Today, many developed countries face a financial reality marked by rapidly rising government debt and budget deficits. In some cases, government debt exceeds the GDP, while inflation and high interest rates make further borrowing increasingly expensive. As a result, a large portion of tax revenues is allocated to servicing old debts, rather than development or social programs.
In Ukraine, the average budget deficit has risen to 4.6% of GDP in the past year, compared to under 3% before the pandemic. Additional spending has not been compensated by higher revenues or reduced expenses. This growing debt burden is not unique to Ukraine—many countries are facing more costly borrowing, and political instability has increased support for populist forces.
The cost of servicing government debt now exceeds 3% of GDP, a level similar to NATO’s planned defense expenditures. These funds could be directed toward future investments, but are instead spent on past obligations. Governments are thus forced to balance raising taxes, cutting programs, or taking on new, more expensive debt.
Sharp spending cuts tend to drive voters toward populist parties. Declining support for mainstream political forces fuels political instability and triggers negative reactions in financial markets.
Since 2008, many governments postponed unpopular reforms, favoring additional borrowing during periods of low interest rates. Now, central banks are reducing their support, and loan conditions keep worsening. Higher bond yields in countries such as France evidence increased perceived risks.
The policy dilemma—cutting spending or raising taxes—is difficult. The former often sparks protests and empowers populist parties, while the latter slows economic growth. Alternatively, effective debt management—such as prioritizing long-term borrowing, like in Japan—can reduce economic pressure.
History shows that drastic measures, such as financial repression or mandatory investments, are unlikely to be accepted by modern societies. Forced investment in state bonds or local tax incentives are seen as hidden taxes on savers and investors.
No solution is easy. Cutting spending, raising taxes, or financial reforms and repression each carry negative economic and political consequences. Honest dialogue with citizens and a focus on development are crucial to prevent a rise in radicalism and social tension.
