Which countries are most addicted to borrowing?

With interest rates and inflation skyrocketing, servicing debt has suddenly become a top concern for, investors and public-sector bankers. Looking at factors such as government and household debt, which are the most indebted countries? You might be surprised.

According to data published by London-based investment fintech Invezz, Japan, Greece, Italy, Portugal, and the US are the top five countries with the highest level of government debt.

Japan’s government debt is a whopping 236% of GDP, the highest of all developed countries, according to Invezz’s research, which is based on OECD data. Japan’s debt grew rapidly from emergency funding in response to the coronavirus pandemic. Also, as most of Japan’s national bonds have a fixed interest rate, Invezz says, the debt-to-GDP ratio increased because of the decrease in nominal GDP growth. The Bank of Japan is the buyer of most domestic bonds. This allows the government to access finance at an ultra-low interest rate, according to experts, which is the main reason why it has been able to sustain such high debt levels.

With a debt-to-GDP ratio of 185%, most of Greece’s government debt problems appear to stem from the post-2008 global financial crisis (GFC) period, which sparked one of the worst economic collapses since the Great Depression. Greece, alongside countries such as Portugal, Spain and Italy, which were referred to as the PIGS, were the southern European countries most impacted by the fallout from the GFC as they struggled to refinance government debt and bail out struggling banks.

“Regional factors may be a large part of why Italy’s debts are so high at 134.1%,” states Invezz. Italy was one of the EU countries worst affected by Covid-19 and saw a large increase in government borrowing during the pandemic. According to Fitch Ratings, Italy’s gross general government debt-t GDP will remain high until 2025, as GDP growth is expected to slow faster than falls in the budget deficit.

The United States ranks fifth, with its approximate government debt at a staggering $22.7 trillion or 108% of GDP, according to the OECD data used by Invezz.

However, June 2022 data published by the US government put debt at more than 126% of the country’s nominal GDP, with most of the increased spending due to the Covid-19 pandemic. 

At the start of the pandemic in 2020, US government debt was 108% of GDP, according to government-published data. However, tax cuts and decreased tax revenues during the pandemic contributed to a rise in national debt.

The UK—which faces a ‘profound’ economic crisis, according to its new prime minister, in large part because of debts it racked up during the pandemic and higher borrowing costs—had the 10th highest debt-to-GDP-ratio, according to Invezz’s research, at 83.9%. If former Prime Minister Liz Truss’s mini-budget, which featured £45 billion of unfunded tax cuts, had been implemented, the UK’s general government debt would have been pushed to 109% of GDP by 2024, according to Fitch Ratings, reflecting both higher budget deficits and a weaker growth outlook.

But just focusing on government debt-to-GDP ratios doesn’t tell the whole story, according to Invezz’s research.

By looking at a range of other debt-related factors (credit-card ownership, household debt as a percentage of disposable income, and the number of Google searches for debt and credit-related terms per 100,000 people), and pooling those results into a single score, Invezz revealed its list of countries with the biggest debt problems.

With an overall debt score of 8.42 out of 10, Canada came out as the country on top with the most debt, according to Invezz’s research, followed by the UK in second spot with a score of 7.92, and the US in third place with a score of 7.75 out of 10.

“Canada appeared in the top 10 countries for each factor we looked at while also topping the table for credit card ownership,” said Invezz. At 83%, Canada has the highest level of credit-card ownership, ahead of Japan and Switzerland on 69%.

The UK has the most debt-curious population, according to Invezz, with 2,385 Google searches for several debt and credit-related terms per 100,000 people, putting it ahead of the US with 1,446 searches per 100,000 and Australia with 1,166 searches. It also made the Top 10 for government debt and for credit-card ownership, for which it placed seventh.

The US placed in the top 10 for debt and credit-related searches, government debt, and credit-card ownership.

The countries with the highest level of household debt based on OECD data are: Norway in first place, followed by Denmark and the Netherlands. With household debt at more than 246% of net disposable income in Norway, people owe almost two and a half times the amount of money they have available for general household expenditures, Invezz’s research revealed. Denmark is not far behind Norway, with household debt as a percentage of net disposable income at 244%, and the Netherlands at 228%.