Wednesday, December 2, 2009

Government Debt 101

Debt-to-GDP ratio of the central government (that doesn't include parastatal debt) is down by about 8.5% since its 2005 level. That's roughly where it was in 2000. How could that have happened given that the economy grew by about the same speed throughout the last decade (4.33%)?

Simple. Headline GDP numbers are calculated in real rupees -- after taking inflation into account -- while debt-to-GDP numbers involve nominal amounts. The trick is to make sure that the denominator increases faster than the numerator. For example nominal GDP has increased annually by 10.59% on average between 2005 and 2009 while debt has increased by only 6.26%. The corresponding numbers for Federation 2 are respectively 9.03% and 13.24% which would explain why the ratio went up.

Why did government debt increase at a slower rate during the last 4.5 years? We've covered that already. How important has been to lower the ratio? The answer to this question is another question: how has your life changed in the last 4.5 years?


akagugo said...

What has changed in the last 4.5 years?? well, when building my house in 2007 I hoped to have respite ffrom taxes by claiming for a refund of interests paid on the housing loan... Erreur fatale! This is what has changed: now I know fo rsure that whatever effort I put in working to increase my revenue and increase the comfort of my family, I'll need to pay for more and more taxes, while there will be another kind of people who simply need to shout for obtaining priviledges "mufta" / free of charge

Sanjay Jagatsingh said...

Wi, ti a c deguelass sa. Buku dimun zot financial planning ine bez dan dilo letan Sithanen/Mansoor ine kumans fer zot ban lexperiens inumin.