Comparing America's national debt to its peers
|Summary
The fiscal challenges facing the United States government are top of mind for decision makers. The federal government's debt-to-GDP ratio is near its highest level since World War II, and the federal budget deficit is much larger than the long-run average over the past half century, raising questions about the sustainability of the U.S. public debt on its current trajectory.
Yet, many of the drivers of America's fiscal imbalance are not unique. Other countries face similar or even bigger public finance headaches. In this report, we compare the U.S. fiscal position to some of its largest advanced economy peers.
There is no one single metric that fully encapsulates a country's public finances, and differences in accounting and methodology can make a perfect apples-to-apples comparison elusive. That said, by looking at a variety of measures largely put together by the International Monetary Fund, we can get a feel for the general government fiscal positions across the Group of Seven (G7) nations.
The United States has a general government debt-to-GDP ratio that is near the middle of the pack across the G7. The public debt burden is larger in places like Japan and Italy but smaller elsewhere, such as Germany and Canada. This is true when looking at both “gross” and “net” public debt. In short, the United States is not much of an outlier when looking narrowly at accumulated public debt.
In addition, the current U.S. debt burden is not unprecedented. The U.S. government's debt-to-GDP ratio was similar during and shortly after World War II.
However, other fiscal indicators look less favorable for the United States. The U.S. appears likely to run the largest structural budget deficit in the G7 at 6.7% of GDP in 2024. The U.S. government has the shortest weighted-average maturity of its public debt across the G7, and its net interest spending is also on the high side. In addition, the Federal Reserve holds a smaller share of the U.S. debt relative to central banks in other G7 nations.
The good news is that the United States government has some unique advantages relative to its peers. The U.S. dollar is the world's reserve currency and is backed by the world's largest and most diversified economy. The market for U.S. Treasury securities is the deepest and most liquid bond market in the world with a long history of strong creditworthiness.
That said, the U.S. fiscal outlook is concerning given debt levels that are high by historical standards and a budget deficit that is large relative to both its peers and history. Furthermore, net interest costs have climbed substantially amid the rise in interest rates from the low levels that prevailed in the 2010s. In our view, the problem is not so much the previous debt accumulation in the United States, which is large but manageable, but rather the outlook for sizable budget deficits as far as the eye can see.
An aging population, elevated interest rates and heightened national security concerns amid mounting geopolitical tensions will make fiscal consolidation a difficult task. That said, the optimal time for fiscal consolidation is during a period of wide budget deficits, low unemployment and elevated inflation. Deficit reduction via higher revenues, lower spending or some combination of the two would help set U.S. fiscal policy on a more sustainable path.
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