Question of the Day – DEBT-TO-GDP RATIO
QOTD April 16,2026
Consider the following statements regarding Debt-to-GDP Ratio:
- It measures the total debt of a country as a percentage of its Gross Domestic Product.
- A higher debt-to-GDP ratio always indicates a healthy economy.
Which of the above statements is/are correct?
(a) 1 only
(b) 2 only
(c) both 1 and 2
(d) neither 1 nor 2
Answer: (a) 1 only
Explanation:
Statement 1 is correct
It represents the proportion of a country’s debt compared to its economic output, indicating repayment capacity.
Statement 2 is incorrect
A higher ratio indicates higher debt burden and may signal fiscal stress, not necessarily a healthy economy.
Why in news–
The debt-to-GDP ratio has been in news due to concerns over rising public debt levels globally and in India. Reports by International Monetary Fund and Reserve Bank of India have highlighted the sustainability of government borrowing as countries increased spending during economic slowdowns and post-pandemic recovery. For India, managing fiscal deficit while ensuring growth has brought focus on maintaining a stable debt-to-GDP ratio.
News-Union Budget 2025: Govt details roadmap for shift to debt-GDP ratio as fiscal anchor from FY 2026-27 | Business News – The Indian Express
There are more questions from this topic that you should practice to make your concepts stronger.
Practice Questions (PQ)
PQ1.Consider the following statements:
- Debt-to-GDP ratio is used to assess the fiscal sustainability of a country.
- It includes both public and private sector debt in its calculation.
Which of the statements given above is/are correct?
(a) 2 only
(b) 1 only
(c) both 1 and 2
(d) neither 1 nor 2
Answer : (b) 1 only
Explanation:
Statement 1 is correct
It helps in evaluating whether a country can sustain its debt levels over time.
Statement 2 is incorrect
Usually, it refers to government (public) debt, not private sector debt.
PQ2. Consider the following statements:
- A country with its own currency can never face a debt crisis.
- Debt sustainability depends on interest rate and growth rate dynamics.
- Primary deficit contributes to increase in public debt.
- Debt-to-GDP ratio is unaffected by exchange rate fluctuations.
Which of the statements given above is/are correct?
(a) 2 and 3 only
(b) 1, 2 and 4 only
(c) 2, 3 and 4 only
(d) 1 and 4 only
Answer: (a) 2 and 3 only
Explanation:
Statement 1 is incorrect
Even countries with sovereign currency can face crises due to inflation or mismanagement.
Statement 2 is correct
If growth rate exceeds interest rate, debt is more sustainable.
Statement 3 is correct
Primary deficit increases borrowing and thus debt stock.
Statement 4 is incorrect
Exchange rate affects external debt valuation, impacting the ratio.
PQ3. Consider the following statements:
- Debt-to-GDP ratio is a key parameter used by credit rating agencies.
- A declining debt-to-GDP ratio always means reduction in absolute debt.
- Government borrowing to finance capital expenditure may improve long-term debt sustainability.
- Debt-to-GDP ratio is irrelevant for fiscal policy decisions.
Which of the statements given above is/are correct?
(a) 1 and 3 only
(b) 1, 2 and 4 only
(c) 2 and 3 only
(d) 1, 3 and 4 only
Answer: (a) 1 and 3 only
Explanation:
Statement 1 is correct
It is widely used to assess fiscal health and creditworthiness.
Statement 2 is incorrect
Ratio may fall due to GDP growth even if debt rises.
Statement 3 is correct
Productive investment can boost growth and improve sustainability.
Statement 4 is incorrect
It is an important factor in fiscal policy planning.
Previous Year Question (UPSC Prelims)
With reference to the Indian economy, consider the following statements:
- An increase in the fiscal deficit necessarily means an increase in the public debt.
- A high public debt does not necessarily imply a high debt servicing burden.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) both 1 and 2
(d) neither 1 nor 2
Answer: (c) both 1 and 2
Explanation:
Statement 1 is correct
Fiscal deficit reflects borrowing requirements, adding to public debt.
Statement 2 is correct
Debt servicing depends on interest rates and repayment terms, not just total debt.
