Friday, January 15, 2010

Big nations with major debt dangers

In the January 15, 2010 Business Week article "Debtor Nations," Mark Scott explains how excessive public debt is threatening the global economy:
The Debt Bomb Facing the World

If policymakers focused their attention in 2009 on dragging the global economy out of recession, this year looks likely to center on reining in the massive piles of government debt built up by big bailout packages. Failing to wrestle down the fiscal debt monster could stall the nascent worldwide economic recovery.

Already this year, international rating agencies have warned about unsustainable budget deficits in Greece and Ireland, and most members of the euro zone have sailed past the 3% budget deficit cap required for membership in the common European currency. Government debt ratios in the U.S. and Britain could take decades to return to normal levels.

Countries are fiendishly trying to tackle the problem. On deck for this year are spending cuts, tax increases, and other belt-tightening measures designed to corral overstretched government accounts. Yet politicians must balance tougher fiscal policy with maintaining continued support for weak domestic production. Economists fear pulling back too soon could ruin attempts to reignite the economy.

Read on to see how indebted some of the world's largest countries are—and who are the deepest in the red—as well as what they're doing to deal with the problem.


Sovereign Credit Rating: BBB-
Debt-to-GDP Ratio (2009*): 310%
Current Account Balance, 2010 (Estimate**): 0.7%
GDP Growth, 2010 (Estimate): –2.0%
Budget Deficit Ratio, 2010 (Estimate): –9.9%

Iceland made headlines in 2009 as the world's first "subprime nation." The implosion of the country's financial-services industry left it with debt three times domestic GDP, and forced Iceland to go cap-in-hand to the International Monetary Fund for a $2.1 billion bailout. Yet when President Olafur Grimsson vetoed legislation on Jan. 6 that would have repaid $6 billion to British and Dutch authorities for covering their local depositors in a failed Icelandic bank, the country's international financial lifeline was put in jeopardy.

* Latest available figure
** All 2010 figures here and subsequently are forecasts.


Sovereign Credit Rating: BBB+
Debt-to-GDP Ratio, 2010: 124.9%*
Current Account Balance, 2010: –9.0%
GDP Growth, 2010: –0.1%
Budget Deficit Ratio, 2010: –9.0%

With the largest debt burden relative to the size of its domestic economy in Europe, Greece is viewed as the sick man of the region. Not helping matters, the European Commission criticized the country on Jan. 12 for publishing false economic numbers. That comes after local policymakers were forced to revise the 2008 budget deficit figure to 12.7%—three times an earlier forecast. To get the country's books in order, politicians want to raise an extra $6.5 billion this year through pay freezes for government workers and new taxes.

* Source: European Commission


Sovereign Credit Rating: AAA
Debt-to-GDP Ratio, 2010: 93.6%
Current Account Balance, 2010: –2.2%
GDP Growth, 2010: 1.5%
Budget Deficit Ratio, 2010: –9.9%

The $787 billion economic stimulus package and the further billions of dollars pumped into the financial-services sector have pushed America's debt burden to almost 100% of annual GDP. That's unsustainable in the long term, but expected 1.5% growth in the domestic economy this year has reassured investors that debt levels remain manageable. While no widespread tax increases are on tap this year, the Obama Administration is planning some targeted taxes to fill the gap. But health-care reform currently working its way through Congress could add billions of dollars to the federal budget.


Sovereign Credit Rating: AAA
Debt-to-GDP Ratio, 2010: 81.7%*
Current Account Balance, 2010: –1.9%
GDP Growth, 2010: 0.9%
Budget Deficit Ratio, 2010: –13.2%

With one of the worst budget deficits in the European Union, Britain must tighten its belt or face dire fiscal problems. No definite plans are expected before a national election later this spring, although all major political parties agree government spending must be cut and taxes will increase. The official retirement age also may rise to ease the country's financial woes, which are particularly dire due to the British economy's reliance on the financial-services industry.

* The European Commission pegs the ratio at 80.3%.


Sovereign Credit Rating: AA
Debt-to-GDP Ratio, 2010: 66.3%*
Current Account Balance, 2010: –4.7%
GDP Growth, 2010: –0.7%
Budget Deficit Ratio, 2010: –12.3%

After Spain's credit-fueled construction and real estate sectors imploded, the country's once prosperous economy turned into one of the worst performers in Europe. A large budget surplus before the crisis began will likely turn into a 12% deficit this year, and Spain's uncompetitive workforce has exacerbated the country's current account deficit. To turn things around, analysts reckon the Iberian country must overcome its many structural problems, such as a low caliber of tertiary education and relatively high labor costs.

* Source: European Commission


Sovereign Credit Rating: AA
Debt-to-GDP Ratio, 2010: 82.9%*
Current Account Balance, 2010: 0.6%
GDP Growth, 2010: –2.5%
Budget Deficit Ratio, 2010: –13.5%

Once known as the Celtic Tiger, Ireland had the wind knocked out of its sails by the credit crunch. The local housing market contracted 19% last year and the economy shank 7.5%. In response, the Irish government has slashed $5.8 billion from its 2010 budget, including pay cuts for government workers and reductions in subsidies for parents of young children. Affected workers haven't taken the belt-tightening lying down: Thousands took to the Dublin streets in late 2009 to protest.

* Source: European Commission


Sovereign Credit Rating: BBB
Debt-to-GDP Ratio, 2010: 49.3%
Current Account Balance, 2010: –1.3%
GDP Growth, 2010: 3.2%
Budget Deficit Ratio, 2010: –2.5%*

Last year wasn't kind to Mexico. Slumping oil revenue and lowered export demand from the U.S. hit the Latin American country hard. Rubbing salt into its wounds, international ratings agencies downgraded Mexico's debt late last year. Yet rising energy prices and a gradual rebound in exports have lifted the country's spirits, and its budget deficit is relatively mild. On Jan. 11, Mexico even raised $1 billion in a 10-year bond offering that was oversubscribed by 1.6 times.

* Domestic government estimate
Data provided by the International Monetary Fund and Standard & Poor's, unless otherwise indicated.

See the full list of Debtor

1 comment:

  1. For the most part its western europe and the united states that have the most serious economic problems.