Definition of Debt Service Ratios
The Debt Service Ratio (DSR) measures the proportion of income used to meet debt repayments (interest + principal). It is usually expressed as a percentage of disposable income (for households) or export earnings/GDP (for countries).
External Debt Service Ratio
A country’s debt service ratio measures the amount of debt interest payments to the country’s export earnings. For example, if a country has export revenue of £100bn and pays £15bn interest payments on its external debt, then its debt service ratio is 15%.
A rising debt service ratio is often the sign of an imminent economic crisis.
Debt service ratios may rise because of:
- A fall in exports
- A lower price of commodities which are main exports of a country. e.g. Venezuala may rely on oil exports
- Higher Borrowing
- Higher interest rates increasing cost of debt repayments
- Devaluation increasing cost of external repayments.
Why a Country’s Debt Service Ratio Matters
1. Ability to Pay for Essential Imports
If a large share of export earnings goes to debt repayment, there is less foreign currency available for: energy imports, food, and
capital goods. A high DSR can force countries to cut essential imports, hurting growth and living standards.
2. Signals Risk of Balance of Payments Crisis
A high DSR makes it harder to: maintain sufficient foreign exchange reserves, stabilize the currency, finance current-account deficits. Warnings over debt service ratios may cause investors to pull out causing:
- currency depreciation
- higher inflation
- rising external debt burden (if debt is in dollars)
3. Fiscal Pressure on Government Budgets High debt service absorbs a large share of government revenue, leaving less for other areas of government spending.
4. Crowding Out of Development Debt repayments crowd out: public investment, infrastructure projects, long-term development spending, This creates a low-growth trap, where poor growth makes future repayment even harder.
5. Vulnerability to External Shocks Countries with high DSR are extremely sensitive to: commodity price falls (exports shrink), global interest rate rises, exchange-rate movements, global recessions. Even small shocks can trigger a crisis because repayment obligations are fixed. For example, in the 1980s many African countries with high debt service ratios suffered from rise in global interest rates. Oil-producing countries suffered when oil prices fell.
Debt Service Coverage Ratio
This is measured the other way around and measures the ratio of net income to debt service. it is widely used to measure the strength of mortgage investments.
Top 10 Debt Service Burden
Government debt service burden
This shows the level of debt interest payments to government revenue for year of 2023. Sri Lanka’s was clearly unsustainable and led to IMF bailout
Countries with high external debt service ratio
Sri Lanka – 25-45% of revenue. Its external debt servicing (principal + interest) has recently consumed a very large share of national revenue. The crisis was worsened when agricultural exports fell because of failed shift to organic farming
Ghana 25-40% Also among the countries with high debt-service burden as a share of government revenue, especially under pressure from external borrowing and currency/debt-cost pressures. Ghana at IMF
External Debt share of GDP
External debt – paying overseas creditors.
Household Debt Service Ratios
This is the ratio of income spent on servicing debt, could be mortgage debt in particular.
During the credit crisis, debt service ratios (DSR) reached a historic high level, which contributed to fall in house prices. In 2025, DSR’s are considerably lower.
Related pages
- List of National debt by country
- List of gross external debt
- Top 10 Countries with external debt burden
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