As part of our on-going research to highlight the divergence between advanced economies and emerging markets, the attached charts clearly illustrate that the major advanced economies have lacked fiscal discipline over the past few years, while in contrast, the major emerging economies have controlled their fiscal situation extremely well and within the internationally accepted guidelines – as dictated by the major advanced economies.
As a percentage of GDP government debt in the major advanced economies will exceed 100% in 2010, and continue to rise over the next few years. In contrast, government debt in the major emerging economies is around 37% of GDP, which is well below the accepted international guideline of 60%.
It is also interesting to see that 75% of the increase in the budget deficits in the advanced economies since 2005 has been due to a rapid increase in expenditure, while a lack of revenue collection explains only 25% of the increase in the deficit.
Advanced economies are clearly facing a huge increase in demands on government expenditure, ranging from social benefits in the form of health care, education, and unemployment insurance, to increased security spending and environmental concerns. Given the aging population, it is difficult to see how these government’s can return to a healthier state of fiscal discipline without some radical changes to social benefits and/or an increase in taxes.
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