ECO 2303

Unit III Discussion Board

Question:
Many governments take foreign loans. Are these loans beneficial for gross domestic product? Why, or
why not?

Answer:
When we compare a countries total amount of debt with the total amount produced this gives us the debt-
to-GDP ratio and a clear picture of the countries ability in paying off this debt. The higher the debt-to-GDP
ratio number is, the less probability of the debt being paid. World Bank conducted a study on debt-to-GDP
ratio, they report any percentage point that rises above 77% will result in significant slowdowns in
economic growth. It is reported every percentage point of debt above this level costs countries 0.017
percentage points in economic growth. If a country defaults on its debt, it most probably will trigger
financial crisis not only in their own country, but worldwide. The country with the highest debt to GDP
currently is Japan, measuring 262.5% ratio. The US ranks in the 5th highest ratio at 128%. From 2010 t0
2018, foreign country loan debt more than doubled, because of an extraordinarily low interest rate. No
one could have forseen the upcoming coronavirus spread that shutdown our entire nation and incurred
debt amounts never imagined. I believe there are some countries that will see even more financial crisis
and possibly be in ruins, and all because of poor financial management.