The Critical Chart in Sovereign Debt Analysis

Most people look at debt-to-GDP ratios when thinking about sovereign debt. It’s a good measure, but there’s a better one that goes for the jugular; the ratio of public debt to government revenue. By changing the denominator in this way you get a direct feel for how increases in interest rates affect government accounts. For example, when public debt is 10X government revenue then a 1% increase in the average interest rate paid on public debt forces the government to use an additional 10% of its revenues for paying interest. In short, this metric gives you a clear idea of just how easily a government could reach the keynesian endpoint (i.e. the point at which all of government revenues are used to pay interest alone).


So, to give you a macro view of sovereign leverage around the world here we present a chart with public debt to government revenue ratios in 95 countries. Countries with a GDP over $40bn are included in the chart and major countries ($800bn+ GDP) are highlighted:


[Note: Bear in mind that “government revenue” includes items such as social contributions and net revenues from public enterprises here. We mention this because in the case of Japan sovereign debt was some 19X central government tax revenue in 2010, and it’s higher today. For definitions of the data used in the chart see here and here. For more on this subject see Kyle Bass’s Feb 2011 letter where he goes into this subject in detail.]


chart of sovereign debt around the world

Public Debt to Government Revenue Around the World – Click to enlarge. Feel free to use this chart on your website.


See here for our collection of rare historical economic data.

Posted Jan 23, 2013
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  • Digby Green

    Great chart.
    Thanks for that.
    I’m in New Zealand and we are way down in your chart (so I suppose that’s good for us)
    But I was astounded to see Singapore so high, when we all hear that it is doing so well.

    • Greshamslawcom

      Our pleasure.

      Yes, indeed from this metric it looks like New Zealand is somewhat better off. But ultimately to be sure one has to dig deeper.

      One of the key things that this chart should be paired with is interest expense as a % of government revenue (we’ll try to post a chart next week). It may be that Singapore’s interest expense is very low (in fact I think it’s about 1%). That means that although their public debt levels are high relative to revenues, they might still have some way to go until the “keynesian endpoint”. Japan on the other hand have around 25% of revenues already going out in interest expense… so even a 2% rise in the average weighted interest would detonate their system.

  • Johan Rebel

    When doing comparisons, it’s always hard to avoid comparing oranges to apples. GDP/debt ratios can be misleading, because they do not take into account the relative size* of the public sector or leave out parts of the public sector. Ratios to revenue (as in your charts) are far more revealing, since expenditures must come from income, not from GDP. I did my own little comparison a year and a half ago (taking numbers from the US treasury site and Eurostat), but these numbers compare gross public sector debt, not debt held by the public as in your chart.

    [USA$ 2010]
    02160 revenue
    01296 deficit [on 3456 of expenditures] (60% of revenue)
    01653 increase in debt position (77% of revenue)
    13500 USA Fed Debt (626% of revenue)                                      !!!!!
    14900 USA GDP
    16500 public sector (local+state+fed) debt (110.7% of GDP)

    [EU27€ 2010]
    05404 revenue
    00784 deficit (14,5% of revenue)
    01061 increase in debt position (19,6% of revenue)
    09828 Gov Debt (182% of revenue)                                              !!!!!
    12281 GDP
    09828 public sector debt (80% of GDP)

    Note that even in terms of  the vaunted GDP ratios, USA public sector debt (adding in state and local government debt to be comparable to the reported consolidated general government sector debt positions of EU members) is now 16.5/14.9 $tr = 110.7% of GDP (2010), not including about 5.5 tr$ off-balance sheet GSE liabilities (Fannie, Freddy, etc.). For the EU[27] this ratio is 80%.

    * EU Public Revenue represents 44% of GDP 2010
    FedRevenue represents 14.5% of GDP 2010
    USA State+Local revenues are ca. 104% of FedRevenue, so total USA public sector revenues are 30% of GDP 2010

    • Greshamslawcom

      Thanks for the info Johan.

      Just to clarify though, our chart uses public debt; meaning “the cumulative total of all government borrowings”

  • Sthomp6

    I really question the Singapore ratio. I lived in Singapore for 5 years and know first hand that they have one of if not the most fiscally responsible governments in the world.

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