As governments across the world raised their spending amid the pandemic to support economies along with the healthcare system, the global fiscal deficit marked a three-fold increase in 2020 to $6.5 trillion, according to a report by Motilal Oswal Financial Services.
The report noted that although the fiscal deficit expanded everywhere, the magnitude of response was divergent in advanced economies (AEs) and emerging and developing economies (E&DEs).
"Our calculations suggest that the global fiscal deficit almost tripled to $6.5 trillion (or 9.8 per cent of GDP) last year from $2.2 trillion (or 3.2 per cent of GDP) in CY19," it said.
It said that while global fiscal receipts fell to a decade low of 17.3 per cent of GDP in CY20 (2020) from 17.8 per cent a year ago, global fiscal spending surged to 27.2 per cent of GDP from 21 per cent of GDP in CY19.
Regarding the divergence of government spending amongst countries, the report said that while fiscal deficit expanded in both advanced economies (AE) and emerging and development economies (E&DE), the stimulus in AEs was much bigger than E&Des.
Excluding China, fiscal deficit in the remaining E&DEs jumped to 4.7 per cent of GDP last year, higher than 2.9 per cent of GDP in CY19.
"While expansion in fiscal deficit in the former was due to higher spending, the expansion in deficit in E&DEs is attributed to a fall in fiscal receipts," it said.
Fiscal deficits in AEs jumped to 12 per cent of GDP last year against 2.7 per cent of GDP in CY19. In contrast, fiscal deficit in E&DEs increased to 6.3 per cent of GDP in CY20 from 4 per cent of GDP in the previous year.
The Motilal Oswal report noted that there were large differences in the economic support provided by authorities in the advanced economies in comparison to that in emerging economies, with the former supporting much more than the latter.
"Going forward, these differences will certainly reflect in divergent recovery trends in the two sets of nations. The future of the real world economy will be entirely dependent on how quickly these stimuli (or fiscal transfers) get converted into spending (consumption/investments)," it said.
