Creating Space for Better Post-Covid Public Policy Spending

written by Matt Andrews

Governments across the world are struggling with the many policy challenges wrought by Covid-19. While this pandemic is not yet over, many are already thinking about the recovery to come. Governments will undoubtedly be needed in this recovery process, helping people get back to normal or charting new paths to better normals—what some call ‘building back better’. 

I fear that governments are set to fail in their efforts to provide such help, however, because of limits to the budgetary and policy prioritization space needed to address post-Covid needs.

Will we have enough money to build back better?

Covid-19 hit the world at a time when many public finance experts were already commenting on the large role governments have turned out playing in their economies. Government spending as a share of Gross Domestic Product (GDP) was at historical highs in many countries prior to the pandemic given decades of growth in budgets across the world.  Consider the following graph and examples of such growth in countries as varied as South Korea, India, South Africa, the USA, Spain and Italy.

Figure: Government spending as a share of Gross Domestic Product, various countries, 1850-2020  

Source: Our World in Data and the IMF data mapper

These budgets continued expanding in response to Covid-19, fostering record debt levels across the globe. A Brookings paper written last year notes, for instance, that “In 2020, global government debt increased by 13 percentage points of GDP to a new record of 97 percent of GDP. In advanced economies, it was up by 16 percentage points to 120 percent of GDP and, in EMDEs [emerging markets and developing economies], by 9 percentage points to 63 percent of GDP.” 

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