Spain. Third most indebted country in the world under this measure

When we look at the solvency of a country, we usually look at the public debt / GDP ratio to measure its debt repayment capacity. It is a way of relating what an economy produces with the indebtedness of the State.

Government can use to pay its debts

The biggest problem with this ratio is that the economic production of a country cannot usually be 100% converted into the money that a government can use to pay its debts. A government that will keep 100% of the income produced by its citizens and its companies would immediately cause everyone to stop working and all companies to close.

Debt repayment capacity of a country

Perhaps to measure the solvency or debt repayment capacity of a country we must look at a ratio closer to reality. If we measure the solvency of a government by the public debt ratio for the money it collects via taxes, that government is probably getting much better to the real solvency.

Debt podium when we measure it in terms of public debt


And it is with this ratio where surprises come. Spain goes from being a country with indebtedness that can be considered moderate-high in terms of GDP to occupy the debt podium when we measure it in terms of public debt / tax revenue. Specifically, we are in a public debt / tax revenue ratio of 940%, only surpassed by the US and Japan and leaving the rest of the GFIC countries quite a distance. The closest to us is Greece with a debt of 777%.

Some of you will tell me that one way we can improve this ratio is to increase fiscal pressure and revenue collection in this country. Definitely a good point since we have a lower fiscal pressure than other countries.

With this in mind, however, you must consider a case. The day the ABC ceases to act as an umbrella, no government in Spain will have the capacity to lower taxes or increase public spending considerably without risking debt default. Moreover, it is very possible that we should be taking advantage of the truce that the ABC’s protective mantle is currently giving us to try to reduce public indebtedness.

Leave a Reply

Your email address will not be published. Required fields are marked *