Budgets are really important for financial health. Keeping a budget allows you to track the amount of money that you earn and compare it to what you're expected to spend. It gives you a picture of your financial health. If you spend or owe more money than you actually make, you may have a problem. It's not that hard to get back on track, as long as you're able to control your spending. But can you imagine trying to balance a whole country's budget?
Many countries are running with a deficit, which means they have more money going out than they do coming in. And you may be surprised to learn about which nations are running in the red. This article looks at the countries that have the biggest budget deficits, according to figures from the Central Intelligence Agency's World Factbook and are calculated as a percentage of gross domestic product (GDP)
- A budget deficit occurs when government spending exceeds its revenues.
- Although a deficit may indicate that a country isn't financially stable, it isn't always a bad thing because spending may spur economic growth.
- Timor-Leste had the highest budget deficit as a percentage of gross domestic product.
- Kiribati, Venezuela, Brunei, and Libya rounded out the top five.
- The United States had the highest deficit among Organisation for Economic Co-operation and Development countries.
What Is a Budget Deficit?
A budget deficit occurs when government spending exceeds its revenues. This figure is determined on an annual basis. A deficit is the opposite of a surplus, which means that a government's revenue exceeds its expenses.
A deficit may paint a picture of a nation's financial health and the state of its economy. It may indicate that the federal government is spending far too much or its policies aren't benefiting the economy. It isn't uncommon to hear politicians lament over the rising federal deficit or read stories in the press about how much the government is adding to its national debt. Tax cuts, for instance, may be a boon to citizens but that loss of revenue may increase a nation's deficit.
But on the flip side, a deficit may lead to economic growth, especially if the government is spending for improvements, such as its infrastructure.
While a deficit may seem like a problem, it may indicate that a country is spending on necessities to spur economic growth.
In order to make up the difference, governments may decide to dip into their savings or they may issue bonds. Interest rates on a country's bonds are determined by the market's evaluation of the country's ability to pay back its debt. Rising deficits lead to higher rates, especially if a country lacks sufficient savings.
Deficits eventually comprise a country's national debt. Each year's deficit or surplus determines the trajectory of the debt. These deficits are strongly correlated to a nation's broader economy and, with the community so intertwined, the global economy as a whole.
Timor-Leste, or East Timor, lies on Timor Island, roughly 375 miles from Australia. The tiny nation was occupied by Indonesia and became the first independent nation of the 21st century in 2002 after it gained control in 1999.
This Southeast Asian nation has the highest deficit when calculated as a percentage of its GDP. The deficit, according to the 2017 estimate, was -75.7% of the country's GDP.
The country's revenue is primarily driven by its offshore oil and gas industry. But there is a problem boosting the side of the economy that isn't driven by energy. Spending increased by the federal government between 2009 and 2012 but did fall after 2018. The government focused its money on infrastructure, such as electricity and roadways.
The 2017 estimate of Kiribati's federal deficit comes in at -64.1% of its GDP. Government revenue came in at $151.2 million while expenses surpassed that amount, reaching $277.5 million.
The island nation in Oceania was once a British colony, gaining independence as a sovereign nation in 1979. It joined the United Nations (UN) in 1999.
According to the World Factbook, the country has very few skilled workers and its infrastructure is weak. Its remote location keeps it away from international markets, making the country dependent on foreign aid. The government is focused on developing its economy by spending on infrastructure and sanitation projects.
Venezuela's economy is highly dependent on its oil industry, which accounts for more than half of its revenue.
A drop in oil prices that started in 2014 has impacted the South American nation's bottom line leading to an economic crisis. The federal government defaulted on some of its debt, inflation increased sharply, and the central bank saw a drop in its reserves.
Venezuela's revenues were estimated to be $92.8 billion compared to the estimate for its expenses of $189.7 billion in 2017. This means its had a budget deficit of 46.1% of its GDP.
Brunei is another Southeast Asian nation found on the northern coast of Borneo. The country was a British protected state before being occupied by the Japanese between 1941 and 1945. It became a sovereign nation when it gained independence from the United Kingdom in 1984.
Brunei's economy is driven by its energy resources and heavy foreign investment. The government is keen on diversifying its economy beyond energy to include manufacturing of halal goods as well as information and communications technology.
The country recorded a budget deficit of -17.3% of its GDP in 2017. Revenues were estimated to be $2.245 billion and expenses were estimated at $4.345 billion.
This North African nation's budget deficit is -25.1% of its GDP, according to 2017 estimates. Revenue came in at $15.78 billion while estimates for the government's expenses totaled $23.46 billion.
Like most countries in the region, Libya's economy depends heavily on revenues from its oil and gas industry. But it has experienced a series of economic setbacks, largely due to falling oil prices, political instability, and a drop in oil production.
The majority of the deficit comes from the payment of government salaries and subsidies for food and energy costs.
According to the Organisation for Economic Co-operation and Development (OECD), the United States had the highest deficit when compared to other member nations.
The U.S. deficit was -3.4% of GDP as per the 2017 estimate. Revenues were estimated at $3.315 trillion in 2017 while expenditures were estimated at $3.981 trillion. The country's current account balance was estimated at -$480.225 billion in 2019.
The United States was followed by Israel, Japan, Spain, France, and the United Kingdom.
The Bottom Line
Deficits occur when a nation's government's expenses exceed its revenue while a surplus means it spends less than it earns. Running a deficit often indicates a country's financial health and/or poor economic policies. But that's not always true. Excessive spending may indicate that a country's government wants to spur economic growth, especially if expenses are paying for things like infrastructure and job growth.