The Safest National Debt In The World: And It’s Not From The US

August 19, 2010 by Douglas A. McIntyre

Nations with strong credit ratings did not experience the sovereign debt crisis that affected countries like Greece, Iceland, and Spain. Many countries with good credit ratings avoided the crisis because, among other reasons, they have large annual GDPs. However, despite healthy GDPs, credit ratings could weaken substantially if the budget deficits and national debt of these countries continue to rise. Today, the total sovereign debt of the 20 highest rated countries is over $15 trillion.

24/7 Wall St. has put together a list of the countries with the safest sovereign debt, based on a report published by Credit Market Analysis, a leading supplier of credit ratings for sovereign debt.

In addition to typical credit ratings, CMA also provided the “Cumulative Probability of Default” (CPD) for these countries. Some of these nations, as would be expected, have a very high probability of defaulting on their debt. According to the report, Greece and Venezuela each have at least a 50% chance of being unable to cover their sovereign debt in the next five years. As a result of the Greek credit crisis, these countries and others, including Spain and Portugal, have  received a great deal of attention in the press.

Despite the attention paid to countries with high credit risk, it is the countries with low probabilities of default – less than a ten percent chance of defaulting in the next five years – that  deserve greater attention. These economies are still recovering from one of the worst global economic crises in history. Like the U.S., many of these governments adopted aggressive policies to limit damage done to their economies. Many of these governments were willing to borrow heavily to fund expensive stimulus packages and industry bailouts. Their high sovereign credit ratings allowed them to do it with almost no limit to the amount they could borrow.

While the nations on this list spent trillions of dollars with borrowed money, nearly every economy on this list experienced at least a half-year of GDP contraction, contributing to a massive assumption of debt. As a result, many nations on the list have debts which represent more than 25% of their GDP. And some have debt of over half of their GDP, including the U.S. (52%), Germany (72%), and France (77%).

Thus, high-rated countries were able to assume massive debt to prop up their own economies, while less stable countries in the euro zone and elsewhere faltered. Accordingly, global markets were able to right themselves despite the collapse of smaller countries.

There is a risk, however, that capital markets will not always be able to meet the credit demands of the world’s largest and “safest” countries. As each nation’s debt grows, it is possible that even stable nations will have to compete for funding by increasing interest rates to the brink of sustainability- something the U.S. and the rest of the G8 have never had to do. All of this will only place additional strain on the capital markets, which could become quickly exhausted. That, in turn, could trigger a funding crisis for the treasuries of some of the world’s largest economies.

Countries on 24/7 Wall St.’s list are those with “the safest sovereign debt” in the world, according to the CMA and the major recognized ratings organizations. These are the nations that comprise the vast majority of global GDP and that lending organizations consider to be the most economically stable nations in the world.  They also maintain among the highest levels of debt.  Here’s why these countries have been safe, and why some of them might not be in the near future.


Norway

CPD% (Cumulative Probability of Default): 2.3%

GDP (Nominal): $369 billion

Total Sovereign Debt: $223 billion

Sovereign Debt As % Of GDP: 60.6%


Norway has profited heavily since its oil industry accelerated in the 1970’s and the country began receiving massive sums from petroleum exports. This influx of oil revenues has led the Scandinavian nation to the height of global prosperity. It has one of the lowest unemployment rates in the world and as one of the wealthiest populations in terms of GDP per capita. While the nation actually has an underdeveloped industrial sector, relying primarily on petroleum exports as well as shipping, the Norwegian government has set up a $457 billion fund to deal with the inevitable transition to a post-oil-based economy once reserves begin to diminish. Even this sum may not be enough to cushion a smooth transition from oil production.


Finland

CPD%: 3.1%

GDP (Nominal): $242 billion

Total Sovereign Debt: $106 billion

Sovereign Debt As % Of GDP: 44%


Finland experienced a serious recession in the early 1990’s. Since then, the Scandinavian nation recovered in a remarkable way, experiencing nearly two decades of uninterrupted growth. This period of prosperity has begun to wane, primarily due to the global economic crisis. Finland currently has a GDP growth rate of -7.8%, down from +1% the previous year. If this trend continues, don’t expect the CPD to remain this low for long. The nation nevertheless remains a European powerhouse. It trades heavily with the United States, primarily exporting machine parts and metals.


USA

CPD%: 3.4%

GDP (Nominal): $14.43 trillion

Total Sovereign Debt: $7.6 trillion

Sovereign Debt As % Of GDP: 52.9%


The United States Treasury bond has been the gold standard for safe investment since the 1950’s. The global economic recession hit the United States hard, and GDP contracted for the majority of 2009. In order to relieve pressure on American businesses, the U.S. government underwent a series of expensive bailouts in the auto industry and financial sector, paying out hundreds of billions of dollars. The United States economy has begun to recover, but growth has been slow. Citing a more-sluggish-than-expected recovery, the Fed has just decided to buy more debt.


Denmark

CPD%: 3.6%

GDP (Nominal): $308 billion

Total Sovereign Debt: $128 billion

Sovereign Debt as % Of GDP: 41.6%


The small Scandinavian nation benefits from having a heavily positive balance of trade. It has one of the largest shipping industries in the world and exports machine parts and meat products. Despite a 5% drop in GDP as a result of the global financial crisis, Denmark has a small population and a high gross domestic product, and so the country maintains a good standard of living and level of economic stability.


Sweden

CPD%: 3.7%

GDP (Nominal): $397 billion

Total Sovereign Debt: $142 billion

Sovereign Debt As % Of GDP: 35.8%


Like its Scandinavian neighbors, Sweden relies on heavy exports, as well as a highly skilled labor force, to fuel GDP. The country produces vehicles, construction equipment, and telecommunications components. Swedish citizens voted down a bid to join the Euro in a 2003 referendum, which has allowed it to maintain a greater freedom of international trade without being forced to support some of the weaker euro zone economies, but will also hurt trade potential. Swedish GDP is down 4.9% since the beginning of 2010, but analysts expect it to return to a state of GDP growth by the end of the year.


Germany

CPD%: 3.9%

GDP (Nominal): $3.27 trillion

Total Sovereign Debt: $2.36 trillion

Sovereign Debt As % Of GDP: 72.1%


The fourth-largest economy in the world and the largest in Europe suffers from being expected to carry many of the weak EU sovereigns on its back, notably Greece during its recent economic crisis there. Germany is one of the largest exporters in the world in of machinery, vehicles and chemicals. National GDP growth is projected to suffer as long as fertility and net immigration rates continue to drop. Despite experiencing a net contraction of 4% during the 2008-2009 recession, renewed demand for cars and machinery has yielded projected growth of 1.5% by the end of 2010.


Switzerland

CPD%: 4.3%

GDP (Nominal): $484 billion

Total Sovereign Debt: $196 billion

Sovereign Debt As % Of GDP: 40.5%


Switzerland maintains one of the world’s most stable economies, and the Swiss franc is one of the most stable currencies. This is aided by the famous Swiss international banking system and an extremely liberal trade policy. The Swiss economy experienced a slight contraction in 2009, and has mild GDP growth projected into 2010.


Netherlands

CPD%: 4.4%

GDP (Nominal): $799 billion

Total Sovereign Debt: $496 billion

Sovereign Debt As % Of GDP: 62.2%


The Netherlands has stable international relations, as well as a low unemployment rate and a high current account surplus. The country was nevertheless significantly impacted affected by the global economic crisis. Exports dropped almost 25% in 2009, but government programs and bank bailouts have improved growth. This has, however, led to a significant increase in Dutch sovereign debt.


Hong Kong

CPD%: 4.9%

GDP (Nominal): $208 billion

Total Sovereign Debt: $78 billion

Sovereign Debt As % Of GDP: 37.4%


Hong Kong has one of the most free-trade oriented economies in the world. As a port of trade, it relies extensively on re-exporting goods from China and its other partners. As many of the country’s trading partners have suffered during the global recession, the Chinese administrative region has as well. Hong Kong officials employed a massive stimulus package, worth 5.2% of national GDP, in order to aid its poorest citizens. A burgeoning tourism industry as a result of relaxed Chinese restrictions and gradual recovery in international trade has contributed to increased stability in Hong Kong.


Saudi Arabia

CPD%: 5%

GDP (Nominal): $384 billion

Total Sovereign Debt: $87 billion

Sovereign Debt As % Of GDP: 37.4%


Saudi Arabia thrives on its oil exports, and the Middle-Eastern nation represents the economic cornerstone of OPEC. While it relies heavily on its petroleum extraction and trade, the country is striving to diversify its economy by increasing its domestic services, power generation, and telecommunication industries. Saudi Arabia has improved its trade potential as a result of signing onto the World Trade Organization in 2005. Terrorism has hurt the nation’s tourism industry and foreign investors


Australia

CPD%: 5.2%

GDP (Nominal): $930 billion

Total Sovereign Debt: $163 billion

Sovereign Debt As % Of GDP: 17.6%


Australia is extremely resource-rich, which has enabled it to attract a great deal of foreign investment. The island nation was in a growth phase for nearly two decades before the global financial crisis, and while it experienced a slowdown, the economy grew by 1.5% during the first three quarters of 2009, which made it the best-performing nation in the OECD. Agricultural and mining sectors account for the bulk of Australia’s exports.


New Zealand

CPD%: 6.1%

GDP (Nominal): $109 billion

Total Sovereign Debt: $24 billion

Sovereign Debt As % Of GDP: 22.2%


New Zealand relies heavily on agricultural exports (dairy, meat, wool) to fuel their stable, if not robust, economy. In the 1990’s, the administration restructured and sold a great deal of government-owned businesses, which reduced its debt and allowed New Zealand to continue to trade more liberally with its neighbors, the biggest of these being Australia. The current New Zealand government plans to raise productivity growth and develop infrastructure, while attempting rein in government spending.


Qatar

CPD%: 6.4%

GDP (Nominal): $92 billion

Total Sovereign Debt: $14.5 billion

Sovereign Debt As % Of GDP: 15.7%


Qatar has the second-highest income per capita in the world, primarily because of fossil fuel exports, it largest producer of liquefied natural gas in the world. Like many of the countries on this list, Qatar experienced an economic slowdown during 2009. Instead of contracting, however, the economy grew more than 9%. Foreign investment accounts for more than half of Qatari GDP.


United Kingdom

CPD%: 6.6%

GDP (Nominal): $2.1 trillion

Total Sovereign Debt: $1.4 trillion

Sovereign Debt As % Of GDP: 68.1%


A heavily service-driven economy, the UK is one of the leading European nations in the banking and insurance industries. The nation enjoyed a period of growth that outpaced most of Europe, but was hit particularly hard by the global economic crisis. Heavy consumer debt and plummeting home prices hit the British Isles particularly hard, the Brown administration implemented a heavy stimulus package and nationalized a large section of the banking sector with moderate success.


Czech Republic

CPD%: 7%

GDP (Nominal): $189 billion

Total Sovereign Debt: $64.6 billion

Sovereign Debt As % Of GDP: 34.1%


The Czech Republic is the most economically healthy post-Soviet-satellite in Eastern Europe. The country is in an ideal trade location in Europe and is export heavy across a wide variety of products. While the Czech economy performed relatively well during the recession, GDP contracted 4.1% as a result of reduced demand from its trading partners.


Chile

CPD%: 7.3%

GDP (Nominal): $150 billion

Total Sovereign Debt: $9.1 billion

Sovereign Debt As % Of GDP: 6.1%


Chile is regarded by many as one of the most fiscally sound South American nations. It managed to maintain stability during the global crisis by utilizing saved revenues. The country’s peso has historically performed well against the U.S. dollar, which has kept inflation at a healthy low. The recession, however, caused a reversal in this trend, and inflation has risen 8%. Chile supports largely unrestricted free trade and has a great deal of foreign investors, particularly for its massive copper industry. International investors in Chile have increased more than 400% in the last five years.


Slovenia

CPD%: 7.6%

GDP (Nominal): $49.5 billion

Total Sovereign Debt: $15.7 billion

Sovereign Debt As % Of GDP: 31.8%


Slovenia joined the European Union in 2007, which has greatly stabilized the country. It became the first country to make the transition from borrower to donor at the World Bank. The government has taken an active role in bolstering regional businesses from the recession fallout, which has increased its debt significantly.


Abu Dhabi

CPD%: 7.7%

Sovereign Debt As % Of GDP: 24/7 Wall St. contacted the UAE embassy in New York.  Employees indicated they could not provide the information. (The only country that failed to make the information available.)

GDP (Nominal): $159 trillion

Total Sovereign Debt: (see above)


Abu Dhabi, one of the states in the United Arab emirates, is another heavy oil-exporting country, with 9% of the world’s proven reserves within its borders. The Abu Dhabi government has made an effort to diversify the economy with reasonable success. The country also has a lucrative financial services sector.


Austria

CPD%: 7.8%

GDP (Nominal): $374 billion

Total Sovereign Debt: $259 billion

Sovereign Debt As % Of GDP: 69.3%


Austria is quietly one of the most economically stable countries in mainland Europe, at least partially because of its close economic ties to Germany. The country’s economy made a major transition in the late 1980’s after the government sold off a large portion of State owned business to the private sector. Austrian GDP dropped 3.5% in 2009, but is expected to recover to 2% growth in 2010.


France

CPD%: 7.8%

GDP (Nominal): $2.6 trillion

Total Sovereign Debt: $2 trillion

Sovereign Debt As % Of GDP: 77.5%

France is the world’s fifth-largest economy. Despite significant reform and privatization over the past 15 years, the government continues to control a large share of economic activity. The development of nuclear power, which now accounts for about 80% of the country’s electricity production, promises a certain degree of long-term stability as a result of significantly reduced reliance on oil. French productivity, on the other hand, is continually at odds with its powerful labor unions, which have created some of the shortest work weeks in Europe. The Government recently passed a highly-contested bill to allow more businesses to operate on Sundays.

-Michael B. Sauter

Take This Retirement Quiz To Get Matched With An Advisor Now (Sponsored)

Are you ready for retirement? Planning for retirement can be overwhelming, that’s why it could be a good idea to speak to a fiduciary financial advisor about your goals today.

Start by taking this retirement quiz right here from SmartAsset that will match you with up to 3 financial advisors that serve your area and beyond in 5 minutes. Smart Asset is now matching over 50,000 people a month.

Click here now to get started.