Although few nations have a debt ceiling similar to the U.S.', rising government debt levels are a widespread global risk that may lead to lower economic output and weaker growth.
A default or funding delay in the U.S. Treasury market, the deepest and most liquid market in the world and a central component of the global financial system would undoubtedly have global impacts. Although a last-minute debt ceiling increase may address the immediate issue in the U.S., the level of government debt is still a major concern globally. The U.S. debt ceiling showdown offers an opportunity to examine how the rest of the world is seeking to limit the amount of government debt.
Debt ceilings are uncommon
Few nations have a debt ceiling similar to the United States, giving us no other countries to look to as a guide on the impacts of a debt-ceiling-driven crisis. After Australia abandoned its debt ceiling in 2013 after six years and four increases, only Denmark, Poland, Kenya, Malaysia, Namibia, and Pakistan currently limit the amount of government debt. Why so few? Perhaps because there is no evidence to suggest it limits spending.
Few nations have a debt ceiling
- Denmark, the only other developed country with a debt ceiling, has set its limit so much higher than the country's spending that it has not posed a constraint. Denmark's central government debt is currently only about 14% of the ceiling. Over the past 22 years, the U.S. has needed to increase the debt ceiling 22 times, while Denmark did so once but didn't need to. Denmark doubled its debt ceiling in 2010, well ahead of any risk of hitting it.
Source: Charles Schwab, created with mapchart.net as of 5/12/2023.
Low versus high debt ceilings
Source: Charles Schwab, Macrobond, Danmarks Nationalbank data as of 5/18/2023.