Definition of Debt Burden: Debt burden is the cost of servicing debt. For consumers, it is the cost of interest payments on debt. The debt burden will be higher for credit cards and loans with high interest. The debt burden on mortgages will be relatively lower compared to the value of the loan.
 | Debt Burden Ratios Key measures used to judge debt sustainability |
Debt-to-GDP Debt/ GDP × 100 Overall public debt relative to the size of the economy. | Debt Service Ratio (Interest + Principal)/ GDP (or Exports) × 100 Share of income used each year to repay debt. | Interest-to-Revenue Interest Payments/ Government Revenue × 100 How much of tax revenue is absorbed by interest costs. |
Debt-to-Exports External Debt/ Export Earnings × 100 Ability to repay foreign-currency debt from exports. | Private Debt-to-GDP Household or Corporate Debt / GDP × 100 Indebtedness of households/firms; | Household Debt Service (Mortgage + Loan Payments) / Disposable Income × 100 Pressure on household budgets; higher → less spending capacity. |
Country Debt Burden
For countries, the debt burden is the cost of servicing the public debt. Most of this debt burden is a really transfer from one generation to another. However, National debt can be a real debt burden because:
- If the debt is held externally. E.g. 25% of US debt is held abroad making the US liable for external interest transfers.
- When debt is held externally, it may also cause a depreciation in the exchange rate and hence a worsening of the terms of trade. (imports more expensive)
- High public debt may also cause higher taxes which distort work incentives e.t.c
Debt Burden Ratios
This is the ratio of debt burden to income. For example, if you pay £2,000 in debt interest and have an income of £40,000. Your debt burden ratio is 5%
If you a country has a debt burden of £100bn and pays debt interest of £60bn. Its debt burden is 60%.
Sometimes the debt burden is measured as GDP / Total debt.
Top 10 Debt Service Burden
| Rank | Country | Debt-Service Burden (Interest as % of Government Revenue) |
|---|---|---|
| 1 | Lebanon | ~35–50% |
| 2 | Sri Lanka | ~25–45% |
| 3 | Zambia | ~30–45% |
| 4 | Ghana | ~25–40% |
| 5 | Egypt | ~20–35% |
| 6 | Pakistan | ~20–35% |
| 7 | Tunisia | ~15–30% |
| 8 | Kenya | ~15–30% |
| 9 | Jordan | ~12–25% |
| 10 | Nigeria | ~15–30% |
Related pages
- Austerity will increase UK debt burden – Why policies to reduce debt could lead to higher debt burden ratio.
- UK debt burden
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