Elections in the World in 2024- and Freebies
Globally, more voters than ever in history will head to the polls, as at least 64 countries representing half of the people in the world or 2/3rd people in democracies. Elections will be held in the largest democracy India, richest democracy America and mother of democracy UK. Elections have already been held in Taiwan, Bangladesh, Pakistan and Indonesia.
Many incumbent presidents or prime ministers seek another term. As most present incumbents are not sure about their popularity, they resort to throwing or swearing the public money for the freebies. Some of them are also tempted to declare cut in taxes to woo the voters. If the popularity of the incumbent is low, then actual expenditure or the promises are exorbitant. The rival challenging political parties make even taller promises to dislodge the incumbent. The result is that many leaders spend much more money than the taxes collected, resulting in budget deficit. A budget deficit above 5% of GDP is economically dangerous for any nation. The deficit is filled by taking loan or debt from the market. This debt is taken by the governments by issuing bonds to the global investors. Many countries have already accumulated massive debts during the pandemic and cannot afford to splurge money.
Over spending by the government leads to inflation. This reduces the real value of the bonds and stocks. The global investors start punishing the irresponsible governments by selling bonds and currency. In other words, investors work as vigilantes over the profligate governments. This punishment by investors bring the nations to their senses and they are forced to curtail their budgets. Markets are far bigger and stronger than the government budgets.
In US the budget deficit is likely to be unprecedented above 6% of the GDP. Now, US government will pay more for the interest on debt than its spending on defence and on social program Medicaid. South African president Ramaphosa Is still spending more despite dangerous signs. However, countries like Ghana and Sri Lanka have been forced to curtail their spending. Country like Pakistan has no place to borrow either inside or abroad. It is a fail state. The vigilante investors forced the UK Prime Minister Liz Truss out of office by selling stocks and bonds. Erdogan of Turkey and Lula of Brazil were forced for fiscal restraint.
India seems to be somewhat fortunate. Though its fiscal deficit this year is vulnerable 5.8% of the GDP, yet its 7% growth in GDP sustains the system well. Secondly, Modi is immensely popular and confident of winning election. BJP’s recent victories in Rajasthan, M P. and Chhattisgarh have helped him to avoid any tall promises. The budget presented by Sitaraman was without any freebies or promises.
It will be interesting to watch the election results in different countries and the public spending of the winners.
