We recently analyzed government spending trends around the world. In this article, we talk about which countries have the largest governments relative to the size of their economies. Check out our free comprehensive report. The 20 Countries with the Highest Government Spending as a Percentage of GDP.
The impact on public debt and government spending
Government spending is one of the indicators of a country's economic performance. However, high government spending does not necessarily mean that the economy is progressing. Rather, government spending is a complex metric that takes into account revenue generation, inflation, public debt, social security spending, and other relevant economic indicators, and reflects the performance of the entire economy.
According to the IMF report, global public debt declined significantly from 2021 to 2022, but increased slightly again in 2023, remaining at 9% of GDP above pre-pandemic levels. Furthermore, on February 21, Reuters reported that global debt hit a record high in 2023, reaching $313 trillion. One of the main drivers of the increase in global debt was the sharp increase in the debt-to-GDP ratio of developing countries. When analyzed year-on-year, global debt increased by $15 trillion in the fourth quarter of 2023. Mature markets such as the United States, France, and Germany also contributed significantly to public debt, with 55% of the global debt increase coming from developed countries. However, the debt-to-GDP ratio of these economies decreased slightly to around 2% in 2023. Meanwhile, emerging economies such as India, Argentina, China, Russia, Malaysia, and South Africa reported the highest increases in their debt-to-GDP ratios, indicating possible debt repayment and fiscal challenges. In addition to the debt problem, geopolitical conflicts around the world are expected to increase defense spending around the world, further challenging developing countries' ability to repay their debts.
Global economic outlook and key drivers of government spending
A country's fiscal policy also depends on the outlook for the world economy, as a global economic disruption such as a pandemic could hinder the growth of both developed and emerging economies. The outlook for the world economy has improved overall, inflation has declined, and the threat of global economic disruption has been averted. According to the IMF's World Economic Outlook April 2024 report, the world economy is expected to continue growing at 3.2% in 2024 and 2025. In addition, global inflation is also projected to continue to decline from 6.8% in 2023 to 5.9% in 2024.
Although growth prospects are bright, debt allocation, deficits, and public finance risks remain challenges for economies around the world. According to the IMF's Fiscal Monitor 2024 report, monetary policy was tight in about 85% of the world's economies. In addition, spending also continued to increase as a measure to mitigate the pandemic crisis in many countries. Revenues in advanced and emerging economies (excluding the United States and China) exceeded pre-pandemic projections by 1.4% of GDP. Basic spending also continued to increase, recording 3% of GDP in advanced economies and 2% of GDP in emerging economies. One of the main drivers of spending growth in emerging economies was increased social spending, while in advanced economies, the increase in spending reflects a slower recovery from pandemic subsidies and social benefits. According to fiscal data from Treasury.gov, the United States is running a budget deficit, spending $3.82 trillion in government expenditures against revenues of $2.96 trillion in fiscal year 2024. However, 22% of U.S. public spending is devoted to social security functions, which could generate additional revenue in the form of taxes in the future.
Now, let's talk about the countries that spend the most of their GDP.
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Our Methodology
To compile the list of the 20 countries with the highest government spending to GDP ratio, we have taken the IMF data as a guide. First, we have chosen spending as a percentage of GDP as our primary indicator. The spending as a percentage of GDP data for 2024 was obtained from the IMF and countries were ranked in ascending order. Please note that we have also included the current price of GDP for 2024 as a secondary indicator, also obtained from the IMF.
For additional background, we also provide statistics from the European Commission and national financial institutions.
Countries that spend the most of their GDP
1. Kiribati
Expenditures as a percentage of GDP (2024): 125.55%
GDP at current prices (2024): $310 million
Kiribati has the highest government expenditure as a percentage of GDP. It is an island nation in the central Pacific Ocean. According to the Asian Development Bank, Kiribati's GDP is expected to grow by 5.3% in 2024, and GDP per capita is expected to grow by 3.6% in the same year. The country's inflation rate is also expected to decline from 4.0% in 2024 to 3.0% in 2025.
Kiribati has the highest current expenditure as a percentage of GDP, surpassing all other Pacific island nations. Expenditures are primarily funded through fishing revenues and taxes, but the majority of Kiribati's expenditures are funded through the support of development partners such as the Asian Development Bank and other relevant international financial institutions. According to the IMF, Kiribati has a balance of payments deficit, with general government net lending and borrowing as a percentage of GDP at -22.4% as of 2024. Additionally, the country's outstanding debt as a percentage of GDP is 9.9% as of this year.
To learn more about countries with large governments relative to the size of their economies, check out our free report. The 20 Countries with the Highest Government Spending as a Percentage of GDP.
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Disclosures: None. This article was originally published on Insider Monkey.
