Tag: #saudiarabia

ICAEW chart of the week: Global military spending

While the UK commits to increasing its defence and security expenditure, our chart this week looks at military spending around the world, which has reached $2.4trn.

Column chart Global military spending ICAEW chart of the week Column 1: NATO USA $916bn UK $75bn Rest of NATO $360bn Total $1,351bn Column 2: SCO and CSTO China $296bn Russia $109bn India and other $106bn Total $511bn Column 3: Rest of the world Other US allies $304bn Ukraine $65bn Other countries $212bn Total $581bn 25 April 2024. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: SIPRI Military Expenditure Database. Excludes Cuba, North Korea, Syria and Yemen. © ICAEW 2024

Our chart this week is based on the latter, with SIPRI reporting that global military expenditure has increased to $2,443bn in 2023, a 6.8% increase after adjusting for currency movements. SIPRI’s numbers are based on publicly available information, which means that some countries may be spending even more on their militaries that are included in the database. SIPRI was unable to obtain numbers for military spending by Cuba, North Korea, Syria, Yemen, Turkmenistan, Uzbekistan, Somalia, Eritrea, Djibouti, and Laos.

Military spending is the news this week following the announcement by the UK government that it will commit to spending 2.5% of GDP on defence and security, the recent vote by the US Congress to provide $95bn in military aid to Ukraine ($61bn), Israel ($26bn) and Taiwan and others in the Indo-Pacific ($8bn), and the release of the Stockholm International Peace Research Institute (SIPRI) Military Expenditure Database for 2023.

More than half of that spending is incurred by NATO, with total military spending of $1,351bn, comprising $916bn by the US, $75bn by the UK and $360bn by other NATO members. Of the latter, $307bn was spent by the 23 members of the EU that are also members of NATO (including $67bn by Germany, $61bn by France, $36bn by Italy, $32bn by Poland and $24bn by Spain), while $53bn was spent by the other seven members (including $27bn by Canada and $16bn by Türkiye).

The Shanghai Cooperation Organisation (SCO) and the Collective Security Treaty Organisation (CSTO) are partially overlapping economic and military alliances convened by China and Russia respectively. China has the biggest military with $296bn spent in 2023, while Russia spent $109bn and other members spent $106bn (of which India spent $84bn).

We have categorised the rest of the world between other US allies which spent $304bn in 2023 (including $76bn by Saudi Arabia, $50bn by non-US members of the Rio Pact, $50bn by Japan, $48bn by South Korea, $32bn by Australia, $27bn by Israel and $17bn by Taiwan), Ukraine which spent $65bn, and $212bn spent by other countries for which SIPRI has data.

The numbers do not take account of the differences in purchasing power, particularly on salaries. That means China and India, for example, can employ many more soldiers, sailors and aircrew than NATO countries can for the same amount of money.

The Ukraine number also excludes $35bn in military spending funded by the US ($25bn) and other partners ($10bn) during 2023 that was not part of its national budget.

Global military spending is expected to increase further in 2024 as the international security situation deteriorates. This includes NATO members that plan to increase their defence and security spending to meet or exceed the 2% of GDP NATO minimum guideline set in 2014 to be achieved by 2024.

This includes the UK, which now plans to increase its spending on defence and security from 2.35% of GDP in 2023/24 to 2.5% of GDP by 2028/29, with suggestions from defence sources that setting a target of 3% of GDP may be necessary at some point in the next decade.

This chart was originally published by ICAEW.

ICAEW chart of the week: IMF Fiscal Monitor

Our chart this week finds that the UK is ranking highly in the IMF’s latest five-year forecasts for general government net debt.

Bar chart General government net debt/GDP: 2029 forecast Emerging and developing economies (green bars) World (purple bar) Advanced economies (blue bar) UK (red bar) Kazakhstan (green) 8% Canada (blue) 13% Saudi Arabia (green) 22% Iran (green) 23% Australia (blue) 24% South Korea (blue) 29% Türkiye (green) 30% Indonesia (green) 37% Germany (blue) 43% Netherlands (blue) 43% Nigeria (green) 47% Mexico (green) 51% Poland (green) 55% Egypt (green) 56% Pakistan (green) 61% Brazil (green) 70% World (purple) 79% South Africa (green) 84% Spain (blue) 92% UK (red) 98% France (blue) 107% US (blue) 108% Italy (blue) 136% Japan (blue) 153% 18 Apr 2024. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: IMF Fiscal Monitor: 17 Apr 2024. ©️ ICAEW 2024

The International Money Fund (IMF) released its latest IMF Fiscal Monitor on 17 April 2024, highlighting how public debts and deficits are higher than before the pandemic and public debts are expected to remain high. The IMF says: “Amid mounting debt, now is the time to bring back sustainable public finances”, commenting that as prospects for a global economic soft landing have improved, it is time for action to bring government finances back under control. 

Our chart this week illustrates how the UK is one of the ‘leading’ nations in government borrowing, with general government net debt projected by the IMF to reach 98% of GDP by 2029, compared with 92.5% in 2023. (Note: general government net debt is different to the public sector net debt measure used in the UK public finances – the latter includes the Bank of England and other public corporations.)

The chart illustrates how the major countries with the largest debt burdens tend to be advanced economies, with Spain (92% of GDP), the UK (98%), France (107%), US (108%), Italy (136%) and Japan (153%) having debt levels close to, or exceeding, the sizes of their economies.

Some countries are in much better fiscal positions, with Germany expected to bring its general government net debt down to 43% of GDP by 2029, while the Netherlands (43%), South Korea (29%), Australia (24%) and Canada (13%) also have relatively low levels of public debt compared with other advanced economies.

Emerging market ‘middle-income’ and ‘low-income’ developing countries often have much lower levels of public debt than advanced countries, often simply because it is more difficult for them to borrow to the same extent as well as not having the same scale of welfare provision as richer countries to finance. Examples include Kazakhstan (projected to have a general government debt of 8% of GDP in 2029), Saudi Arabia (22%), Iran (23%), Türkiye (30%) and Indonesia (37%). However, that does not stop some emerging and developing countries borrowing more, such as Nigeria (47%), Mexico (51%), Poland (55%), Egypt (56%), Pakistan (61%), Brazil (70%) and South Africa (84%).

Not shown in the chart are China and India for which no net debt numbers are available. The IMF projects them to have general government gross debt in 2029 of 110% and 78% of GDP respectively, indicating how their public debts have grown substantially in recent years. However, without knowing their levels of cash holdings it is less clear where they stand in the rankings.

Also not shown is Norway, the only country with negative general government net debt reported by the IMF. Norway’s general government net cash is projected to reach 139% of GDP in 2029, up from 99% in 2023.

As with all metrics, there are some issues in comparing the circumstances of individual countries. Many countries will also have investments, other public assets, or natural resource rights that are not netted off against debt, while many will also have other liabilities or financial commitments that aren’t counted within debt. For example, the UK has significant liabilities for unfunded public sector pensions as well as even larger financial commitments to the state pension, either of which, if included, would move the UK above the US in the rankings.

The IMF believes that as the world recovers from the pandemic and inflation is brought under control, it is important for countries to start tackling the deficits in the public finances and start bringing down the level of public debt. 

This may be difficult for countries such as the UK where significant pressures on the public finances mean public debt is expected to increase over the medium term rather than fall.

This chart was originally published by ICAEW.

ICAEW chart of the week: BRICS+

The ICAEW chart of the week returns from its summer holidays to look at the planned expansion of BRICS from five to 11 countries.

Venn diagram showing the G20, G7, BRICS, and BRICS+: G20 in green, encompassing G7 in teal with USA, Japan, Canada and UK plus in blue with dotted line around Germany, France, Italy and the European Union (the EU members of the G7). Then five countries in G20, but not in the G7, BRICS or BRICS+, being Korea, Australia, Mexico, Indonesia and Türkiye. Tne BRICS+ in purple with Argentina and Saudi Arabia followed by BRICS in orange with Brazil, Russia, India, China and South Africa. Still in the BRICS+ purple, but outside the G20 green are Ethiopia, Iran, Egypt and UAE. Sources: G20, G7, BRICS. Footnote gives share of global GDP: G20 86%. G7 52% (USA 26%, EU 17%), KAMIT 7%, BRICS 25%, BRICS+ 28%.

“The BRICs” was originally coined by Jim O’Neill in 2001 as an abbreviation for Brazil, Russia, India and China, four fast-growing economies that he predicted would come to dominate the world economy.

This investment shorthand evolved into something more substantive in 2006 when ministers from the four countries got together on the sidelines of a meeting at the UN. Leader summits started in 2009, followed by the addition of South Africa in 2011, which resulted in the capitalisation of the final ‘s’ to form BRICS. 

BRICS has developed over time to become a counterweight to the G7, providing an alternative forum for leaders of these five major nations to discuss common concerns such as economic development, currency stability, climate change, and tackling drug trafficking and organised crime. BRICS has been increasingly important to Russia since its ejection from the G7 (then the G8) following its invasion of Crimea in 2014 and to China as relations with the G7 have deteriorated over the last decade.

The most recent summit (the 15th) was on 22-24 August 2023, at which it was announced that six additional countries would be joining on 1 January 2024 to bring the number of members to 11.

Our chart this week takes the form a Venn diagram to illustrate how BRICS, and the expanded “BRICS+” grouping (pending a new official name), fit with two other major intergovernmental organisations where leaders meet on a regular basis – the G7 and the G20.

It starts with the G20, a grouping of 19 nations and the European Union that together represent 86% of the global economy. Within this sit the eight members of the G7 group of advanced economies, representing 52% of the global economy: the USA (26%), Japan (4%), the UK (3%), Canada (2%), Germany (4%), France (3%), Italy (2%) and the European Union (17% including Germany, France and Italy). The five BRICS nations represent 25% of the global economy comprising: Brazil (2%), Russia (1.7%), India (4%), China (17%) and South Africa (0.4%).

The diagram is complicated by the expanded BRICS+ as although invitees Argentina (0.6%) and Saudi Arabia (1.0%) are also members of the G20, the other four new members – Ethiopia (0.2%), Iran (0.3%), Egypt (0.3%) and the United Arab Emirates (0.5%) – are outside the G20. These new members together represent 3% of the global economy, taking the expanded BRICS+ to 28%.

Squeezed between the G7 and BRICS+ are five G20 members that together make up around 7% of the global economy that are not in either grouping, being (South) Korea (1.6%), Australia (1.6%), Mexico (1.8%), Indonesia (1.4%) and Türkiye (0.8%). As yet there is no sign of an intergovernmental organisation for these “KAMIT” nations to complement the G7 and BRICS, although in practice they are often invited as guests to G7 summits in addition to their participation in meetings of the G20.

The attraction of intergovernmental forums such as the G7, BRICS and the G20 is that they enable national leaders to engage directly with their counterparts on a wide range of topics, in contrast to the often narrower focus and more formal diplomatic structures of treaty-based international organisations such as the Organisation for Economic and Co-operation Development (OECD), the World Bank or the Organisation of American States (OAS) for example.

Their informal nature gives national leaders more flexibility to (for example) change their memberships without lengthy treaty negotiations or to work together on pressing issues of mutual concern. However, that informality also makes it difficult to create binding resolutions, which is perhaps why the global alternative reserve currency proposed at the first BRICS summit in 2009 had still not been implemented by the time of the 15th summit this August. 

Read more: G20, G7, BRICS.

ICAEW chart of the week: Inflation around the world

This week we look at how inflation is racing upwards across the world, with the UK reporting in April one of the highest rates of increase among developed countries.

Bar chart showing inflation rates by G20 country: Russia 17.8%, Nigeria 16.8%, Poland 12.4%, Brazil 12.1%, Netherlands 9.6%, UK 9.0%, Spain 8.3%, USA 8.3%, India 7.8%, Mexico 7.7%, German 7.4%, Canada 6.8%, Italy 6.0%, South Africa 5.9%, France 4.8%, South Korea 4.8%, Indonesia 3.5%, Switzerland 2.5%, Japan 2.4%, Saudia Arabia 2.3%, China 2.1%.

Inflation has increased rapidly over the last year as the world has emerged from the pandemic. A recovery in demand combined with constraints in supply and transportation has driven prices, with myriad factors at play. These include the effects of lockdowns in China (the world’s largest supplier of goods), the devastation caused by the Russian invasion in Ukraine (a major food exporter to Europe, the Middle East and Africa), and the economic sanctions imposed on Russia (one of the world’s largest suppliers of oil and gas).

As the chart shows, the UK currently has – at 9% – the highest reported rate of consumer price inflation in the G7, as measured by the annual change in the consumer prices index (CPI) between April 2021 and April 2022. This compares with 8.3% in the USA, 7.4% in Germany, 6.8% in Canada, 6.0% in Italy, 4.8% in France and 2.4% in Japan. 

The UK’s relatively higher rate partly reflects the big jump in energy prices in April from the rise in the domestic energy price cap, which contrasts with France, for example, where domestic energy price rises have been much lower (thanks in part to state subsidies). The UK inflation rate also hasn’t been helped by falls in the value of sterling, making imported goods and food more expensive.

Other countries shown in the chart include Russia at 17.8%, Nigeria at 16.8%, Poland at 12.4%, Brazil at 12.1%, Netherlands at 9.6%, Spain at 8.3%, India at 7.8%, Mexico at 7.7%, South Africa 5.9%, South Korea at 4.8%, Indonesia at 3.5%, Switzerland at 2.5%, Saudi Arabia at 2.3% and China at 2.1%. For most countries, the rate of inflation is substantially higher than it has been for many years, reflecting just how major a change there has been in a global economy that had become accustomed to relatively stable prices in recent years. 

This is not the case for every country, and the chart excludes three hyperinflationary countries that already had problems with inflation even before the pandemic, led by Venezuela with an inflation rate of 222.3% in April, Turkey with a rate of 70%, and Argentina at 58%.

Policymakers have been alarmed at the prospect of an inflationary cycle as higher prices start to drive higher wages, which in turn will drive even higher prices. For central banks that has meant increasing interest rates to try and dampen demand, while finance ministries have been looking to see how they can protect households from the effect of rising prices, particular on energy, whether that be by intervention to constrain prices, through temporary tax cuts, or through direct or indirect financial support to struggling households.

Here in the UK, both the Bank of England and HM Treasury have been calling for restraint in wage settlements as they seek to head off a further ramp-up in inflation. They hope that inflation will start to moderate later in the year as price rises in the last six months start to drop out of the year-on-year comparison and supply constraints start to ease, for example as oil and gas production is ramped up in the USA, the Middle East and elsewhere to replace Russia as an energy supplier, and as China emerges from its lockdowns.

Despite that, prices are likely to rise further, especially in October when the energy price cap is expected to increase by 40%, following a 54% rise in April. This is likely to force many to make difficult choices as household budgets come under increasing strain.

After all, inflation is much more than the rate of change in an arbitrary index; it has an impact in the real world of diminishing spending power and in eroding the value of savings. 

This chart was originally published by ICAEW.