Czech Republic can be seen as doing quite well in regards to state debt. Slovakia, itsneighbor to the east, at first glance may appear as though it is outperforming its old partner in terms of debt.This may be true on a dollar by dollar basis, but in fact, Slovakia has a publicdebt equal to 34.8% of its GDP, which is slightly worse than the Czech Republic.Germany’s public debt is at a whopping 65.3%, France 66.6%, and Hungary’s publicdebt stands at 70.2% of GDP (World Fact Book). In fact, the Czech Republic ranks73
rd
out of 126 countries in terms of its ratio of public debt to GDP, 126
th
having the best ratio (World Fact Book). Now that I’ve explained where the Czech Republic is in terms of its debtrelative to some other countries in Europe, I think it is pertinent to explain why andhow debt occurs. Essentially, “countries accumulate debt whenever they run a budgetdeficit” (iadb.org). Even more specifically, if there are greater public expendituresthan the country produces revenue, then there will also be an increase in public debt.The Czech Ministry of Finance goes even further in their definition of publicdebt. For instance, they break debt down into four different categories: domestic debt,foreign debt, marketable debt, and non-marketable debt. Marketable debt are thingslike treasury bills and treasury bonds. One of the easiest ways of accruing debt is by borrowing from another country, and thus adding to your foreign debt as the Ministryalludes to. This can have devastating effects if the borrowing country goes throughextreme inflation.Consider the example of borrowing $1 from the United States and paying for it with 16 CZK. If the Czech Republic goes through a significant inflationary periodand the country’s exchange rate spikes to 30 CZK for $1, paying that $1 back will be3
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