sometimes, the government of a nation also sells different types of government securities like bonds etc in order to get the loans. This number not only includes government debt, but also debt owed by corporations and individuals to entities outside their home country.

What is External Debt Per Capita?
Often the term is used to measure the country's indebtedness. External Debt (government and private sector liabilities) is the total amount any country owes foreign countries. External debt per capita is a measurement of the value of a country's external debt expressed in terms of the amount attributable to each citizen under the government's jurisdiction.

The total external debt per capita can be derived by dividing the total external debt of the country by the population of its citizens.

Comparison tool: Debt-to-GDP ratio
How to judge which country has more debt than others? Country's debt position with that of others can be compared with the help of Debt-to-GDP ratio. It's a ratio of a country's national debt to its GDP. The debt-to-GDP ratio is the way to estimate whether or not a country will be able to repay its debt. The higher the ratio is, the more likely a country is to default because its government has borrowed more than its ability to repay.

(To check out, which country has the Highest External Debt as compared to others, click here)

(Also read: World"s 10 major countries under debt cloud)


Read more about: economy, debt, gdp, government
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