- Aug 20, 2000
- 20,577
- 432
- 126
Just so we all know where we stand.
Debt sustainability: Not so risk-free
MARKETS have suddenly woken up to the idea that not all government debt is risk-free. There is a long and not very honourable history of sovereign default, either explicitly or implicitly via inflation and currency depreciation.
So which countries are in the biggest trouble? The ability of a government to honour its debt depends on a number of factors, in particular the size of the debt burden relative to GDP, the interest rate paid on that debt relative to the economys growth rate and the size of the governments primary budget balancethe surplus, or deficit, before interest costs.
The table shows the main sources of vulnerability for a range of OECD countries.
The first column shows each countrys primary deficit or surplus adjusted for the economic cycle.
The second column shows the OECDs forecast for each countrys net debt-to-GDP ratio in 2010.
The third column measures the gap between bond yields on debt of average maturity for each country and the OECDs forecasts for growth in 2010 and 2011. The bigger the negative number, the bigger the problem (although longer-dated debt tends to pay higher yields, so this measure may disadvantage countries which have less refinancing risk). The countries are ranked by adding together their relative league-table positions on these three measures, a rough gauge of the scale of their debt problems.
The fourth column adds another source of riskthe average time to maturity of outstanding government debt. Countries with shorter maturities are more likely to face refinancing problems than those with longer ones. Two big borrowers stand out on this measure: America, for its short debt maturities, and Britain, which can draw some comfort from the lengthy duration of its debt.
Debt sustainability: Not so risk-free
MARKETS have suddenly woken up to the idea that not all government debt is risk-free. There is a long and not very honourable history of sovereign default, either explicitly or implicitly via inflation and currency depreciation.
So which countries are in the biggest trouble? The ability of a government to honour its debt depends on a number of factors, in particular the size of the debt burden relative to GDP, the interest rate paid on that debt relative to the economys growth rate and the size of the governments primary budget balancethe surplus, or deficit, before interest costs.
The table shows the main sources of vulnerability for a range of OECD countries.
The first column shows each countrys primary deficit or surplus adjusted for the economic cycle.
The second column shows the OECDs forecast for each countrys net debt-to-GDP ratio in 2010.
The third column measures the gap between bond yields on debt of average maturity for each country and the OECDs forecasts for growth in 2010 and 2011. The bigger the negative number, the bigger the problem (although longer-dated debt tends to pay higher yields, so this measure may disadvantage countries which have less refinancing risk). The countries are ranked by adding together their relative league-table positions on these three measures, a rough gauge of the scale of their debt problems.
The fourth column adds another source of riskthe average time to maturity of outstanding government debt. Countries with shorter maturities are more likely to face refinancing problems than those with longer ones. Two big borrowers stand out on this measure: America, for its short debt maturities, and Britain, which can draw some comfort from the lengthy duration of its debt.
Facebook
Twitter