External loan or debt is the total amount a country owes to a foreign creditor. Depending on the amount of external debt a country possesses, countries can be grouped into categories. Green for safe, yellow for caution and Red for grave risk are some of the categories. Red zone or Amber zone is the area where the fiscal space has run out for the country. In this zone, the country is left with no choice but to run budgetary surpluses to bring the debt down. Here we’ve mentioned below some of the countries which are in the “red zone” for debt fault.
One primary indicator of a country’s economic health is the debt-to-GDP ratio. A lower ratio is favourable as it shows that a county’s production is enough to pay back its debts. According to the IMF or International Monetary Fund, Japan’s debt is more than twice its GDP which makes it the largest debt-to-GDP ratio in the world. The current amount of debt is noticeably high with a debt-to-GDP ratio of 236% which is the highest in the world. However, it’s not the highest that Japan has ever had. During the Second World War, the ratio went to 260%.
Over the past decades, the country has seen a significant rise in the national debt. It has the second-highest debt-to-GDP ratio of 181.78% which was recorded in 2016. Greece owes a lot to the IMF assistance, the ECB, creditor haircut and various EU schemes after the 2008 crisis. Since Greece is a member of the EU, the country includes all public debt into the national debt figures.
Due to the 2008 crisis, Portugal has a high national debt. There was a grave crisis in the country’s banking sector which required state intervention. The IMF and the European Union came as a saviour and sort it out, but it added to a government debt crisis. Though the government endeavoured to pay the debts back, by the end of 2017, the debt-to-GDP was 125.6%, as estimated by the IMF. Between 2008 and 2014, the growth in debt has escalated.
Based on the forecasts of the International Monetary fund, the debt-to-GDP was 132.2% in 2018 and is expected to be 135% by 2020. In order to stop or reduce its debt growth, Italy has to grow its economy by 1.3% annually. But this would only be possible if a fairy godmother appears granting three wishes. Implementing fiscal austerity is not going to work either. In the past 25 years. Italy government has run primary budget surpluses without bringing the debt ratio down.
- United States
The national debt is counted as all of the debts owed by the national government where the debts owed by states are not included. The USA owes a sum of debt that’s much higher than its annual income. In 2015 and 2018, the US has 104.17% and 105.4% of debt-to-GDP ratio respectively as stated by the Bureau of Public debt. And in 2018, it was 106.10 per cent.