The financial response of Western governments to the COVID-19 crisis has been gargantuan, with boosts to health expenditure, enhanced JobSeeker-like payments, and JobKeeper-like wage subsidies to keep workers attached to jobs.
While a strong response has been necessary, it has come with costs.
These have been huge budget deficits and sky-high government debt.
The International Monetary Fund is expecting global budget deficits of around 14% of world gross domestic product this year, up from 4% last year, and almost three times the peaked reached after the global financial crisis.
Additionally, governments are providing the same amount again in “off-balance sheet” support, most notably loans to banks, and government guarantees for bank loans.
To the extent these off-balance sheet loans become contingent liabilities of governments and are not repaid, they will add more to government debt.
Global gross public debt was already high before the crisis, at about 80% of one