Public expenditure in the developing countries increased its share of GNP by nearly 41% between 1972 and 1986, central governmental expenditures rising from 18.7% of GNP in 1972 to 26.3% in 1986. Much of this was due to rising interest payments on the foreign debt. When one examines the composition of central governmental expenditures, two things stand out. First, the share of expenditure devoted to human development (notably, education and health) declined, especially expenditure on education, and secondly, the proportion of expenditure devoted to the military also fell. These were, of course, falling shares of a total which was itself an increasing proportion of GNP. Thus when these expenditure categories are expressed as proportions not of total central governmental expenditure but of GNP, it transpires, paradoxically, that public expenditure on the military and on education and health rose.
It would be highly desirable if developing countries in the 1990s could take advantage of the improved international political climate and curtail military expenditure, thereby releasing additional resources for expenditure on human development and for physical investment. Indeed, real public expenditure on education per student and real public expenditure per capita on health often either stagnated or declined. The central government current deficit, which can be interpreted as negative savings, rose very sharply, from 3.5% of GNP in 1972 to 6.2% in 1986. This is a further indication of the need to reform the public finances through improved tax and expenditure policies in order to make a larger contribution to accelerating growth.