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> For Djibouti, the debt is especially daunting, amounting to 60 percent of its gross domestic product. This seems absolutely insane to me.

SilasX 10y ago
There are about 30 countries with a net government debt greater than 60% of their GDP: https://en.wikipedia.org/wiki/List_of_countries_by_public_debt https://en.wikipedia.org/wiki/List_of_countries_by_public_de... There's another table but it doesn't let you sort by that figure: https://en.wikipedia.org/wiki/Government_spending#As_a_percentage_of_GDP https://en.wikipedia.org/wiki/Government_spending#As_a_perce...
guelo 10y ago
Let's say you make a $100k per year and take out a $60k mortgage, that seems very reasonable. If the railway is going to make their economy more productive and efficient then it seems like a really good idea.
- maxerickson 10y ago
  It depends a little bit on how much of their economy they can afford to spend on transit projects though. Home buyers can usually devote a significant portion of their annual income towards housing.
- dghughes 10y ago
  People buy cars that are worth more than their yearly salary and it's a common thing. Spend 100% of your yearly effort on a thing that will be worth 25% less in twelve months. Plus it costs probably about $5,000 per year to own and operate a vehicle.
  - mikeash 10y ago
    Is that really a common thing? Cars depreciate rapidly and buying one that costs more than your early salary sounds like a complete disaster to me. Maybe the people I know are just unusually financially responsible?
zhemao 10y ago
The US debt is more than 100% of GDP ... It's not necessarily a problem so long as the debt-financed spending accelerates growth. GDP is the amount the economy generates per year. Debt is relatively fixed (unless you borrow more or have a crazy interest rate). As long as the interest on public debt doesn't outpace the tax revenues set aside to service it, they should be fine. Djibouti is a relatively undeveloped country, so infrastructure development can bring them a long way.
- notahacker 10y ago
  Debt as a proportion of GDP is less of a problem when a nation owes it mostly in its own currency to its own citizens, mind you. Djibouti's national debt seems to be projected to remain fairly stable as a proportion of GDP though, which is a better fiscal position than many.
everybodyknows 10y ago
Not to worry. The Chinese leadership is thoroughly pragmatic and will eventually write off as much of the balance as necessary: https://en.m.wikipedia.org/wiki/TAZARA_Railway https://en.m.wikipedia.org/wiki/TAZARA_Railway The lenders will remember that they don't have much leverage over Djibouti, unlike the Eurozone with its debt trap for Greece.
DrScump 10y ago
Even that doesn't add up. First of all, I bet that figure represents only the debt specific to this China deal, on top of whatever other debt they already had. Secondly, Djibouti's GDP was $1.7 billion (or thousand million in British wording), but the only debt figure stated was $14 billion as China's overall investment. That's like 800% of GDP using those raw figures. The truth is probably somewhere else.
contingencies 10y ago
You definitely would enjoy reading Confessions of an Economic Hitman, the first chapter of which I have personally verified with an Indonesian diplomat.
ww520 10y ago
GDP is per year while debt is spread over time, like 30 years. Assuming 5%/yr for the amount of interest and principle repayment, 5% x 60% = 3% of GDP for debt service per year. Not too bad. Assuming the project adds 1% to GDP growth, it would boost the GDP by 35% at the end. Adding 2% would boost by 81%. And the effect will continue after the debt has been paid off. That's a good investment.
- tomohawk 10y ago
  Good solid World Bank math
  - dwaltrip 10y ago
    Do you have any concrete criticisms? I'd be curious to learn about them.
    - tomohawk 10y ago
      This is an unstable area - to say the least. What happens if/when there is an extended disruption? Perhaps the Chinese government will feel justified to send in troops? What if (as seems likely) the monotonic growth doesn't materialize? What if there's a recession for a few years and there is a decline? Taking on debt means taking on risk.
      - dwaltrip 10y ago
        Those sound like reasonable concerns. Thanks for sharing. I don't much about the geopolitics or stability of these two countries, but assuming they aren't too unstable, it's hard to imagine that increasing mobility and ease of commerce won't have a sizeable economic boost.
- ezzaf 10y ago
  I don't think you're accounting for interest in that calculation. If they have borrowed 60% of GDP at an interest rate of 3%, it would take a 1.8% annual increase in GDP just to match the interest on the loan. That is also ignoring the fact that you can't just take the entire GDP growth and use it to pay the loan, you have to collect fares and taxes which can only be a proportion of that growth. If you collect more in fares than the increase in GDP, you're leaving the country poorer than they would be without the railway. Djibouti is going to need to see some pretty big additional growth from the railway to make the project worthwhile. Not to say they won't, be it's easy to underestimate just how big of a debt burden it is for a small country.
BurningFrog 10y ago
I dislike this way of describing debt. Because it sounds to most people like the country owes 60% of its GDP to foreigners, and only has 40% left to live on. A different way to express the same situation is that the debt is 7 months of GDP.

SilasX 10y ago

There are about 30 countries with a net government debt greater than 60% of their GDP: https://en.wikipedia.org/wiki/List_of_countries_by_public_debt https://en.wikipedia.org/wiki/List_of_countries_by_public_de... There's another table but it doesn't let you sort by that figure: https://en.wikipedia.org/wiki/Government_spending#As_a_percentage_of_GDP https://en.wikipedia.org/wiki/Government_spending#As_a_perce...

guelo 10y ago

Let's say you make a $100k per year and take out a $60k mortgage, that seems very reasonable. If the railway is going to make their economy more productive and efficient then it seems like a really good idea.

maxerickson 10y ago
It depends a little bit on how much of their economy they can afford to spend on transit projects though. Home buyers can usually devote a significant portion of their annual income towards housing.
dghughes 10y ago
People buy cars that are worth more than their yearly salary and it's a common thing. Spend 100% of your yearly effort on a thing that will be worth 25% less in twelve months. Plus it costs probably about $5,000 per year to own and operate a vehicle.
- mikeash 10y ago
  Is that really a common thing? Cars depreciate rapidly and buying one that costs more than your early salary sounds like a complete disaster to me. Maybe the people I know are just unusually financially responsible?

zhemao 10y ago

The US debt is more than 100% of GDP ... It's not necessarily a problem so long as the debt-financed spending accelerates growth. GDP is the amount the economy generates per year. Debt is relatively fixed (unless you borrow more or have a crazy interest rate). As long as the interest on public debt doesn't outpace the tax revenues set aside to service it, they should be fine. Djibouti is a relatively undeveloped country, so infrastructure development can bring them a long way.

notahacker 10y ago
Debt as a proportion of GDP is less of a problem when a nation owes it mostly in its own currency to its own citizens, mind you. Djibouti's national debt seems to be projected to remain fairly stable as a proportion of GDP though, which is a better fiscal position than many.

everybodyknows 10y ago

Not to worry. The Chinese leadership is thoroughly pragmatic and will eventually write off as much of the balance as necessary: https://en.m.wikipedia.org/wiki/TAZARA_Railway https://en.m.wikipedia.org/wiki/TAZARA_Railway The lenders will remember that they don't have much leverage over Djibouti, unlike the Eurozone with its debt trap for Greece.

DrScump 10y ago

Even that doesn't add up. First of all, I bet that figure represents only the debt specific to this China deal, on top of whatever other debt they already had. Secondly, Djibouti's GDP was $1.7 billion (or thousand million in British wording), but the only debt figure stated was $14 billion as China's overall investment. That's like 800% of GDP using those raw figures. The truth is probably somewhere else.

contingencies 10y ago

You definitely would enjoy reading Confessions of an Economic Hitman, the first chapter of which I have personally verified with an Indonesian diplomat.

ww520 10y ago

GDP is per year while debt is spread over time, like 30 years. Assuming 5%/yr for the amount of interest and principle repayment, 5% x 60% = 3% of GDP for debt service per year. Not too bad. Assuming the project adds 1% to GDP growth, it would boost the GDP by 35% at the end. Adding 2% would boost by 81%. And the effect will continue after the debt has been paid off. That's a good investment.

tomohawk 10y ago
Good solid World Bank math
- dwaltrip 10y ago
  Do you have any concrete criticisms? I'd be curious to learn about them.
  - tomohawk 10y ago
    This is an unstable area - to say the least. What happens if/when there is an extended disruption? Perhaps the Chinese government will feel justified to send in troops? What if (as seems likely) the monotonic growth doesn't materialize? What if there's a recession for a few years and there is a decline? Taking on debt means taking on risk.
    - dwaltrip 10y ago
      Those sound like reasonable concerns. Thanks for sharing. I don't much about the geopolitics or stability of these two countries, but assuming they aren't too unstable, it's hard to imagine that increasing mobility and ease of commerce won't have a sizeable economic boost.
ezzaf 10y ago
I don't think you're accounting for interest in that calculation. If they have borrowed 60% of GDP at an interest rate of 3%, it would take a 1.8% annual increase in GDP just to match the interest on the loan. That is also ignoring the fact that you can't just take the entire GDP growth and use it to pay the loan, you have to collect fares and taxes which can only be a proportion of that growth. If you collect more in fares than the increase in GDP, you're leaving the country poorer than they would be without the railway. Djibouti is going to need to see some pretty big additional growth from the railway to make the project worthwhile. Not to say they won't, be it's easy to underestimate just how big of a debt burden it is for a small country.

BurningFrog 10y ago

I dislike this way of describing debt. Because it sounds to most people like the country owes 60% of its GDP to foreigners, and only has 40% left to live on. A different way to express the same situation is that the debt is 7 months of GDP.