Tips for reading government debt-to-GDP ratios

The government debt-to-GDP ratio is one of the headline indicators used to assess the health of government finances. It compares the stock of government debt (financial liabilities) outstanding at the end of the year or quarter with Gross Domestic Product (GDP) in that same year or quarter.

This indicator was in the spotlight during the great financial crisis of 2008-09 and the Covid-19 pandemic when there were growing concerns about increases in government borrowing. But there can be some confusion surrounding the interpretation of the government debt-to-GDP ratio. The figures reported for a particular country may differ between two different websites or even on the same website. For instance, on the OECD Data Explorer, the United Kingdom’s general government debt-to-GDP ratio for the third quarter of 2023 ranged from 94% of GDP to 155% of GDP, depending on the measure of debt used.

This article explores how and why different debt-to-GDP ratios for the same country and period may be correct. While there is only one figure used for GDP, there are usually several official measures of debt in OECD countries. The differences reflect users’ demand for different indicators. There may also be differences in the ‘valuation’ and ‘consolidation’ bases of the debt measures. Individuals and institutions using or quoting debt-to-GDP ratios should be aware of the differences behind the indicators.

To ensure cross-country comparability, the IMF, the OECD and the World Bank have agreed to define various debt measures depending on the coverage of ‘debt instruments’ as defined in the IMF’s Public Sector Debt Statistics – Guide for Compilers and Users and the Government Finance Statistics Manual 2014. These are referred to as the D1 to D4 measures of debt (Table 1). The D1 measure includes only debt securities and loans, while D4 – or ‘total gross debt’ – covers all six debt instruments and includes all liabilities that appear on governments’ financial balance sheets except equity and investment fund shares, financial derivatives and employee stock options. The latter measure, D4, is the preferred measure of debt in the international accounting standards known as the 2008 System of National Accounts (SNA).

An additional indicator has been added to the classification corresponding to the Maastricht debt definition, which is an important indicator for European Union (EU) countries. This corresponds to D2 minus Special Drawing Rights (SDRs) – so it comprises loans, debt securities and currency and deposits. The Maastricht debt measure is referred to as D2A. The two differing general government debt-to-GDP ratios mentioned above for the United Kingdom reflect differences in coverage. The first (94% of GDP in Q3 2023) is D1 while the second (155% of GDP) represents the broadest measure of government financial liabilities (D4) (Figure 1). The main difference between the D2, D2A and D3 measures of government debt on the one hand, and the D4 measure on the other, is any claims or liabilities relating to government employee pensions that may be included in the accounts, as well as insurance and standardised guarantees provided by government (e.g. to cover student loans).

When comparing the government debt of OECD countries, the D2A and D3 measures ensure comparability. For total gross debt, however, comparability between countries is more difficult. This is because D4 may include claims or liabilities relating to government pensions; but OECD countries have different approaches to recording unfunded pension liabilities. Australia, Canada, Sweden, the United Kingdom, and the United States include unfunded schemes for government employees in government liabilities (therefore in D4), but most countries do not.

The term ‘debt-to-GDP ratio’ may be used in relation to both general government debt and public sector debt. These have distinct meanings.

The general government sector in the national accounts is composed of central government, state government, local government, and social security funds. It also includes non-market non-profit institutions that are controlled by government. On the other hand, the public sector covers not just general government but also public non-financial and financial corporations, which are entities that produce for the market and are controlled by government.

Figure 2 shows total gross debt (the D4 measure) of the public sector and its components. It is important to note that total gross debt for the public sector is not the sum of the debt of general government and public financial and non-financial corporations. This is because of consolidation, which is defined in the 2008 SNA as “a method of presenting statistics for a set of units as if they constituted a single unit” and “involves eliminating transactions and reciprocal stock positions among the units that are being consolidated”. Nevertheless, public sector debt is always higher than that of the general government due to the inclusion of the debt of public corporations.

Debt securities (defined as negotiable instruments serving as evidence of debt) usually make up a substantial part of government debt, and they can be valued in ‘nominal’ terms or at market value. Up to this point, the figures presented in this blog have been based on nominal or face value of debt securities. But it is also possible to create measures of government debt using market value of debt securities – and this provides useful information.

Was the debt-to-GDP ratio for Australia’s general government 71% or 73% in Q3 2023? Both figures were calculated using the same measure of debt (D4) and sector coverage (general government). However, the first (71%) includes debt securities at market value, while the second (73%) values them at nominal value.

Why might we want to show the debt-to-GDP ratio using market value of debt securities? Debt securities are instruments such as Treasury bills and bonds and are issued by governments to fund deficits. The person (or entity) who buys the debt security can sell it on the secondary market before it matures. The market price of the debt security may diverge from its nominal value, influenced by supply and demand. In times of increasing interest rates, the market value of government debt securities would typically fall. This happened in Australia in 2022. As interest rates rose in the first half of the year the lines crossed each other, with the line for general government debt-to-GDP with debt securities at market value dropping below the line for debt-to-GDP with debt securities at nominal value (Figure 3).

A final difference in the figures may be due to consolidation. In the case of the United States (Figure 4), the consolidation affects two financial instruments: debt securities and loans. Normally, we would present government debt-to-GDP ratios on a consolidated basis, but there may be some circumstances in which users would prefer the non-consolidated basis – for example, if users want to see the economic interactions between different parts of government.

Several aspects may explain why different numbers could be found for the government debt-to-GDP ratios for the same country in the same period. Users should carefully check the debt instrument and sector coverage, the basis of the valuation of debt securities (face value, nominal value or market value) and whether the numbers are on a consolidated or non-consolidated basis.

• IMF Guide (8 December 2011): Public Sector Debt Statistics – Guide for Compilers and Users.
• IMF Government Finance Statistics Manual 2014.
• IMF Staff Discussion Note 12/09 (27 July 2012): What Lies Beneath: The Statistical Definition of Public Sector Debt: An Overview of the Coverage of Public Sector Debt for 61 Countries; by Robert Dippelsman, Claudia Dziobek, and Carlos A. Gutiérrez Mangas.
• System of National Accounts 2008 (chapters 4, 11 and 22).
• System of National Accounts 2008 and Balance of Payments Manual 6 update, Guidance Note F.8: Valuation of Debt Securities at Both Market and Nominal Value.