Debt-to-GDP… is it really a big deal or just a talking point?

Discussion
1

I studied economics and work in the markets. In 2020, these countries had the highest debt-to-GDP ratios. I’m using this chart because (a) I don’t feel like pulling data from the World Bank right now, and (b) four years have passed, yet nothing has changed for these countries.

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The US, the world’s largest economy, ranks sixth in global debt levels, while Japan, a G7 nation, holds the second spot. Several European countries, including Portugal, Greece, Cyprus, Italy, and Spain, also have high debt. Venezuela experienced hyperinflation due to excessive money printing. My point is that both strong and weak economies can exceed the recommended 55% debt-to-GDP ratio. Below is a chart showing Kenya and USD GDP growth rates since 1961.

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Kenya’s economy has been growing faster than the US, where the debt-to-GDP ratio is over 100%. However, our reliance on the World Bank and IMF means we face more scrutiny before receiving funding. Despite this, Kenya’s GDP is strong, and I recently spoke with a US investor who mentioned that frontier markets like Kenya are attracting interest. In the coming years, we could see significant foreign investment as institutional investors seek high-return opportunities beyond the US and EU.

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The Kenya shilling has been the best-performing currency this year, mainly because money is flowing into Kenya as global inflation declines. Some might argue that avoiding a debt default played a role, but a few million dollars in repayments wouldn’t be enough to sway serious investors.

In my view, raising taxes would harm Kenya’s economy. Even if we clear our debts, lower investment would shrink GDP, increasing the debt-to-GDP ratio as the economy contracts. Recovering from a GDP slump is tough—just look at Japan. Since the 1980s, their economy has struggled to grow, with inflation remaining stagnant for decades. It only picked up recently after the yen weakened so much that foreign investors found it incredibly cheap.

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Don’t be misled, our debt-to-GDP ratio is fine. Even as a second-rate economist, I know this—so who exactly is advising our government? We need justice for those who lost their lives needlessly and accountability for how our taxes are used.

2

Most of their debt is internal, like from treasury bonds, so it doesn’t hit their economy the same way. Our debt, on the other hand, is mostly from outside lenders who make sure we have strict repayment conditions.

3

@Sage
The US actually has a much higher foreign debt-to-GDP than Kenya does.

4

Debt is just an excuse politicians use to avoid talking about real issues. The bigger problem is corruption and wasted funds, but no one wants to address that.

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Morgan said:
Debt is just an excuse politicians use to avoid talking about real issues. The bigger problem is corruption and wasted funds, but no one wants to address that.

Exactly. It’s pointless to talk about debt without looking at how the money is actually being used. The government should be required to release detailed financial reports every quarter, just like companies do.

6

@Thorn
True, but if the system itself is broken, transparency alone won’t fix anything. The banks and lenders are all in on it. The debt system isn’t just about borrowing, it’s a trap that benefits the people holding the purse strings.

7

Morgan said:
Debt is just an excuse politicians use to avoid talking about real issues. The bigger problem is corruption and wasted funds, but no one wants to address that.

Kenya’s biggest issue is that there’s no real accountability. Budgets are just estimates, and actual spending is a mystery. Proper accounting would make corruption much harder to pull off.

8

Japan’s economy has been struggling, and their currency is losing value fast. The US is in a different position because of the dollar’s status, but inflation is still a global issue.

9

Ellis said:
The issue isn’t just borrowing… it’s about whether the borrowed money actually leads to economic growth. If it doesn’t, we’re just digging a hole.

That’s fair, but debt-funded growth is normal for most countries. The key is keeping interest rates low.

10

@Thorn
But why did they keep rates negative? To help the government and corporations rack up debt. You’re acting like these things aren’t connected.

11

Rory said:
@Thorn
But why did they keep rates negative? To help the government and corporations rack up debt. You’re acting like these things aren’t connected.

They thought negative rates would encourage borrowing and investment, which would boost their economy. But it didn’t work. As for their government debt, negative rates actually meant investors were paying the government to hold bonds. It’s a different situation from ours.

12

@Thorn
Come on, we both know the central bank still bought their bonds. That’s the only way they could rack up that much debt. These things are absolutely connected.

13

Rory said:
@Thorn
Come on, we both know the central bank still bought their bonds. That’s the only way they could rack up that much debt. These things are absolutely connected.

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BoJ owns a lot of Japanese bonds, but not all of it. Your original argument was that the BoJ kept rates low to rack up the massive debt but I told you that it wasn’t about that at all. The goal was to discourage saving actually because Japanese people used to have very high savings rates and didn’t used to invest (they still don’t btw)

Here is a chart of the declining savings rate

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So like I said, the negative interest rates were meant to be stimulatory but that didn’t happen. The massive debt is a side effect.

14

People love comparing Kenya to Japan and the US, but they forget key details. Japan’s economy has been stagnant for decades. The US is only holding on because they print the global reserve currency. And Greece? Their debt crisis almost destroyed them. These are not great comparisons.

15

@Lennon
I’m just pointing out that the debt-to-GDP ratio alone doesn’t tell the full story. It’s an overused statistic.

16

The real problem isn’t the debt itself, it’s whether we have the money to pay when the lenders come calling.

17

Kai said:
The real problem isn’t the debt itself, it’s whether we have the money to pay when the lenders come calling.

Governments roll over debt all the time. They just issue new loans to pay off the old ones.

18

@Thorn
And what happens if no one wants to lend us more money?

19

Kai said:
@Thorn
And what happens if no one wants to lend us more money?

That’s when things get tricky, but countries usually find lenders if their economy is stable.

20

Debt-to-GDP might not mean much in general, but Kenya has other problems. We borrow a lot from foreign lenders, we import more than we export, and corruption is out of control. That’s a dangerous mix.