Key Takeaways
- The U.S. debt-to-GDP ratio is the fourth largest among a group of nearly 40 developed economies, according to the Organization for Economic Co-operation and Development (OECD).
- Last year, the country’s debt-to-GDP ratio was the highest since World War II as spending designed to help Americans recover from the pandemic added to debt levels.
- The OECD said there is still room for the U.S. to narrow the gap between how much money it brings in and how much money it spends.
U.S. national debt relative to its economic output is now among the highest for developed countries even as the economy chugs along, a report by an international economic agency showed.
The Organization for Economic Co-operation and Development (OECD) warned U.S. debt increased to 122% the size of its gross domestic product (GDP) last year. The debt-to-GDP ratio is an often-used metric to gauge a country’s ability to repay what it owes.
The U.S. national debt has grown in the wake of the COVID-19 pandemic as policymakers voted to spend money to help stimulate the economy during that time. The U.S. debt-to-GDP ratio is at its highest since World War II and is the fourth largest—behind only Japan, Greece and Italy—among the 38 OECD member states.
Unlike its peers, U.S. debt ratio has not returned to its pre-pandemic levels, the OECD found.
There Is Opportunity to Lessen US Debt
At the same time, the group’s 2024 Economic Survey of the United States showed consumer spending, a strong labor market and eventual interest rate cuts should all help to keep the U.S. economy moving forward, albeit at a slower pace. The OECD projected U.S. gross domestic product (GDP) to increase slightly in 2024 to 2.6%, before slowing to 1.8% in 2025.
“This strong recovery creates a good opportunity to start narrowing the budget deficit and put debt on a more prudent path,” said OECD Secretary-General Mathias Cormann, who urged the U.S. to enact a series of spending cuts and tax hikes in 2025 to begin pruning the budget deficit.
The report noted the U.S. should consider making changes in its budgeting process, including eliminating the “debt ceiling” that has led to political standoffs.
“Replacing the debt ceiling with a simple medium-term debt ratio target would be simpler than existing legislative budget rules and would provide more clarity for public budgeting,” the report said.
