Discretionary fiscal support of the economy and the population, along with a sharp fall in government revenues, caused a dramatic increase in public debt and budget deficits throughout the world. According to the IMF, average overall fiscal deficits as a share of GDP in 2020 reached 11.7% in advanced economies, 9.8% in emerging market economies, and 5.5% in low-income countries. Compared to 2019, in 2020 there was a 4-fold increase in deficits in advanced economies and a 2-fold increase in emerging market economies
Fiscal protection of workers and firms from economic collapse has resulted in a widespread increase in the public debt burden. According to IMF estimates, the world’s public debt in 2020 increased by 13.6% of GDP and climbed to 97.3% of GDP. In advanced countries the level of debt reached 120.1% of GDP at the end of 2020, and in emerging market economies – 64.4% of GDP.
It is significant that in advanced countries in 2020 the public debt increased by 16.3 percentage points of GDP (given the unprecedented fiscal rescue package), and in emerging market economiesand middle-income – by 9.7 percentage points of GDP. Among emerging markets, Ukraine’s general government debt lags slightly behind the average: 60.7% vs. 64.4% of GDP at the end of 2020.
The positive aspect of the current situation is that even with the growth of the relative level of public debt, the average interest payments has decreased In pursuit of their mandates, central banks have lowered policy rates and purchased government bonds, thereby facilitating the fiscal responses to the pandemic. Unfortunately, in Ukraine the actions were opposite, and the monetary policy of the National Bank of Ukraine in 2020-2021 was one of the tighest in the world.
Read more in the study of Doctor of Economics Tetiana Bogdan “Transforming Public Finances: Global Processes and Challenges for Ukraine”.