A debt ceiling restricting the total amount of debt a country can borrow is not just an American invention. While rare in the developed world, there are a number of other countries that have adopted debt ceilings or limits into law. These are usually put into place as a signal to foreign investors of the country’s dedication to fiscal discipline. We were surprised by the lack of information on other countries with debt ceilings, so have compiled our own list here:
List of Countries with a Debt Ceiling/Debt Limit
1. United States of America
The poster-country for countries with debt ceilings, the US implemented it after WWI as a way to streamline all the debts that Congress had to approve. In a convoluted manner, it actually does not stop deficits but restricts the Treasury (which issues debt) from paying obligations on outstanding debt. The anachronistic nature of this ceiling has been a source of contention everytime there’s been a government shutdown or near default, most notably in 1995, 2011, and now 2013.
For a definitive guide to the US and its debt ceiling/limit, check out this report here.
Often cited as the “only” other democratic or developed country with a debt ceiling (a label that you will see is not completely true), Denmark is usually also touted as a role model for how the US should operate under a debt ceiling. Originally set at 960 billion DKK (about $175b USD), the closest they got to breaching the limit was in 2010 when debt reached 75% of the limit. Soon after the limit was bumped to 2 trillion DKK (about $365b USD) and so the country is in no danger of default.
Malaysia’s debt ceiling is tied to its GDP and is currently set at 55% of GDP. However, after years of fiscal looseness national debt is at 53% of GDP, highlighting the work the government needs to do to reign in spending. Similar to the US, the debt ceiling has also been raised multiple times in the past decade as the limit approached, rising from 40% in 2003 to 45% in 2008, then to 55% in 2009 where it stands now.Unlike the US or Denmark, this limit is not legally binding and discretionary to the Minister of Finance, but pressure has been building up with calls in the local media to adhere to this debt ceiling.
Despite these increases, by many measures Malaysia has already breached this limit long ago. There are numerous off-balance-sheet loans and contingent liabilities that have not counted to the official debt total. Also, large infrastructure projects have been developed through the use of Special Purpose Vehicles (SPVs) despite the fact that it is financed by the government. For more information, check out this post here.
Kenya has an external debt ceiling in place restricting the amount the country can borrow from external sources. Currently set at 1.2 trillion shillings (about $14.1 billion USD), this limit was increased in January 2013 from 800 billion shillings to accommodate infrastructure projects and adjust for the depreciation of local currency.
This limit has been put in place to help comply with government policies of balancing domestic with external debt to avoid external economic shocks. Traditionally the debt has been split about 50/50 between domestic and external, with the 2011 Medium Term Debt Strategy (MTDS) targetting a 70/30 split between domestic and external debt in the future. However, with a massive 425 billion shillings loan from China signed in August 2013, there is uncertainty how this will affect the debt ceiling in place.
Poland is another example of a country that has strict debt ceilings tied to its GDP. The main public debt limit is 55% of GDP, and there is also a constitutional limit of general government debt of 60% of GDP. In both cases, debt levels must fall by the next budget in order to comply with these limits.
Similar to other countries, there is a fair amount of number massaging in Poland to meet these limits, but currency risks have still pushed debt levels very close to the ceiling.
In its Fiscal Responsibility and Debt Limitation Act of 2005 (FRDL), Pakistan legislated a commitment to keeping public debt in control, most notably with a public debt limit of up to 60% of GDP.
Unfortunately there are claims that this debt ceiling has been breached in 2012, with debt estimated at 61.3% of GDP. Given the less developed nature of the economy, these claims have gone unanswered for now and the FRDL has fallen by the wayside.
Namibia also operates under a debt ceiling of 35% of GDP set in 2012, raised from 30% the year before. Debt is still projected to be under 30% of GDP despite a fiscal expansion to buffer against the recent recession, but more information can be found in their Fiscal Policy Framework here.
The US is not the only country in the world to be operating under a debt ceiling, although it may be the closest to actually suffering consequences for “breaching” it. Not included on the list were a host of countries that are under regional organizations that have debt to GDP limits for member countries. Examples would include the Economic and Monetary Union of the EU (60% Debt to GDP limit) or the West African Economic and Monetary UnioN (70% Debt to GDP limit). This is because the limits are usually only applied when a country is applying for membership, and even then the rules are lax (eg. Italy and the EU).
Let us know if we’ve missed any other obvious examples in the comments below!