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What is the debt-to-GDP ratio?

Debt-to-GDP ratio

This measures a country’s national debt in relation to its gross domestic product (GDP). In other words, it’s comparing how much a country owes to how much it produces, so the ratio indicates the country's ability to repay its debt.

Where have you heard about the debt-to-GDP ratio?

In the UK, the debt-to-GDP ratio was 38% in 2005, but in the wake of the financial crash of 2008, it’s doubled to more than 80%. The Budget is when you’re most likely to hear about the Government’s efforts to bring down debt as a percentage of GDP.

What you need to know about the debt-to-GDP ratio.

While the figures might sound alarming, if a nation can keep up interest payments on its debt without economic growth being affected, it’s generally considered to be stable. If it's unable to pay, it defaults on its debt, which is likely to send the international markets into a mass panic, as was the fear with Greece.

Governments can borrow money in a number of ways, either through issuing bonds or getting loans from other nations or a central bank. If lenders start to worry about repayment, they'll demand a higher interest rate, which only increases the country's cost of debt.

Find out more about the debt-to-GDP ratio.

Read our definitions of GDP, national debt and financial ratio.

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