Yahoo Finance The Country with the Biggest Government Relative to the Economy
We recently analyzed government spending trends across the globe and in this article we will talk about the country with the biggest government relative to its economy. Check out our free comprehensive report on the 20 Countries with the Highest Government Spending to GDP.
Public Debt and its Impact on Government Spending
Government spending is one of the indicators to gauge the economic performance of a country. However, higher government spending does not necessarily mean a progressive economy. Government spending is rather a complex indicator that takes into account revenue generation, inflation, public debt, spending on social protection, and other related economic indicators to reflect the overall performance of an economy.
According to a report by the IMF, the global public debt declined sharply in 2021-22, however, it edged up again in 2023 and remained above pre-pandemic levels by 9% of GDP. Moreover, on February 21 Reuters reported that the global debt hit a record high in 2023 and was recorded at $313 trillion. One of the main drivers of the increase in global debt was the surge in debt to GDP ratio of the developing economies. The global debt increased by $15 trillion in the last quarter of 2023 on a year-on-year analysis. Mature markets such as the US, France, and Germany also contributed greatly to the public debt, as 55% of the increase in global debt originated from developed economies. However, the Debt to GDP ratio for these economies decreased slightly by around 2% in 2023. On the other hand emerging economies including India, Argentina, China, Russia, Malaysia, and South Africa reported the highest increase in debt to GDP ratio, indicating potential debt repayment and fiscal challenges. In addition to the debt challenge, geopolitical conflicts around the globe are expected to boost defense spending across the globe, thereby further challenging the debt-repaying ability of developing countries.
World Economic Outlook and the Key Drivers of Government Spending
The fiscal policy of a country is also dependent on the world economic outlook as major global economic disruptions such as pandemics can hamper the growth of both developed and emerging economies. The overall world economic outlook has improved, the inflation rates are falling and major global economic disruption threats have been averted. According to the IMF World Economic Outlook April 2024 report the world economy is expected to continue growing at 3.2% in 2024 and 2025. Moreover, global inflation is also forecasted to continue declining from 6.8% in 2023 to 5.9% in 2024.
Despite the positive growth outlook debt distribution, deficits, and public finance risk remain a challenge for economies around the globe. According to the IMF's Fiscal Monitor 2024 report, the monetary policy remained restrictive for around 85% of the world economies. Moreover, spending also remained higher as a measure to abate the pandemic crises in many countries. The revenue in advanced and emerging economies (excluding the United States and China) exceeded the pre-pandemic projections by 1.4% of GDP. The primary spending also remained higher and was recorded to be 3% of GDP for advanced economies and 2% of GDP for emerging economies. One of the key drivers of higher spending in emerging economies was increased social spending, however for advanced economies higher spending reflects a slow recovery from pandemic subsidiaries and social transfers. According to Fiscal Data by Treasury.gov, the United States spent $3.82 trillion as government expenditure against the revenue generation of $2.96 trillion for the fiscal year of 2024, leading the country into a fiscal deficit. However, 22% of the US public spending went to social security functions, which has the potential to generate more revenue in the form of taxes in the future.
Now, let's talk about the country that spends the most of its GDP.
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Our Methodology
To curate the list of 20 countries with the highest government spending to GDP, we relied on data from the IMF. First, we selected our primary metric, which is expenditure as a percentage of GDP. We sourced the expenditure as a percentage of GDP data for 2024 from the IMF and ranked the countries in ascending order. Please note that we have included the GDP current prices for 2024 as a secondary metric also sourced from the IMF.
We have also included statistics from the European Commission and national financial institutions for additional context.
The Country that Spends the Most of its GDP
1. Kiribati
Expenditure as a Percentage of GDP (2024): 125.55%
GDP Current Prices (2024): $0.31 billion
Kiribati ranks as the country with the highest government spending to GDP. It is an island country in the Central Pacific Ocean. According to the Asian Development Bank, the GDP of Kiribati is forecasted to grow at 5.3% in 2024, with the GDP per capita forecasted to grow at 3.6% during the same year. Inflation rates for the country are also expected to cool down from 4.0% in 2024 to 3.0% in 2025.
Kiribati has the highest recurring spending-to-GDP ratio, which surpasses all other Island countries in the Pacific. The spending is mostly financed by revenue generated from the fishing industry and taxes, however, a large chunk of Kiribati’s spending is financed through the support of development partners such as the Asian Development Bank and other related international financial institutions. According to the IMF, Kiribati has a negative balance of payment, with general government net lending and borrowing as a percentage of GDP standing at -22.4% as of 2024. Moreover, the country also has an outstanding debt-to-GDP ratio of 9.9% as of the current year.
To learn more about countries that have bigger governments relative to their economies, check out our free report on the 20 Countries with the Highest Government Spending to GDP.
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Disclosure: None. This article is originally published on Insider Monkey.
