Discussions are currently taking place in Europe about restructuring Greece’s massive state debt, which has risen sharply since 2008. While the new Syriza government won elections last month with the promise of negotiating a reduction in the debt burden, reports now suggest that this demand is being abandoned.
Greece is only one example of a growing number of countries whose debt levels are considered by many to be unsustainable. The most significant cause for the high level of indebtedness for a number of countries was the bursting of the financial bubbles that emerged in the early 2000s, leaving the taxpayer responsible for bailing out the financial institutions which had made multi-billion losses. In other cases, debt has been a long-standing issue, rooted in a colonial past or the exorbitant interest rates on debt repayments. Still other countries have had persistent problems with declining economic growth over many years.
The following list of the top 12 indebted countries around the world is based on public debt as a percentage of GDP. Many articles point out that in absolute, monetary terms, the United States has the highest level of debt, but it is also the largest economy so that is hardly surprising. Comparing each country’s debt against its economic output makes it easier to see which ones are trying to sustain debt burdens that in reality, are far beyond their means.
In 2012, Eritrea’s total debt was estimated at 118 percent of GDP. Analysts note, however, that it is extremely difficult to get full financial information about the country due to the secrecy of the government. Even the budget is not usually released for public view. The high indebtedness is in part linked to significant expenditure on the country’s defence budget, which has been considerable ever since Eritrea fought a war with Ethiopia in the 1990s. The development of the mining sector is raising hopes that the government will obtain increased revenues to cut debt levels.
The after effects of the 2008 economic crisis were responsible for Ireland’s massive expansion of state debt, which prior to that, had been comparatively low. The crisis resulted in the virtual collapse of the country’s financial system, an outcome that was prevented only by a multi-billion bank bailout organised by the government. This meant that by 2012, debt to GDP stood at 118 percent. Since then, the figure is widely estimated to have risen above 120 percent, with the economy continuing to contract until last year and then only slowly returning to growth. The huge debt burden is owed to the European Union, European central Bank, International Monetary Fund and international creditors, and according to the current schedule, will take over 30 years to pay back.
The north Atlantic island’s economy collapsed during the financial crisis of 2008, as all three of its major banks went bust. Although the state lacked the resources to provide them with a full bailout, it invested billions in reestablishing the banks under new names so that they could resume trading. To avoid state bankruptcy, Iceland agreed to a loan from the IMF of over $2 billion, a vast sum for a country whose total economy only amounts to around $10 billion. Deep budget cuts were made by the government to pay back the debts of the old banks, but total debt still amounted to 118.9 percent of GDP, in 2012.
Jamaica’s problem with debt has been long-standing, but it has now reached a point where the government pays twice as much to service the country’s debt than it does on health and education combined. The debt trap initially began due to the island’s reliance on imports for basic daily necessities, and when prices for these rose sharply in the early 1980s, it produced a disaster. The IMF has agreed on a series of loans with the country which have brought about major cuts in government spending and a growth in poverty. A Guardian article published in 2013 noted that the number of women dying in childbirth had almost doubled since 1990, while the number of children completing primary school fell by over 25 percent. The latest available figure for state debt was in 2012, when it was 127.3 percent of economic output.
Portugal was the second country to receive a bailout from the EU and IMF after its financial sector, much like Greece’s, faced immanent collapse. By 2013, its debt rose to 129 percent of economic output. The country’s mounting difficulties contributed to the risks facing the euro, which was in danger of collapsing in 2012 and has still not been stabilized today. The measures taken by the government to slash spending in order to meet debt repayments were so unpopular that it was voted out of office, although its successor continued with the same program of cost cutting. Portugal exited the bailout program in the early summer of 2014 and has been able to borrow money on the international markets since.
Debt had been gradually building in Italy over several years, but the real problem hit with the economic crisis of 2008. Italy’s economy has never recovered since, with it being the only country in the G7 not to have returned to output levels prior to the crisis. Currently, its output is 9 percent below 2008 levels and its total debt is approximately 130 percent of economic output. Because the government owes most of the debt to internal customers, above all banks, some fear that unless debt levels are brought under control, a renewed banking crisis could break out if Rome is no longer able to meet its obligations.
6. Antigua and Barbuda
Another Caribbean nation that was forced to call in IMF support due to excessive debt is Antigua and Barbuda. In 2010, total debt to GDP was at 130 percent, and the country was in the middle of a three-year period in which the economy shrank continuously. In its report for 2014, the CIA’s world factbook indicated that debt levels were beginning to reduce, with the latest figure being 89 percent of economic output. Antigua and Barbuda is heavily dependent on tourism from the United States, Canada and Europe, and it suffered badly after the economic crisis in 2008.
5. Saint Kitts and Nevis
Though the Caribbean nation has total debt of a little over $1 billion, a relatively small sum by international standards, the fact that its population is only 50,000 makes this a big deal. As a percentage of GDP, St Kitts and Nevis had one of the highest indebtedness rates at close to 200 percent. In 2012, they agreed to a restructuring package supposedly to make repayment more manageable, cutting the ratio to 95 percent. Several factors had contributed to the rapid increase in debts, including reconstruction costs following several severe storms, the decline and eventual closure of the sugar industry, and a reduction in tourism levels.
State debt in Lebanon has exploded over recent years, driven primarily by a slowing economy. While in 2013 the economy grew at just 2 percent, the debt burden rose by 10 percent. In March 2014, the debt ratio was 163 percent of economic output. A major problem exacerbating the crisis is the civil war in neighboring Syria, which not only threatens to draw Lebanon into the conflict, but has also resulted in a cooling of relations between Lebanon and the Gulf states, where a considerable amount of financing came for the Lebanese economy.
The most severe example of the consequences of the world financial crisis in 2008, the Greek economy has collapsed under the weight of billions in debt repayments to its lenders in the troika of the EU, European Central Bank and International Monetary Fund, as well as global financial institutions. In total, its economy has declined by more than 25 percent over the past seven years, leading to debt levels of 169 percent of GDP in 2012. Since then, the rate has risen still further to over 170 percent. The results have been devastating for the population, with health, education and social services budgets virtually eliminated.
Zimbabwe has been in arrears with the IMF for over 15 years and is currently ineligible to receive further funds until it pays outstanding bills. In total, government debt is estimated at 202 percent of GDP. Long-term president Robert Mugabe, who has ruled for over thirty years, oversaw the abandonment of the national currency system in 2009, after inflation reportedly rose to 500 billion percent that year. The price rises began around the year 2000, when the government backed a program of seizing land from white landowners and handing it to small-scale black farmers.
Japan leads the way in terms of its debt to GDP ratio, which was 226 percent in 2013. Since the early 1990s, the world’s third largest economy has experienced almost continuous stagnation. More recently, policies pursued by the government to resolve the crisis have tended to push debt levels even higher. These include moves by the country’s central bank to print more money in a quantitative easing program similar to that adopted in the United States. In part as a result of this policy, the currency dropped by 18 percent in 2013. The debt rate is still showing no sign of declining. In 2013, the governor of the Japanese central bank warned that the extreme levels of debt were unsustainable.