This series of articles examines opinions and scenarios that differ from those found in the mainstream. In this article I demonstrate that although Britain is not in great shape, she is in considerably better shape than other heavily indebted nations.
It is no secret that I am bearish on the long-term outlook for the UK economy – I have been since early 2006. That’s because Britain is mired in debt, and ahead of us lies at least 7 to 10 years of government and consumer debt repayment. However more important than the overall level of our debt is our ability to service that debt, and this is one area in which Britain has a very considerable advantage.
Britain’s one key advantage
The average maturity of Britain’s debt is around 14.5 years, far longer than that of other heavily indebted countries. The average maturity of debt issued by Spain, for example, is 5.17 years, while that of Greece is 5.8 years, France is 7.1 years, and Italy is 7.2 years. This puts Britain at a considerable advantage.
The table below shows the total outstanding debt of the 10 most indebted nations. It also shows how much of that debt must be repaid or refinanced between now and the end of 2015.
Debt maturing between now & the end of 2015 by country
Source: Bloomberg. Notes: Top 10 most indebted countries. Amount in millions of US dollars.
As you can see, of Britain’s $1.846 trillion in total outstanding debt, only $418 million of it matures in the next 3.5 years. At 23% of the total, that’s considerably less than the percentage of debt that must be repaid or refinanced by the other nations shown.
Less bad is the new good
There can be little doubt that Britain is in serious trouble. However, relative to most other heavily indebted nations Britain still looks attractive – something that is unlikely to change even if/ when we lose our AAA credit rating.
It is for these reasons that UK bonds, known as Gilts, are around the lowest level they have ever been. This means that Britain can issue new 10-year debt, or refinance existing debt, at an interest rate of just 1.537%. This compares to 2.22% for France, 6.06% for Italy, 3.28% for China, 2.89% for Australia, and 6.0% for Russia.
In today’s world of growing budget deficits, disappointing economic growth, and rising unemployment, less bad is the new good.