top of page
  • Writer's pictureFaron

InTheKnow: Debt-to-GDP ratio

In a nutshell

The debt-to-GDP ratio is used by economists and investors to gauge a country’s economic health. The higher the ratio, the greater the debt of a country compared with its total economic output (expressed in the form of gross domestic product). Simply put, the GDP can be seen as the total income of a country.  

The formula for debt-to-GDP ratio: 

Total debt of a country ÷ the GDP of a country 

A high debt-to-GDP ratio can be a cause for concern among economists and investors who track the economic performance of a country. This means the country is not producing enough to pay off its debts and therefore may not be able to service its loans. 

Is there a magical threshold?

Interestingly, the International Monetary Fund (IMF) published a working paper, titled “Debt and growth: Is there a magic threshold?”, in 2014 to find out whether a country’s economic growth can be dramatically compromised if their debts hit a certain level. 

The paper pointed out that several economists had concluded that countries with a debt-to-GDP ratio of 90% and above could experience a dramatic decline in economic growth. These findings were later refuted by other economists, so the debate goes on.

Based on its data and findings, the IMF concluded in the paper that “there is no simple threshold for debt ratios above which medium-term growth prospects are severely undermined”. On the contrary, its findings show that “the association between debt and growth at high levels of debt becomes weak”. 

The paper also mentioned that the levels of debt and growth are more influenced by the “trajectory of debt” and that countries with high but declining levels of debt have historically grown just as fast as their peers. However, it pointed out that this does not mean the debt level of a country does not have any effect on its economy. 

“We have found some evidence that higher debt appears to be associated with more volatile growth. And volatile growth can still be damaging to economic welfare,” said the IMF. 


What is Malaysia’s debt-to-GDP ratio?

Malaysia’s debt-to-GDP ratio has declined significantly since 1990, according to tradingeconomics.com, an online platform that provides economics data and forecasts. Its data shows that the country’s debt-to-GDP ratio was 80.7% in 1990 before falling to 31.8% in 1997. 

Malaysia’s debt-to-GDP ratio rose to 41.4% in 2001 and increased to 52.8% in 2009. The ratio remained above 50% from 2009 to 2018. 

According to news reports, the country’s debt-to-GDP ratio stood at 52.5% last year. On June 11, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz was reported as saying that Malaysia’s debt-to-GDP ratio stood at 52%, which was 3% below the debt ceiling of 55% set by the government. He added that the government may need to raise the debt ceiling in the light of the unprecedented challenges caused by the Covid-19 pandemic.

A downgrade in sovereign rating?

Malaysia’s rising debt level, partly reflected by the higher debt-to-GDP ratio, has raised the question of whether it could affect the country’s sovereign rating and potentially lead to a downgrade. The debt-to-GDP ratio is one of the many measures that international rating agencies such as Moody’s use to assess a country’s credit rating.  

Investors typically look at sovereign credit ratings as a way to assess the risk of a particular country’s bonds. Should a downgrade happen, investment experts say there could be a significant impact on the local bond market as Malaysian bonds — including those issued by government-linked companies — would likely be downgraded as well. This could trigger a sell-off in the local market and increase the borrowing cost of the government and corporations.  

It is worth noting that Japan, despite having a debt-to-GDP ratio of about 230% last year, has been given a higher credit rating by agencies as they also look at other criteria when assessing a country’s credit risk. 


A quick check online shows that at least two other countries, Peru and Lithuania, have the same A3 rating as Malaysia (by Moody’s). According to Ceicdata.com, Peru and Lithuania had a debt-to-GDP ratio of 26.8% and 36.3% respectively last year. The methodology of international rating agencies can be found online.        


original article

https://www.klsescreener.com/v2/news/view/705077

1 view0 comments

Recent Posts

See All

英阿断臂,难兄难弟/胡逸山博士

上篇谈到拉丁美洲大国阿根廷多年来借外债借到上瘾,尤其是当左派当政时难以自拔地大借特借,而又民粹式地派钱,造成入不敷出,所以周期性地“破产”,但脸皮又够厚,真个如破产的原意般,竟也每次又站了起来重复又借,与染上毒瘾几乎无异。 但上瘾的也不止是阿根廷,还有甘愿即便被“削发”(即收不到利息,甚至收不回本金)也还是要多次提供贷款予阿根廷以及其他一些拉丁美洲所谓“字纸篓案例”国度的跨国大金融机构,即向这些国

庄家割韭菜 当局难控制 散户须做功课自求多福

(吉隆坡15日讯)随着联储局即将降息,热钱可能重返,市场关注股市或再现炒风,不过,专家提醒,庄家也将瞄准时机“割韭菜”,投资者须做好功课,而监管当局也有义务维护市场的公平有序。 监管单位或需加强执法 市场专家表示,早前第一数码(PERTAMA,8532,主板消费产品服务组)从高峰暴跌的例子最明显,长达10个交易日剧烈波动,让市场人士措手不及,似为散户敲响警钟,惟市场观察者认为,要想真的阻吓市场炒风

【南视界】想买股票 这个不得不注意

投资常客相信都明白什么是股票周息率(Dividend Yield),但对于新手来说,这是你必须了解的,不然即使领了钱也不知道钱是从哪里来。 周息率被称为现金股利、配息或分红,一般指上司公司将上一年度的部分获利,以现金或红股形式派发给股东,作为投资收益和回馈股东。周息率是个浮动数字,会随着每日股价的起落,以及派息的增减而有所变动。 这也是常见的股票估值的方法之一,周息率较高的公司一般都是规模和现金流

Comments


bottom of page