Today, the world is in the midst of an apparently unending sovereign debt crisis with many nations either unwilling or incapable of controlling government spending.
When government spending in particular shoots out of control, the local currency, the investment climate, cross border trade – all take severe beating, threatening global stability. That’s why, from an international investors point of view it is important for us to know the barometers that will show us whether the country is a safe destination for investment or not.
One of the ways that investors might employ is to track these expenditures on a global basis is government spending expressed as a percentage of GDP.
Here’s the world’s top spending to GDP ratios.
Data from Heritage Foundation shows that Zimbabwe is the most extravagant spender under this criterion, with government expenditures amounting 98% of GDP in Zimbabwe in the latest year that data was available. This spending includes consumption and transfer payments, including the direct government spending.
It will be not a surprise to find that Cuba is second on the list due to that county’s reputation as one of the few remaining communist states. Cuba’s government spending stood at 78% GDP, a level that has been quite stable over the last decade.
While Cuba has made some efforts at reform through allowing limited private ownership of businesses, Cuba fundamentally has a state run economy and employs more than 80% of the labor force in public sector jobs.
Although Europe is at the focal point of the sovereign debt crisis, with Portugal, Italy, Greece and Spain often mentioned as having the maximum debt problems, these four countries, surprisingly aren’t even the biggest spenders on that continent. The biggest spenders in Europe are: Denmark, France and Sweden, where government spending levels are at about 52% of GDP.
All three countries have witnessed this percentage increase since 2005, as government spending on fiscal stimulus and social protection were intensified to help control the effects of the recession.
But Denmark, Sweden, France is different case
Although Denmark, France and Sweden are at the forefront of the list, this does not essentially mean that investors should avoid putting money to work here, as all three countries keep AAA sovereign debt ratings from Standard and Poor’s and the other major ratings agencies. This is because, unlike Greece, these countries are higher on efficiency index, with better management of macro-economy.
Although the United States has gone through the downgrade of its sovereign debt rating, government spending as a percentage of GDP is in the middle of the highest spenders list. According to the data released by the White House, the total government expenditures as percentage of GDP amounted to 35% in fiscal 2010.