Debt service ratio
What is debt service ratio?
Debt service ratio is a ratio used in economics and government finance. It is used to calculate the ratio of debt service payments (principal and interest) of a country in comparison to said country's export earnings.
Where have you heard about debt service ratio?
The debt service ratio is considered to be the primary indicator of a country’s debt burden, but is also used with consumer and business loans. It is a way of calculating whether adding extra debt to a country, business or consumer’s existing debt will put them under significant financial struggle.
What you need to know about debt service ratio.
In terms of financial health, a country is wealthier when the debt service ratio is low. For most countries the ratio is between 0 and 20%. Developing countries tend to have a higher debt service ratio percentage, due to the financial instability that is experienced in the developing world. Meanwhile, western countries tend to have a lower debt service ratio percentage due to the majority of the worlds wealth residing in the west. The ratio is calculated as a country’s debt service divided by its income from international trade.
Find out more about debt service ratio.
To find out more about debt service ratio, learn about the similar debt service coverage ratio.