DEBT TO GDP RATIO

The debt-to-GDP ratio is the ratio between region’s government debt (a cumulative amount) and its gross domestic product (GDP). It measures the financial leverage of an economy, in other words it measures how the use of borrowed funds in the purchase of an asset, with the expectation that the income from the asset and asset price appreciation will exceed the borrowing cost.

A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt. Geopolitical and economic considerations - including interest rates, war, recessions, and other variables - influence the borrowing practices of a nation and the choice to incur further debt.

Usually only the eternal debt is used in measuring this indicator and a high external debt is believed to have harmful effects on an economy. So far, all the states in Nigeria have a debt-to-GDP ratio of below 5% which is well within the internationally recommended range of no more than 60%.