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Consider a fictional country Gudzan-Tservijstan with a GDP of \$100bn USD, a total (public and private) debt of \$100bn USD, and a PPP conversion factor of 2.

Are there advantages to considering the country's debt-to-GDP(PPP) ratio (in this case 1:2) rather than its debt-to-GDP ratio (in this case 1:1)? Would it make sense to consider that for internal debt only? Does it depend what currency the debt is in?

I have a comparison between two non-fictional countries in mind, which I can specify if that's helpful.

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    $\begingroup$ Assuming the country wants to pay back the debt, then it must pay using actual dollars (e.g. dollars earned by selling exports). So you should look at nominal gdp in dollars (not PPP$). $\endgroup$
    – Daniel
    Nov 7, 2023 at 2:47

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  1. People use Debt-to-GDP because both theoretically and intuitively size of the debt matters relative to income not in absolute. E.g. having 100000 dollars of debt when you earn billion dollars per month is not an issue, whereas having 500 dollars of debt when you earn 10 dollars per month can be a disaster.

  2. There is no such clear correspondence between debt and PPP. In fact since PPP is by convention expressed in terms of US price level all you are doing is adjusting the debt value such that the value is more comparable in terms of US prices.

    This only makes sense if you want to compare total debt of country x against total debt of country y, but total amount of debt is irrelevant. Again, even if you correctly control for price level differential, having 100k dollar debt while earning billions is not an issue, and having lets say 500k debt while earning pennies is tragedy.

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