The new White House data released evidently shows that the huge surge in spending to confront the economic fallout of the coronavirus pandemic fueled a historic increase in national debt; thereby, creating an unprecedented budget deficit.

According to the exclusive government data released on Friday, the U.S. budget deficit eclipsed $3.1 trillion in the fiscal year that ended Sept. 30. This is adjudged to be by far the biggest one-year gap in U.S history.

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The data is a stark reflection of the staggering blow that the COVID-19 pandemic has dealt to the U.S. economy. The deficit – which is the gap between government spending and tax revenue – shows the dramatic surge in spending that the U.S. government approved, in order to contain the pandemic’s fallout earlier this year.

According to the data jointly released by the White House and the Treasury Department, the deficit last year was about $1 trillion, which represented an elevated level but pales in comparison to the 2020 tally. For 2020, the government spent $6.552 trillion, up from $4.447 trillion a year ago. The government brought in $3.420 trillion in tax revenue in 2020, a slight decrease from 2019.

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Backstory

Trump fell far short of his pledge to curb the national debt from the 2016 presidential campaign when he argued “We’ve got to get rid of the $19 trillion in debt.” He spearheaded a Republican effort to approve $2 trillion in tax cuts in 2017 and also worked with Congress to approve large spending increases in 2018.

What they are saying

According to Marc Goldwein, a Budget Expert at the Committee for a Responsible Federal Budget, which advocates for reducing the deficit, “Most of the increase in the deficit relative to last year is higher spending as a result of covid relief.”

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According to Angela Hanks, Deputy Executive Director of the Groundwork Collaborative, a left-leaning group,

“America’s failure to adequately stimulate the economy led to a tepid recovery from the Great Recession, and lawmakers should avoid making the same mistake again. Congress must still pass more spending to prevent people from going hungry or losing their homes.”

Brian Riedl, a Budget Analyst at the conservative-leaning Manhattan Institute, warned that America’s jobs recovery has already picked up the “low-hanging fruit” positions that were easy to bring back.

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Other jobs in sectors such as the hospitality, airline, and restaurant industry will be harder to bring back, particularly as the U.S. braces for an increase in coronavirus cases during the cold winter months. She added that “The growth is leveling off. The economic recovery is leveling off, which means the deficit numbers will continue to be pretty bad.”

Why this matters

The new figures come as the White House and House Speaker, Nancy Pelosi, (D-Calif.), are locked in negotiations about another round of economic relief, which could include another $2 trillion in aid. Spending like this could further add to the government’s budget deficit.

READ: 2021 Budget: FG projects spending plan of N11.86 trillion and deficit of N5.16 trillion

A range of Economic Experts across the political spectrum, including Federal Reserve Chairman, JH Powell, have said the assistance is necessary to prevent the economic recovery from flagging and keep millions from falling into poverty. Businesses have picked up the pace of layoffs in recent weeks, particularly at travel-related companies.

The optics

• Numerous Republican lawmakers have bristled at the federal spending spree in response to the pandemic, and the surging deficit may fuel their reluctance to authorize additional relief.
• Conservatives alarmed by the deficit may also push hard for its reduction, should Democratic Presidential nominee – Joe Biden, win the election. This will set the stage for a revival of the fierce budget battles that characterized much of the Obama administration.
• Despite the increase of the deficit, economists and lawmakers from both sides of the political aisle have clamored for more government spending.
• The bipartisan consensus that approved the big jump in spending earlier this year appears to have waned, and some Senate Republicans have signaled they are not comfortable with the big-spending package that the White House is now negotiating with Pelosi.

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What you should know

• The government traditionally runs some sort of budget deficit, and it finances the gap between taxes and spending by issuing debt. Interest rates are low, which has made it relatively inexpensive to issue debt. But the debt totals have risen markedly during the Trump administration, even before the pandemic, upending his 2016 campaign vow to completely eliminate the debt over eight years.
• The debt when Trump entered office was about $14.4 trillion. It now stands at around $21 trillion. The previous highest deficit recorded was in 2009, when it came in at $1.4 trillion. That is less than half of the 2020′s tally.
• In March and April, Congress approved close to $3 trillion in spending programs, in response to the pandemic. This included hundreds of billion of dollars in aid for the unemployed and small businesses, as well as $1,200 stimulus checks for millions of Americans.
• The economy fell into a steep recession earlier this year as many businesses shut down and sent workers home because of the virus outbreak.
• The government’s spending imbalance skyrocketed in April and June as the government’s coronavirus relief efforts were implemented and the economy cratered. This is because the gap between federal spending and collected tax revenue grew to unprecedented levels. The monthly deficit jumped to $738billion for April alone, which was a record until the monthly deficit for June came in at $864 billion. The June deficit was bigger than the entire 12-month deficit in 2018.
• Spending soared across government agencies this year. The Department of Education, for instance, spent 96 percent more than it had last fiscal year, while the Small Business Administration spent close to $600 billion more than prior years, due to its implementation of the Paycheck Protection Program for small businesses hurt by the virus.
• Monthly deficits have since subsided somewhat, both as the pace of new government spending slowed and the U.S. economy began to bounce back and the unemployment rate fell, resulting in greater tax revenues. In August, the monthly federal deficit came in at $200 billion as the amount of federal spending was halved from June. But this decrease in spending has come amid signs that the economic recovery is slowing, which has prompted the White House and some lawmakers to consider more aid.

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What to expect

On Wednesday, Trump told the New York Economic Club that reducing the federal debt would be a priority of his second administration, even as he urged Congress to spend more than $1.8 trillion on an additional relief package.

Trump also said faster economic growth would erase the U.S. debt burden. Although, budget experts say spending cuts or tax hikes would be necessary to do so.

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The total external debt of the least developed countries under the Debt Service Suspension Initiative (DSSI) has increased by 9.55% to $744 billion in 2019.

This was disclosed in the World Bank’s International Debt Statistics 2021 released in Washington D.C. on Monday.

According to the report, the figure was equivalent on average to one-third of the countries’ combined gross national income.

READ: Nigeria total public debt hits N31 trillion as debt service gulp over N1.2 trillion in H1 2020 

It stated, “Lending from private creditors was the fastest-growing component of the external debt of DSSI-eligible borrowers, up five-fold since 2010. Obligations to private creditors totaled $102 billion at the end of 2019. The debt stock of DSSI-eligible countries to official bilateral creditors composed mostly of Group of 20 (G-20) countries, reached $178 billion in 2019 and accounted for 27% of the long-term debt stock of low-income countries.”

According to the report, this highlights an urgent need for creditors and borrowers alike to collaborate and stave off the growing risk of sovereign-debt crises triggered by the COVID-19 pandemic.

READ: Nigeria’s total public debt stock increased by N2.381 trillion in 3 months

It added that the pace of debt accumulation for these countries was near twice the rate of other low- and middle-income countries in 2019.

The report said that in response to an urgent need for greater debt transparency, this edition provided more detailed and disaggregated data on external debt than ever before in its nearly 70-year history.

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According to the report, details include breakdowns of what each borrowing country owes to official and private creditors in each creditor country and the expected month-by-month debt-service payments owed to them through 2021.

Pre-COVID

The World Bank said that before the onset of the COVID-19 pandemic, rising public debt levels were already a cause for concern, particularly in many of the world’s poorest countries as discussed in its Four Waves of Debt report published in December 2019.

READ: Nigeria’s debt rises to $79.5 billion, as debt to revenue ratio worsens

“Responding to a call from the World Bank and the International Monetary Fund, the G20 endorsed the DSSI in April 2020 to help up to 73 of the poorest countries manage the impact of the COVID-19 pandemic. The debt stock of DSSI-eligible countries to official bilateral creditors, composed by mostly G-20 countries, reached 178 billion dollars in 2019 and accounted for 17% of long-term net debt flows to low and middle-income countries. Within the G-20 creditor group, there have been some important shifts characterized by a marked increase in lending by G-20 member countries that are themselves middle-income countries,” it added.

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Citing China as an example, though by far the largest creditor, it had seen its share of the combined debt owed to G-20 countries rise from 45% in 2013 to 63% at the end of 2019.

It said that over the same period, the share for Japan, the second-largest G-20 creditor, had remained broadly the same at 15%.

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U.S. President Donald Trump has revealed his intentions of granting a $25 billion bailout to U.S. airlines, as efforts are geared towards ensuring the industry remains afloat having been severely hit by the impact of the pandemic.

Trump in lieu of this reality urged Congress to expeditely approve the sum of $25 billion as payroll assistance to US Passenger airlines. He opined that it is possible to achieve this funding plan, albeit subject to the optimization of unused funds from prior coronavirus relief.

READ: Global air passenger slump to persist till 2023 – Moody’s

Trump’s new demand is sequel to his previous refusal to advance talks with congressional democrats over plans to spend at least $1.6 trillion in additional coronavirus relief funds. Subsequently, Trump reversed his stand and issued a call on Twitter, urging Congress to immediately approve $25 billion for Airline Payroll support.

This timely response is very much needed given that many U.S. airline firms have commenced mass retrenchment of workers, for example, American Airlines (AAL.O) and United Airlines (UAL.O) last week began laying off 32,000 workers, but had said they would reverse course if lawmakers reach a deal on a new government program to fund payroll costs.

READ: British Airways pilots accept 20% pay cut to end job losses dispute

Their renewed mass retrenchment might be due to the expiration of a previous $25 billion airline payroll support program of mostly cash grants approved by Congress in March, which got expired on Sept. 30.

In support of the recent call, the House Speaker, Nancy Pelosi expressed solidarity for a standalone bill to keep airline workers on the job if a broader package could not be reached.

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Commenting on the recent development, the U.S. Travel Association said “with millions of Americans suffering, it is woefully shortsighted to end relief negotiations” and added that “without immediate aid, 50% of all travel-supported jobs will be lost by December — an additional loss of 1.3 million jobs.”