The global economy is facing an unprecedented debt crisis, with several nations drowning in unsustainable levels of borrowing. From Japan’s staggering public debt to Venezuela’s economic collapse, many countries are struggling just to stay afloat.
But what makes a country’s debt unsustainable? How do debt-to-GDP ratios, inflation, and political instability push economies to the brink? And which nations are at the highest risk of default or economic ruin in 2025?
Using the latest IMF, World Bank, and sovereign debt reports, we provide an in-depth look at the nations fighting for survival.
What Makes a Country’s Debt Unsustainable?
1. Debt-to-GDP Ratio: The Key Indicator
A country’s debt-to-GDP ratio measures its debt relative to economic output. Economists consider:
- 60% or lower = manageable
- Above 100% = high risk
- Over 150% = critical danger
2. Foreign vs. Domestic Debt
- Foreign debt (owed to other countries/IMF) is riskier because it requires foreign currency reserves.
- Domestic debt (owed to local banks/investors) is easier to manage but can still lead to inflation or banking crises.
3. Political Instability and Corruption
Countries with weak governance, corruption, or conflict struggle to repay debts, leading to defaults or hyperinflation (e.g., Venezuela, Lebanon).
Top 10 Most Indebted Countries in 2025
1. Japan (Debt-to-GDP: 260%)
Japan holds the highest debt burden in the world, but its unique economy keeps it stable—for now.
- Why? Decades of stimulus spending, an aging population, and low inflation.
- Risk Level: Moderate (most debt is domestic, owned by Japanese banks).
2. Greece (Debt-to-GDP: 190%)
Still recovering from its 2010 debt crisis, Greece relies on EU bailouts.
- Why? Austerity measures failed to boost growth.
- Risk Level: High (depends on EU support).
3. Lebanon (Debt-to-GDP: 180%)
Lebanon is in economic freefall, with banks collapsing and currency losing 90% of its value.
- Why? Corruption, political chaos, and a 2020 sovereign default.
- Risk Level: Extreme (no recovery in sight).
4. Italy (Debt-to-GDP: 150%)
Europe’s next debt crisis hotspot, Italy faces slow growth and banking vulnerabilities.
- Why? Weak reforms, high unemployment.
- Risk Level: High (threatens Eurozone stability).
5. Venezuela (Debt-to-GDP: 350%+)
Venezuela’s economy is destroyed by hyperinflation and sanctions.
- Why? Mismanagement, oil dependency, U.S. sanctions.
- Risk Level: Extreme (already in default).
6. Sri Lanka (Debt-to-GDP: 120%)
After defaulting in 2022, Sri Lanka struggles with food and fuel shortages.
- Why? Mismanagement, tourism collapse, Chinese debt traps.
- Risk Level: Very High (dependent on IMF bailout).
7. Argentina (Debt-to-GDP: 90%)
Argentina has defaulted nine times and faces another crisis.
- Why? Inflation over 200%, political instability.
- Risk Level: High (another default likely).
8. Ghana (Debt-to-GDP: 85%)
Ghana recently defaulted and is restructuring debt with the IMF.
- Why? Rising borrowing costs, currency collapse.
- Risk Level: High (needs debt relief).
9. Pakistan (Debt-to-GDP: 80%)
Pakistan is one IMF bailout away from collapse.
- Why? Political turmoil, floods, and Chinese loans.
- Risk Level: Very High (on the brink).
10. Ukraine (Debt-to-GDP: 90%+)
War has doubled Ukraine’s debt, relying on Western aid.
- Why? Destruction from war, reconstruction costs.
- Risk Level: Extreme (depends on foreign support).
How Are These Countries Surviving?
1. IMF Bailouts and Debt Restructuring
Many (Sri Lanka, Ghana, Pakistan) depend on IMF loans, but these come with harsh austerity conditions.
2. Printing Money (Leading to Hyperinflation)
Venezuela and Argentina print money to pay debts, destroying their currencies.
3. Debt Defaults (Last Resort)
Lebanon, Venezuela, and Sri Lanka stopped repayments, but this cuts off future credit.
Common Misconceptions About National Debt
1. “High Debt Always Leads to Collapse”
Not always—Japan proves high debt can be managed if controlled domestically.
2. “Only Poor Countries Default”
Greece and Argentina show that even middle-income nations can collapse.
3. “Debt Relief Solves Everything”
Without economic reforms, debt relief just delays the next crisis (e.g., Greece).
Future Outlook: Who’s Next in Line for Crisis?
- Egypt, Tunisia, Kenya are high-risk candidates due to rising food/energy costs.
- China’s hidden local debt could trigger a financial time bomb.
- U.S. debt (130% of GDP) is sustainable now but could become a crisis if interest rates keep rising.
Conclusion
The world’s most indebted countries are walking a tightrope between survival and collapse. While some (like Japan) manage their debt carefully, others (like Lebanon and Venezuela) are already in economic freefall.
The key lesson? Debt itself isn’t deadly—but mismanagement, corruption, and external shocks can be. Without major reforms, more nations will join this list in the coming years.