How to Understand the 3 Types of Debt Levels Countries Have in 1 Minute

Broad Types of Debt Levels Countries Have Explained in One Minute: Household, National & Corporate

Debt is a common and sometimes unavoidable part of life. But not all debt is created equal. There are different types of debt levels that countries have, and they can affect their economic performance and stability in different ways. Here are the broad types of debt levels that countries have, explained in one minute:

• Household debt: This is the debt that individuals and families owe to lenders, such as mortgages, credit cards, student loans, and car loans. Household debt can be a sign of consumer confidence and spending, but it can also pose risks if households become over-indebted and unable to repay their loans. Household debt can affect the demand for goods and services, the savings rate, and the financial stability of the banking system. According to the World Bank, the average household debt-to-GDP ratio for 43 countries was 57.5% in 2020¹.
• National debt: This is the debt that the central government owes to domestic and foreign creditors, such as bonds, treasury bills, and loans from other governments or international organizations. National debt can be a source of financing for public spending, such as infrastructure, education, and health care, but it can also increase the fiscal burden and the interest payments of the government. National debt can affect the credit rating, the exchange rate, and the inflation rate of the country. According to the International Monetary Fund, the average national debt-to-GDP ratio for 190 countries was 97.3% in 2020².
• Corporate debt: This is the debt that the non-financial private sector owes to lenders, such as bank loans, corporate bonds, and commercial paper. Corporate debt can be a sign of business investment and innovation, but it can also pose risks if corporations become over-leveraged and unable to service their debt. Corporate debt can affect the profitability, the solvency, and the competitiveness of the corporate sector. According to the Bank for International Settlements, the average corporate debt-to-GDP ratio for 44 countries was 93.6% in 2020³.

As you can see, debt levels can have various implications for the economy and the society of a country. Therefore, it is important to monitor and manage them carefully, and to balance the benefits and costs of borrowing.