Introduction: Global Debt Per Capita Interactive World Map

When countries spend more money than they earn, they borrow from others, creating what's known as external debt. This applies to governments, and this also applies to businesses and individuals within a country. Just like people can have loans and mortgages, nations have debts that they owe to foreign lenders. This map and our guide take you on a journey around the world to see how much debt countries are in, compared to what they produce in a year — their GDP. If you look at the world map above, you'll probably start wondering why foreign debt is so prominent in Europe. And why are Asia and South America performing so well when it comes to keeping foreign debt in check? It appears that foreign debt is typically higher in the west and more developed world.

Methodology & How External Debt is Measured

The figures in this article are sourced as follows:

• Population data: Taken from the UN Data Bank, specifically from the table: "Total population, both sexes combined"
• External debt figures: Taken from the CEIC, using both the exact figures for external debt as well as the table with external debt as percentage of nominal GDP.

The world map above is built using highcharts, and the bar chart further down this article is made using apexcharts.

What is the Significance of External Debt in National Economies

Think of external debt as a country's tab at a bar. While having a tab isn't bad per se, it's all about whether you can settle it without breaking the bank. For nations, external debt can be a springboard to prosperity or a slip into a financial sinkhole. It's a balancing act — borrow too little, and growth might stall; borrow too much, and the economy might get a hangover. Let's weigh the pros and cons of external debt:

• Pro: Access to Funding – External debt enables countries to access funding for infrastructure projects, education, and healthcare that may not be available through internal resources alone.
• Pro: Economic Growth – By borrowing from abroad, countries can invest in growth-promoting activities, increasing their economic output and living standards.
• Pro: Global Integration – Engaging in international lending and borrowing can integrate a country more deeply into the global economy, and this can in turn open up trade and investment opportunities.
• Con: Repayment Obligations – Debt, as usual, is repaid with interest. Foreign relations suffer if a country is unable to pay back it's debt.
• Con: Currency Risk – External debt is often denominated in foreign currencies (typically $ USD, see this article by Egemen Eren and Semyon Malamud on ScienceDirect). If a country's currency weakens, it becomes more expensive to repay the debt.
• Con: Sovereignty and Policy Constraints – High levels of external debt can limit a country's economic policy options and may lead to dependency on creditors, which can affect sovereignty.

The Top 10 Countries With the Highest Per-Capita External Debt

The chart below demonstrates the top 10 countries with the highest external/foreign debt in USD per capita. Looking at external debt as percentage of nominal GDP is a better statistic, but it is nevertheless interesting to look at the per-capita figure. Before I address the figures, take a look at the chart:

Your reaction to the chart above is likely: "Woah there, Luxembourg, what's this hullabaloo about?" It might seem odd at first glance—Luxembourg, a small yet famously wealthy country, topping the charts with such a high per-capita external debt. The key lies in understanding Luxembourg's position as a global financial hub. Much of this "debt" isn't what you might think—it doesn't mean the country is financially struggling. Instead, it reflects Luxembourg's role as a major center for international banking, investment funds, and corporations. These entities often have their European headquarters there and manage large sums of money, contributing to the country's high external debt statistics. In essence, it's not about the country owing money and more about the money flowing through it. And don't worry, we'll dive into Ireland's story a bit later, which is another intriguing case on our list as Ireland scores second place globally on the external debt per-capita.

Why is there so much foreign debt in Europe?

If you looked at the world map in the top of the page, you'd likely think: "Woah Europe, What's the kerfuffle all about?" Well, it's not about buying too many fancy coffees or splurging on fashion as you might think, stereotypically (I'm joking...). The story behind Europe's high foreign debt is a recipe with lots of ingredients. First off, many European countries have been around for ages, building up layers of financial commitments. Add a dash of ambitious infrastructure projects, a sprinkle of welfare states that ensure everyone's looked after, and voila, you've got yourself a hefty tab.

But wait, there's more! Europe's knack for innovation and cross-border business means they're not just playing in their backyard; they're in a global playground. This opens up the lending and borrowing gates wide. Also, let's not forget, some of these countries are like the Michelin-star restaurants of the financial world — places like Luxembourg and Switzerland — attracting heaps of investment. And with investment, comes debt.

Lastly, remember the 2008 financial crisis? Europe took a hit like a fine porcelain plate dropping to the floor. Recovering from that meant borrowing money to glue things back together. So while Europe's debt might seem like a head-scratcher at first glance, there's a lot of history, strategy, and resilience baked into those numbers. Don't worry; we'll get into Ireland's story in a minute, which is another fascinating chapter of this saga.

China and Russia's Lower Foreign Debt

When we look at the world map of foreign debt, China and Russia stand out because they owe less money to other countries compared to many Western nations and are usually expected to be similar to other superpowers such as the USA. There are a few reasons for this. First, both countries have been very careful about borrowing from abroad. Instead of taking loans from other countries or international organizations, they've often used their own money to fund development and growth. This approach keeps their debt levels more manageable.

China, for example, has huge reserves of foreign currency (see China Foreign Exchange Reserves on tradingeconomics.com), which means it has a lot of money from other countries saved up. It uses this money to invest in its own economy instead of borrowing more. Russia, on the other hand, has vast natural resources, especially oil and gas. Selling these resources to other countries brings in a lot of money, which it can then use for its needs without having to borrow as much.

Additionally, both countries have policies aimed at keeping foreign debt low. They see high levels of debt as a potential risk to their economic independence and security. By keeping debt low, they maintain more control over their economies and reduce their vulnerability to financial crises that can happen if foreign creditors suddenly want their money back.

So while it might seem surprising at first that giants like Russia and China have relatively low foreign debt, it’s because of their cautious approach to borrowing and their use of internal resources and policies to fund their growth and development.

Ireland's External Debt Exceeds 500% of GDP

Seeing Ireland's external debt soar past 500% of its GDP might raise some eyebrows. But to understand this staggering figure, we need to delve into a bit of Ireland's recent financial history. The tale is one of rapid economic expansion, followed by a dramatic crash, largely influenced by global economic tides and domestic policy decisions.

During the late 20th and early 21st centuries, Ireland transformed from one of Western Europe's most impoverished countries into a dynamic hub for digital technologies, banking, and finance. This change was driven in part by foreign banks lending to Irish banks, which then fueled a property price boom. By 2007, the country's private sector borrowing led its foreign debt to reach an astounding 1,000% of GDP.

However, this prosperity was on shaky ground. The global financial crisis of 2008 was the first domino to fall. Irish banks, heavily invested in the property market, faced massive losses as property prices plummeted. The situation was exacerbated when the Irish government decided to guarantee the debts of six major banks, effectively nationalizing private sector losses. This move, intended to stabilize the financial system, ballooned the government's debt from a manageable 10% of GDP to over 100% in just a few years.

The guarantee included debts from the Anglo-Irish Bank, which alone could not cover payments to its bondholders, leading to further government intervention and debt accumulation. Despite these efforts, the economy contracted significantly, unemployment tripled, and austerity measures hit the vulnerable hard. Calls for debt repudiation, particularly concerning the Anglo-Irish Bank's obligations, have been strong, underscoring the debate on the legitimacy of such debts.

In 2010, the EU and IMF stepped in with an €85 billion loan, marking yet another indirect bailout for banks at the expense of the Irish state and its citizens. The aftermath left Ireland with a greatly reduced economy, high unemployment, and ongoing debates about debt justice and economic policy.

This case study reveals the complexities of external debt and the interplay between domestic policies and global economic forces. Ireland's journey from boom to bust and its ongoing recovery efforts offer critical lessons on financial management, the risks of speculative bubbles, and the societal impacts of economic crises.

Frequently Asked Questions About External Debt

• What is external debt? External debt is the total amount of money that a country owes to foreign creditors, including governments, businesses, and international financial institutions.
• Why do countries have external debt? Countries borrow money from abroad to finance growth, development projects, and sometimes to manage their budget deficits. It's a way to invest in the future but comes with the obligation to repay with interest.
• Is a high level of external debt bad? Not necessarily. It depends on the country's ability to manage and repay its debts. High debt can be sustainable if it's used for productive investments that grow the economy. However, too much debt can lead to financial instability.
• Why is Ireland's external debt so high? Ireland's external debt skyrocketed due to the financial crisis of 2008, when the government guaranteed the debts of major banks. This transformed private debt into public debt, significantly increasing the country's obligations.
• What's the difference between external debt and sovereign debt? External debt includes all debts owed by residents of a country to non-residents. Sovereign debt refers specifically to the government's debt, which is a subset of external debt.
• Why do Europe's debt levels appear high? Many European countries have developed economies with mature financial systems, which include substantial cross-border investments. Their external debt levels reflect both government borrowing and private sector activities, including those of multinational corporations based in these countries.
• How do China and Russia manage to keep their external debt low? Both countries follow policies aimed at limiting foreign borrowing and have substantial reserves and resources. China has large foreign currency reserves (more than $3.225 trillion USD as of 2024), while Russia benefits from revenues from natural resources, helping them maintain lower levels of external debt.
• What were the consequences of Ireland's debt guarantee? The decision to guarantee bank debts led to a sharp increase in public debt, economic contraction, and austerity measures. Unemployment rose, and the government had to accept international loans to prevent default, further increasing the debt burden.
• Can external debt lead to economic crises? Yes, if not managed carefully. Excessive borrowing can lead to repayment difficulties, currency devaluation, and reduced investor confidence, potentially triggering a financial crisis.
• What can be done to manage high levels of external debt? Strategies include restructuring debt to more manageable terms, improving economic growth to increase revenue, implementing fiscal austerity measures, and in some cases, seeking debt relief or forgiveness from creditors.