Debt crises can be caused by debt owed by governments, or by debt owed by the private sector, ie, businesses, banks and households. Private debt can lead to a financial crisis, which passes debt on to the public. Our analysis also identifies countries at risk of a debt crisis caused by public debt, those at risk of a private debt crisis, and those at risk from both.
Our analysis finds that {{ descriptionInfo.debt_crisis_countries_num }} countries across the world are suffering from a debt crisis. In addition, there are {{ descriptionInfo.private_debt_crisis_risk_countries_num }} countries at risk of a private debt crisis, {{ descriptionInfo.public_debt_crisis_risk_countries_num }} countries at risk of a public debt crisis, and {{ descriptionInfo.both_debt_crisis_risk_countries_num }} at risk from both a private and public debt crisis.
A country is assessed as in debt crisis if it has:
- A large financial imbalance with the rest of the world: either a net international investment position of -30% of GDP or worse, or a current account deficit averaging over 3% per year for three years. You can read more about the international investment position and current account deficit here.
AND - Large government payments on external debt: government external debt payments are greater than 15% of government revenue. Debt Justice research has found that when external debt payments exceed 15% of government revenue, this tends to lead to a decline in government spending (read more). The IMF says governments tend to struggle to pay external debts once payments are greater than 14 - 23% of government revenue (read more).
A country is assessed as at risk of private sector debt crisis if they have:
- A large financial imbalance with the rest of the world: either a net international investment position of -30% of GDP or worse, or a current account deficit averaging over 3% per year for three years. You can read more about the international investment position and current account deficit here.
AND - A large private external debt: private sector external debt stock over 40% of GDP or 150% of exports.
A country is assessed as at risk of a public debt crisis if they have:
- A large financial imbalance with the rest of the world: either a net international investment position of -30% of GDP or worse, or a current account deficit averaging over 3% per year for three years. You can read more about the international investment position and current account deficit here.
AND - External government debt payments projected by the IMF to exceed 15% of government revenue (over several years) with one economic shock OR government external debt over 40% of GDP or 150% of exports OR government external debt payments over 10% of revenue.
Our analysis differs from the IMF’s because we define a debt crisis as being when debt payments undermine a country’s economy and/or the ability of its government to protect the basic economic and social rights of its citizens. The IMF’s analysis focuses instead on whether or not a country can pay its debt. Also, unlike the IMF, we take account of debt owed by the private sector, and the extent of a country’s financial imbalance with the rest of the world. And we apply our analysis to all countries for which data is available, whereas the IMF only analyses debt risks for 70 of the poorest countries.
Having a large government debt does not necessarily mean a government is in debt crisis or at risk of being so. There are many countries, particularly in the global north, with large government debts, but most of that debt is owed to companies and people in the same country, and even the government’s own central bank. Their debt is owed in their own currency and they can borrow at low interest rates. This all means that government external debt payments as a percentage of government revenue are low. All together, these factors mean that a high government debt burden does not necessarily mean a high risk of debt crisis. Such countries may still be at risk of crises caused by large private sector debts, especially if they have a financial imbalance with the rest of the world.
