Pandemics Ballooned Deficits and Debts
Global economic growth was cut by 3.3 per cent in 2020. The average budget deficit will rise 9.2 per cent in 2021.
As an instrument of the fight against the pandemic and its consequences, the governments of the countries approved programs of budgetary support for the economies for a total of $16 trillion
As a result, budget deficits and national debt levels of countries have grown to unprecedented levels, the review stated economists from the International Monetary Fund. At the same time, according to the fund, the use of such stimulating measures made it possible to triple the depth of the fall of the world economy in 2020. Global economic growth was cut by 3.3 per cent.
On average, the size of the budget deficit in 2020 in developed countries amounted to 11.7 per cent of GDP, in developing countries - 9.8 per cent, on average in the world - 10.8 per cent. The average budget deficit is expected to rise to 9.2 per cent in 2021.
The largest deficit is projected in the US - 15 per cent of GDP compared to 15.8 per cent last year. In the euro area, the figure will be 6.7 per cent 7.6 per cent in 2020. In Communist China and India, budget deficits will also be significant, 9.6 per cent and 10 per cent respectively (11.4 per cent and 12.3 per cent last year). In Russia, as the IMF expects, this figure will decline from 3.8 per cent to 0.8 per cent of GDP. In Saudi Arabia - from 11.1 per cent to 3.8 per cent.
Despite relatively low deficits, Australia's, impacted by the economic war launched by Communist China, will decrease from an annual 4.4 per cent to 2.3 per cent over the next 2-5 years. But a driver of growth is defence industry that will eventually hike that rate. The Australian natural resources industry will be affected the most by the detachment of the economy from Communist China. IMF estimates that the revision of the profitability of several projects will force firms to renegotiate contracts.
The fund notes that in developed countries, the increase in deficits was approximately equally caused by rising costs and falling fees, in developing countries - mainly by a decrease in revenues.
The total global public debt in 2020 increased to 97.3 per cent of GDP that is 13 percentage points higher than before the pandemic.
In 2021, reducing the size of deficits will allow global debt to stabilize at 99 per cent of GDP in the medium term. In developed countries it is estimated about 120 per cent of GDP, in developing countries - 75 per cent.
In the United States, by the end of 2021, compared to 2019, the national debt will grow from 108.2 per cent to 132.8 per cent. In the Euro area - from 84 per cent to 98.2 per cent , in Communist China - from 57.3 per cent to 69.6 per cent , in Russia - from 13.8 per cent to 18.1 per cent.
The winners will be countries with a stable tax system.
A temporary increase in personal income tax for the wealthy may not be the preferred instrument in times of fragile economies.
There is a danger that an international agreement on the minimum level of corporate taxation could not only increase fees but severely impede the competitive positions of the fast-developing firms.