The world is in the midst of a seemingly unending sovereign debt crisis with many nations either unwilling or unable to control government spending. One measure that investors might use to track these expenditures on a global basis is government spending expressed as a percentage of GDP.

According to 2022 data from the International Monetary Fund, major countries with the highest government spending levels as a percentage of GDP are spread across the globe and include some of the wealthiest nations in Europe, along with some of the world's poorest countries. The countries with the highest percentage were Kiribati with 111.19%, Ukraine at 66%, and Marshall Islands at 65.71%. The three countries with the lowest percentages were Haiti with 8.29%, Lebanon with 11.25%, and Venezuela with 11.99%.

Kiribati

Kiribati is a tiny island nation located in the Pacific ocean. It is made up of three main island groups: the Gilbert Islands, the Line Islands, and the Phoenix Islands. Kiribati is considered to be a part of Oceania's Micronesia region, and its location is to the northeast of Australia. Kiribati has a population of only 116,545. In 2023, Kiribati's GDP per capita was estimated to be $3,200. The country is a presidential republic with a legal system based on English common law.

The economy of Kiribati is characterized by a large public sector and the lack of a strong private sector. This may come at no surprise given the nation's large government spending to GDP ratio. Real GDP per capita has changed very little since the country's independence in 1979. That said, the country has seen some GDP growth in recent years. Estimates believe that the economy of Kiribati grew 3.86% in 2022 and 4.29% in 2023.

A large portion of Kiribati's public spending goes to social protections such as unemployment insurance. Senior citizens' benefits also take up a large portion of government expenditures as do wages for employees of the country's large public sector. The International Monetary Fund reported Kiribati's government spending to GDP ratio to be an enormous 111.19% in 2022. Kiribati is routinely near the top of the list. This is due not only to its large public sector, but also to the tiny size of the country and its economy. The country's 2023 GDP was estimated to be just over $279 million.

Ukraine

The country with second highest government spending to GDP ratio in 2022 was Ukraine with 66%. Previously, Ukraine's ratio was not so large or noteworthy. Unfortunately, in 2022, everything changed for the country when they were invaded by Russia.

In order to defend themselves from brutal Russian aggression, Ukraine has had to put all of its resources into the war effort. At the s♑ame time, the war has been extremely destructive and disruptive to the economy. Infrastructure has been destroyed, large numbers of people have been killed, millions have fled the country as refugees, and large portions of the populace are fighting or supporting the military in some way rather than working in the civilian economy. This has caused a sharp drop in GDP during a period of high government spending on national defense. This combination has led to an elevated government spending to GDP ratio.

The necessity of the situation has led to Ukraine developing and innovative and agile domestic defense industry. The Ukrainians have especially excelled at the creation and production of drones and unmanned vehicles which have played a significant role in the defense of the nation. This could play a role in the country's postwar economy.

European Countries

The biggest spenders in Europe in 2022 were France (58.34%), Italy (56.74%), and Belgium (53.55%).

Although France, Italy, and Belgium are at the top of the list among European nations, this does not necessarily mean that investors should avoid putting money to work in these countries. All three countries have sovereign debt ratings from Standard & Poor's that are considered investment grade. Belgium has a strong AA rating. France is right behind it with a very respectable AA- rating. While Italy's BBB rating is not the strongest, it is one step above BBB- which is the minimum to be considered investment grade. Furthermore, all three are members of the Eurozone and the European Union, which mean🌃s they have strong institutions backing them in times of crisis.

Government spending to GDP ratio is not indicative of credit rating or overall economic situation on its own. It is just one factor that needs to be considered among many others. Two countries with a similar public spending to GDP ratio can have vastly different credit ratings. For example Switzerland had a ratio of 31.53% in 2022, and has the best rating possible of AAA from S&P. Türkiye had a government spending to GDP ratio that was similar to Switzerland's and actually a bit lower at 28.06%. Yet, that country's Standard & Poor's credit rating is only B+, a rating that is several steps below investment grade. To further illustrate the point, we can look at Finland. The country's government spending to GDP ratio in 2022 was 53.05%. This made it the fifth highest in Europe and ninth in the world. On the other hand, Finland's credit rating is a robust AA+, the second highest possible.

United States

As of 2024, the United States holds Standard & Poor's second highest rating of AA+. This is in spite of a massive federal debt exceeding $35 trillion as of September 2024. The United States remains strong and creditworthy thanks to a number of factors including having the world's largest economy, robust growth for its size, and the world's reserve currency.

In 2022, following the COVID-19 pandemic, the United States's government spending to GDP ratio sat at 36.26%. Like most nations of the world, this is significantly higher than pre-pandemic levels. During the pandemic years, the federal budget deficit jumped to historic levels, meaning the government is adding more debt faster than before.

The Bottom Line

Government spending as a percentage of GDP is a simple metric that some use to assess government spending 𝓰across the globe. One weakness of this measure is that it considers only the expense sid꧂e and ignores government revenues generated through taxation and other methods. The government spending as a percentage of GDP, in conjunction with other metrics, reflects government spending more accurately.