/ world today news/ In the media, apocalyptic forecasts from independent experts are increasingly common, according to which in the near future state budgets may turn into distinct “debt” mechanisms. The debt nature of the budgets will affect both the revenue and expenditure side. In the revenue part of the budget, the main source will be loans and credits, while taxes and other traditional sources of income may disappear into the background. In the expenditure part of the budget, the main item may be the cost of servicing the national debt or the cost of interest.
According to IMF estimates, which cover 141 countries, in 2022 budget revenues exceeded budget expenditures (budget surplus) in only 28 countries. Both countries had a zero balance. And 111 countries had a budget deficit.
Most often, a relative indicator is used to estimate the size of the budget deficit – a percentage compared to the size of the gross domestic product (GDP). The following countries will enter the top 10 according to this indicator in 2022: Italy – 8.00; Burkina Faso – 8.52; Mongolia – 8.80; Zambia – 8.90; Ghana – 9.30; Saint Vincent and the Grenadines – 9.39; Sri Lanka – 10.20; Cuba – 11.11; Maldives – 14.31; Ukraine – 15.75.
So, Ukraine turned out to be an absolute record holder in terms of relative level of budget deficit last year. By the way, in 2021, Ukraine’s budget deficit was relatively modest – 3.97% of GDP; According to this indicator, Ukraine occupies only 91st place. And in one year such a sharp breakthrough.
In fact, the Ukrainian budget has become a front covering the debt financing from the West since independence. Debt financing secured by various real assets, mainly agricultural land and mineral deposits. There is a chance that Ukraine will be able to maintain its leadership position, as the state budget of Ukraine for 2023 foresees a deficit of $38 billion. The deficit is expected to be covered almost exclusively with the help of external loans.
According to official sources of Ukraine, in the first six months of 2023, external resources amounted to 49.1% of all revenues in the general fund of the state budget. The state budget of Ukraine is the ideal model of the state budget of the future, which many countries can achieve.
If we rank countries by absolute values of budget deficits, then according to this indicator for many years and even decades the United States of America is “definitely before all.” Without going too far into history, I will note that after World War II, America had a chronic budget deficit. The only exception was fiscal years 1998-2001 (the time of President Clinton), when the US budget was in surplus.
And in terms of the relative level of the budget deficit, the USA is also among the leaders. Here are the data on the size of the budget deficit compared to GDP in recent years (%): 2015 – 3.80; 2016 – 4.42; 2017 – 3.79; 2018 – 5.47; 2019 – 6.22; 2020 – 15.85; 2021 – 10.92; 2022 – 4.60. The 2020 figure is a record for the US in its entire postwar history. In 2020, in terms of the relative level of the budget deficit, the United States ranks eighth among 174 countries.
However, in 2020, the American budget deficit, again in relative terms, was larger than the Ukrainian one in 2022! In 2020, the absolute value of the budget deficit is $3.1 trillion, which is equivalent to 47% of budget spending. Government borrowing (which closes budget deficits) has become the main source of US budget revenue, pushing taxes (which have been the main source throughout American history) into second place.
The US fiscal year 2023 just ended (October 1). The U.S. Treasury Department reported that the budget deficit for the year was $1.7 trillion, or 6.3 percent of U.S. GDP. The budget deficit covers about 28% of budget expenditures.
It’s no surprise that America’s national debt is growing so fast. After all, it consists of deficits in the state budget. In 1981, the US government debt-to-GDP ratio was 40.4% of GDP. And in 2022, it has already exceeded 121%. At the beginning of the new fiscal year (from October 1, 2023), the size of the US national debt reached $33.4 trillion, which is already more than 130% of GDP.
According to IMF estimates, this is approximately one third of the total public debt of all countries in the world. And this despite the fact that the share of the USA in the world population is 4.2%. And the share in the global GDP is 15.6% (based on the results of 2022; calculated at the purchasing power parity of the currencies).
It is very surprising that until recently all three major rating agencies assigned the highest investment and credit ratings to the United States. In early August, however, the international rating agency Fitch downgraded the US issuer’s long-term rating to “AA+” from “AAA” due to worsening fiscal indicators and rising government debt.
One cannot help but pay attention to China, which has long been considered a model economy with consistently high growth rates. But, by the way, since the mid-1980s, the budget of the Celestial Empire has regularly been in deficit. The only exception was two years in the mid-2000s. And here is a picture of China’s budget deficit in recent years (% of GDP): 2015 – 3.43; 2016 – 3.77; 2017 – 3.66; 2018 – 4.08; 2019 – 4.91; 2020 – 6.20 am; 2021 – 3.80; 2022 – 4.70. Also very impressive figures, although a little more modest than those of the United States.
At the end of 2023, the deficit is expected to be $600 billion, or roughly 3% of GDP. The deficit will cover about 15% of the costs. Chronic budget deficits increase China’s national debt every year. At the end of last year, its value amounted to 77% of GDP. The IMF predicts that in 4 years the value of China’s public debt will reach 100% of GDP.
I will point out some other major economies in the world whose relative budget deficit indicators are also high (2022, % of GDP): Great Britain – 5.57; Spain – 4.80; France – 4.72; Switzerland – 4.50; Turkey – 4.00; Belgium – 3.90; Canada – 3.50; South Korea – 3.00; Germany – 2.62.
As for Russia, it has relatively modest budget deficits. In 2022, the figure was 1.36% of GDP. As in most countries of the world, the maximum value of the indicator in Russia was registered in 2020 (at the height of the so-called covid pandemic) – 3.99% of GDP. Previously, the highest budget deficits were in 2015 (3.39% of GDP) and 2016 (3.67%).
Years of deficit alternate with years of surplus. In particular, budget surpluses were recorded in 2018 (2.92% of GDP), 2019 (1.93%) and 2020 (0.77%). In principle, Russia has all the conditions to maintain a budget surplus, given that it has a positive balance of trade and payments (current account).
However, a deficit of 2.9 trillion rubles is set in the 2023 budget. (equivalent to approximately 2% of GDP). This means that about 10% of budget expenditures will be financed through the deficit, that is, ultimately through government loans.
The other side of the coin, called the debt budget, is the budget expenditure for servicing the national debt. Usually, the level of these costs is estimated by the share they occupy in all budget costs. Unfortunately, neither the IMF nor other organizations keep statistics on this indicator for the countries of the world, there is no general picture. We have to use figures for individual countries.
Most media coverage is about interest spending in the US budget. Over this century, the share of interest costs in total US budget spending has varied between 5 and 10 percent. The minimum value was registered in 2021 – 5.2%. And the high in the just-ended fiscal year 2023 was 10.2%. In two years we have a double jump.
This is due only to a certain extent to the increase in the national debt. The main reason is that, since the spring of last year, the Federal Reserve has begun to steadily raise the main interest rate, which for many years before that was, figuratively speaking, at the level of the “plinth” (approaching zero). Interest rates on US government bonds were pegged to the prime rate.
Consequently, it was not difficult for the US Treasury to service the gigantic national debt (which reached $30 trillion on February 1, 2022). But in the last year and a half, the situation began to change rapidly.
In July of this year, the Fed raised the key rate again and it is currently at the level of 5.25-5.50%. No rate cut is expected until at least the end of the year. And there remains some possibility of an increase. There are many predictions that the share of interest expense will continue to rise. The US Congress temporarily lifted the debt ceiling, the Treasury took advantage of the situation and increased the volume of Treasury securities issued.
Gross interest costs in the FY 2023 budget total $929 billion (more than 15% of budget costs). It is true that the government not only pays interest expenses but also receives interest income. The US Treasury usually provides a figure for net interest expense (minus interest income). In 2023, they amount to $632 billion.
In fact, this budget item became the second largest after defense spending. They are 12.7% of all budget expenditures in the past financial year. Forecasts are that in the coming years, interest costs will overtake defense costs and become the main, leading item in US budget spending.
Before our eyes, the traditional US budget is being transformed into a “debt” budget, causing serious concern among many American politicians and business representatives. And also those foreign investors who are used to investing in US government bonds.
It seems that the Russian budget is far from the model that today is called debt. After all, Russia, no matter how you look at it, has a very modest national debt. At the end of 2022, it turned out to be equal to 19.6% of GDP. According to IMF forecasts, in the coming years, the level of the government debt of the Russian Federation will remain almost unchanged (% of GDP): 2023 – 21.2; 2024 – 21.8; 2025 – 21.7; 2026 – 20.9; 2027 – 19.8; 2028 – 18.2.
In all likelihood, based on American budget standards, interest spending in the Russian budget should be somewhere in the range of one and a half to two percent of total budget spending. In reality, however, the share turns out to be significantly larger. In the 2023 budget, interest expenses in the amount of 1.52 trillion rubles are planned, which exceeds 5% of all budget expenses.
And the whole point is that although Russia’s government debt is small, it is very expensive (compared to the debt of the US, China and many other countries). This is largely the result of the actions of the Bank of Russia, which keeps raising the key rate (today it has already reached 13.00%, which is 2.5 times higher than the key rate of the US Federal Reserve).
The other day, the Deputy Minister of Finance of the Russian Federation, Vladimir Kolichev, pointed out an interesting figure: the costs of the federal budget for servicing the state debt and for financing preferential lending programs increase by about 200 billion rubles when the main interest rate increases by 1 percentage point . And the Bank of Russia gives no guarantees that it will not raise the key rate further.
The Ministry of Finance of the Russian Federation has now prepared a draft budget for 2024-2026. The Audit Chamber of the Russian Federation presented an opinion on the draft budget to the State Duma. State auditors paid attention to the cost of servicing the national debt: it will increase 2.2 times by 2026 compared to the forecast for implementation in 2023 and will exceed the total cost of the federal budget for health and education.
Translation: ES
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