Surprise! Budget Deficits of Most Nations Are Falling

Article excerpt

If world economics is a jungle, nations are out for big game. Over the last few years, they have tracked down and largely tamed the inflation tiger. Now, another beast is attracting their attention: budget deficits.

After two decades of running up debts, many of the world's nations are making headway cutting annual deficits. If this continues, it will help buoy the growth that is already occurring in most corners of the world.

The latest evidence comes from the International Monetary Fund (IMF). "World economic and financial conditions remain generally encouraging ... and the global economic expansion is expected to continue at a satisfactory pace in 1996-97 and over the medium term," it said in its latest world outlook, released yesterday. It forecast world output would grow 3.8 percent this year and 4.1 percent next year. The expansion is taking place across the board. In the industrialized countries, output is expected to edge up this year and next, the IMF forecasts, thanks in part to the continued robust growth of the US and a beginning recovery in Japan. Developing nations can expect to see continued growth around 6 percent annually, partly because of recovery in Mexico and Argentina and some surprising strength in several African nations. Even former communist nations are making progress, having reigned in inflation that spiraled out of control as the new democracies introduced market reforms. There are several reasons for the continued growth, economists say. One of them is that countries are beginning to get serious about controlling deficits. For example: *For all the hand-wringing about its budget mess, the United States is doing quite well by international standards, economists say. Of the 19 industrialized nations counted by the Organization for Economic Cooperation and Development in 1994, only Norway had a smaller relative deficit than the US (0.7 percent of gross domestic product, the nation's output of goods and services, versus America's 2 percent of GDP). By the end of this year, according to the IMF, the US deficit should be down to 1.3 percent of GDP, the lowest since 1979. *Between 1992 and 1995, the average industrialized country saw its deficit fall from 3.5 percent of gross domestic product to 2.5 percent. (A nation's deficits are often measured against the size of its economy because, just like a family, the more it earns, the more debt it can afford to hold.) Some of the biggest laggards, the IMF says, are the nations of the European Union. They are under pressure to get their deficits down to 3 percent of GDP by next year to meet the targets necessary for creating a single European currency. Today, only three European nations meet the criteria. By the end of next year, the IMF estimates, another six will have done so and the rest will have made substantial progress. …