Issue No agreed threshold marks the point where government debt becomes unsustainable

Summary

MGI points out that there is no universally accepted threshold or range at which government debt turns unsustainable. This is especially true for high-income economies that borrow in their own currencies. Instead, the report looks at the relationship between nominal growth and long-term bond yields alongside the size of primary deficits. As long as growth exceeds the interest rate, a government has some fiscal room to run primary deficits without its debt-to-GDP ratio rising, because borrowing costs less than the economy grows. The wider that gap, the more room there is, which is why the report tracks the recent narrowing of the gap closely.