How is the size of the debt measured?

The best way to measure the extent of a government’s indebtedness is to compare its debt with the size of the economy. This allows to establish the debt weight, or debt burden. The indicator used to measure the size of the economy is called Gross Domestic Product (GDP). The debt-to-GDP ratio is then calculated.

Briefly, GDP:

• represents the total value of goods and services produced in an economy during a given period;
• is the source of the revenue the government collects to finance its activities, including payment of debt service.

Comparing a government’s debt to GDP is similar to what is done, for example, for a person who wants to borrow to buy a house. The amount of the debt (mortgage, car loan, etc.) is compared to this person’s income to assess his or her level of indebtedness.