What does a negative debt servicing ratio suggest about an economy?

A negative debt servicing ratio indicates that an economy is not generating sufficient revenue to cover its debt obligations. This situation signifies that the income generated by the economy is less than what is required to service its debt, which includes interest payments and principal repayments.

When the debt servicing ratio is negative, it reflects a potential inability to meet financial commitments, raising concerns about fiscal sustainability. This can lead to increased borrowing or, in extreme cases, defaults, which can adversely affect economic stability and growth.

In contrast, positive debt servicing ratios would suggest that the economy is more capable of meeting its obligations, supporting the idea that it is either managing its debt well or experiencing financial health and growth. Thus, the negative debt servicing ratio serves as an indicator of a challenging financial situation for the economy, emphasizing the critical need for reform or intervention to address poor revenue generation relative to financing requirements.