Debt-to-GDP Ratio Surpasses 100%, Is the US on the Brink of Bankruptcy?

Jakarta, CNBC Indonesia - The United States’ national debt has now surpassed 100% of gross domestic product (GDP), breaching a threshold previously considered unlikely. This condition places the debt-to-GDP ratio on track to exceed the record set after the Second World War.

Based on data as of 31 March, US public debt reached US$31.265 trillion, while the previous year’s GDP stood at US$31.216 trillion. Thus, the debt-to-GDP ratio stands at 100.2%, up from 99.5% at the end of the previous fiscal year on 30 September.

According to The Wall Street Journal, this increase is expected to continue due to the federal government recording large annual deficits, approaching 6% of GDP. These deficits continue to add to the debt burden amid government spending of US$1.33 for every US$1 in revenue.

This year’s budget deficit is projected to reach US$1.9 trillion, relatively unchanged from 2025. The final figure still depends on several factors, such as spending on the Iran war, tariff refunds, and overall economic strength.

Nevertheless, the 100% level does not immediately represent a critical boundary between safe conditions and crisis. The ratio may fluctuate in the coming quarters in line with changes in tax receipts, expenditures, and GDP dynamics.

However, this three-digit figure symbolises the fiscal pressures that have accumulated over decades. Policymakers from both political parties have voiced concerns, though they continue to prioritise short-term politically beneficial policies such as tax cuts and increased spending.

Economists view the debt-to-GDP ratio as a primary indicator for measuring the borrowing burden on the economy. The higher the ratio, the greater the resources absorbed in debt repayment rather than productive activities.

The government also becomes more sensitive to interest rate changes as debt rises. Currently, about one in seven dollars of federal spending is used to pay interest on the debt.

A 0.1 percentage point increase in interest rates is estimated to add up to US$379 billion in costs over 10 years. This highlights the high fiscal risk faced if borrowing costs rise.

In the long term, economists warn that high debt could drive up interest rates, including for mortgages, car loans, and credit cards. Additionally, debt could hinder private investment by absorbing available capital in the market.

Some economists also assess that high debt could trigger inflation if the central bank is pressured to keep interest rates low or print money. This situation occurred during the 2020 pandemic when the debt ratio temporarily exceeded 100% due to a surge in borrowing and a decline in GDP.

However, after the pandemic, the ratio temporarily fell with economic recovery and inflation driving nominal GDP growth. Nevertheless, for the first time since 1946, the US is expected to close the fiscal year with a debt ratio above 100%.

The Congressional Budget Office (CBO) estimates the ratio will reach 100.6% by the end of the fiscal year on 30 September and surpass the record by 2030. Indeed, the debt ratio is projected to rise to 120% in 2036 and 175% in 2056.

By comparison, the US debt-to-GDP ratio peaked at 106.1% in 1946 before dropping sharply due to post-war economic growth. The ratio even fell below 40% in 2008 before surging again due to the global financial crisis and the pandemic.

The US government has also continued to add debt through various policies such as tax cuts and increased social spending. Meanwhile, demographic factors like an ageing population further increase the burden of programmes such as social security and healthcare.

Although the US has the advantage of issuing the world’s reserve currency and its bonds are considered safe assets, the room to continue adding debt remains limited. Without significant economic growth, maintaining the debt ratio around 100% would require unpopular policies such as spending cuts and tax increases.

Over the next decade, the cumulative deficit is projected to reach US$24 trillion. To stabilise the debt ratio at 100%, fiscal adjustments worth about US$10 trillion would be needed through a combination of policies.

Although the debt issue was a major concern in the 1980s to 1990s era, the current policy response is still deemed minimal. Economists assess that the biggest challenge is not only the economic conditions but also the political dynamics that hinder long-term solutions.