December 15, 2023

5 min read

Investment and Life insurance

Global public debt: what it is and how it works
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  • What is public debt?

  • How public debt influences a country’s economy

  • Not-so-ancient history

  • How public debt works

  • The 5 countries with the highest public debt in the world

All businesses need liquidity to operate and carry out their activities, but when the financial resources available are no longer sufficient, they often take on debt.

The same happens when a government has to deal with public spending, but doesn’t always have the money it needs to fund it.

What is public debt?

Just like private firms, a government can borrow the money it needs, thereby taking on a debt, known in this case as public debt.

To help explain the subject we’ll be covering in this guide, let’s begin with a definition of public debt: the outstanding debt owed by a nation to other entities, be they public or private.

In technical terms, public debt is the total amount of debt taken on by a nation to cover its financial requirements; it is equivalent to the nominal value of all the gross liabilities built up by public administrations, from central government to local authorities.

To explain what public debt is in simple terms, we might say that it’s the amount of money borrowed in order to keep the machinery of state running.

Public debt: how does it influence a country’s economy?

Now we’ve seen what public debt is, it’s easier to understand how and why each country’s indebtedness takes on particular relevance, since it influences the economy.

According to many financial experts, there is a negative correlation between public debt and economic growth: when debt increases, growth slows down, and vice versa.

However, the connection becomes particularly significant when the debt/GDP ratio exceeds 90%.

What’s more, the negative correlation between public debt and economic growth does not necessarily imply causality - in fact it may be reversed.

High debt can certainly lead to low growth, but the opposite can also be true: high public debt can also be triggered by a stagnating economy. Lower tax revenue in the face of identical spending requirements might be a cause of the problem.

Public debt encompasses risks and opportunities. Much depends on the debt/GDP ratio: when it’s low, there is less risk of insolvency for the country in question, and vice versa.

High public debt makes it more difficult to raise funds: this limits a government’s investment and expenditure, with a negative impact on the economy; the same occur when restrictive measures such as raising taxes or cutting public spending are introduced.

Public debt can create an opportunity when it serves to boost a nation’s development and growth and to provide services for its citizens.

Not-so-ancient history

In ancient times, public debtdid not exist; nations would stockpile precious metals in order to cover any unexpected financial needs.

Public debt is a modern concept; some experts trace the very first examples back to the mid-12th century, particularly the forced loans imposed by some of Italy’s medieval Communes.

In its earliest form, public debt began to emerge with the birth of the absolute monarchies in the 16th century; it developed into a similar concept to what we would recognise today in the 1800s.

In Italy, for example, the birth of public debt can be dated back to the country’s political unification in 1861.

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How public debt works

Before we look at how it works, it’s worth explaining the difference between public debt and deficit, two terms that are often wrongly used as synonyms.

Public debt
is government borrowing, that is, the outstanding debt a nation owes to its creditors.

However, the term deficit (or budget deficit) refers to the negative difference between revenue and expenditure, and it occurs when public spending exceeds tax revenues.

How does public debt work?

A nation can fund its public debt in various ways, but the most commonly-used instrument involves issuing bonds.

In practice, government bonds are issued with different maturities: short-, medium- or long-term.

Among the first category in Italy we find BOTs and CTZs, while CCTs and BTs fall into thesecond and third groups.

Other countries’ bonds include the Bund in Germany and Treasuries in the United States.

Bonds can be taken out by the retail public, i.e. small savers, but they are mostly purchased by professional investors and the major financial institutions, be they private (banks, for example) or public (like the Bank of Italy and the ECB).

Those investing in government debt reap a two-fold benefit: the capital they pay in is returned on maturity, and they also receive additional returns during the life of the bond.

The returns take the form of public debt interest, i.e. the cost to a nation of borrowing money from its creditors.

Interest, which varies depending on different factors, takes on a significant role as it is included under government expenditure.

It is therefore vital for a nation to keep its public debt and spending on interest under control.

In Italy, the Ministry of Finance is responsible for issuing and managing sovereign public debt .

The same roles are performed by the ministry of finance – called the Department of the Treasury in the US – in other countries, too.

The 5 countries with the highest public debt in the world

Global public debt varies widely from country to country, not least because of their individual histories, but it is an issue they all have to deal with. All of them, that is, apart from Macao, the only country in the world which doesn’t have to bear this burden.

But which countries have the highest public debt in the world? Here are the top five in the ranking.

When it comes to global public debt, first place is held by Japan: International Monetary Fund data published in April 2023 reveals that at the close of 2021, the country’s debt/GDP ratio stood at 258.2%.

Public debt in Japan is linked to a series of policies in place since the early 1990s, against a backdrop of sluggish growth/deflation.

Second place in the ranking goes to Greece, with a debt/GDP ratio of 166%.

Public debt in Greece shook Europe to its core at the close of the first decade of this century, when the 2008-2009 crash brought the country’s real situation to light.

There are many reasons for Greece’s huge public debt , from the financial crisis to the government tampering with public accounts before joining the euro, to name the most significant.

One of the most indebted countries in the world and third in the ranking is Sudan, with debt standing at 151.1% of GDP.

The African country pays the price for its enormous difficulties with economic growth, burdened as it is by decades and decades of endless conflict.

Ranked fourth among the 5 countries with the worst government debt in the world is Eritrea, with a debt/GDP ratio of 146.3%.

The African nation’s economy is close to collapse, with structural reform almost non-existent and a total lack of investment.

Closing the ranking of the 5 most indebted countries in the world is Italy, with a debt/GDP ratio of 140.3%. So how much is Italy’s public debt actually worth? The data reveals that, as of September 2023, it had risen to 2,844.2 billion euros.

It first peaked in the late 1800s, with two further spikes during the two World Wars.

In the 1970s, Italy’s public debt received another harsh blow, due in part to the 1973 oil crisis, leading up to the more recent crunch of 2007-2008.

Over half the country’s public debt is held by the Bank of Italy and Italian banks, while the remainder is split between national financial institutions and foreign investors.

Public debt is a feature that’s common - albeit in different ways - to the economy of every country in the world. Read the article to find out more!


Eurostat reveals that by the close of the first quarter of 2023,Spain had a debt/GDP ratio of 112.8%.

In June 2023, public debt in Spain stood at 1,568 billion euros, an increase on the previous year caused by the cost of tackling the energy crisis, the economic impact of the war between Russia and Ukraine and other measures taken by the government.


The situation is similar in France, which had a debt/GDP ratio of 112.4% and public debt of over 3,013 billion euros at the end of the first quarter of 2023.

Public debt in France is rooted in centuries past, having grown for many different reasons during almost one thousand years of rule by the monarchy.

Enormous resources were once assigned to finance the army, added to which was an imbalance in the tax regime, with exemptions for certain regions and ranks of society.


Tailing France is Belgium, with a debt/GDP ratio of 107.4%. The country’s indebtedness has worsened in recent years due to the financial support provided during the pandemic; this was followed last year by extra grants to help families and businesses cope with energy hikes.

To find out who has the highest public debt in Europe and access up-to-date figures on the subject, Eurostat graphs are exactly what you need! To provide an idea of the scale of public debt in Europe in billions of euros, suffice it to say that by the end of 2022, the Euro Zone had racked up public debt of 2,757.55 billion. This figure doesn’t even take account of liabilities from financial aid granted to EU member states.

What about the US? Although its debt/GDP ratio isn’t among the highest in the world, US publicdebt is proportionate to the size of its economy. We’re talking about a number that’s difficult to imagine - 33.75 trillion, that is, 33,750 billion dollars.

To sum up

Public debt:

  • is the money borrowed by a nation to cover its financial needs

  • is funded primarily through government bonds

  • can be a risk, but also an opportunity

Good to know

Macao is the only country in the world with no public debt.