High inflation rates erode the incomes of families and companies. Also from the State. And not just because it has to update retirement spending according to the CPI. Additionally, high CPI rates higher interest payment To the extent that the profitability of a part of the public debt (about 5%) is linked to the development of inflation.
According to calculations Independent Accountability Authority According to (Airef), interest expenses of total public administrations increased by 5 billion 550 million euros in 2022, reaching a total of 31 billion 595 million euros (2.3% of GDP). “It should be noted that the strong increase in the fiscal burden of 2022 occurred as a result of the revaluation of the debt portfolio due to inflation. More than 8,000 million euros“, emphasizes Airef in his newsletter Debt Observatory It was published this Thursday. In fact, it is emphasized that if there were no effect of inflation in 2021 and 2022, the financial burden would continue to decrease in 2022 (163 million euros).
Just over 5% of the total debt volume (1.558 trillion euros in July) corresponds to inflation-linked securities (about 80,000 million euros). They so called ‘connectors‘. When inflation turns out to be better than expected (as it did in 2015, 2016, 2019 and 2020), ‘binders’ save the government money. According to Airef, when the data turns out to be worse than expected, extra costs arise in interest payments, and at least this was the case in 2021 and 2022. For example, the $8 billion extra cost estimated for 2022 is more than what the central government spent that year. health (6.606 million), education (5.023 million) or introduction work (7.648 million); More than doubles your expenses housing policies (3.295 million) and close to the targeted figure to defend (9.791 million).
Public debt below 109% of GDP in 2023
In its September newsletter, Airef updated its forecasts for public debt following the National Statistics Institute’s correction of the Gross Domestic Product level upwards by around 23 billion euros (to a total of 1.346 trillion) and recent monetary policy decisions. .
When projected somewhere gross domestic product Airef estimates Spain’s public debt at 111.2% of GDP in the second quarter of 2023. This is 1.84 percentage points lower than it would have been with GDP before the review.
Before the GDP review, Airef forecast that the debt ratio for 2023 would rise up to 110.1%, a decrease of 3.1 percentage points compared to the level recorded in 2022. “After the GDP revision of the National Accounts the rate will most likely be at: a range of 108% to 109% at the end of the yearThe Tax Office maintains the view that “the forecast presented by the Government in the 2023-2026 Stabilization Program Update and the latest forecasts of the IMF and the European Commission are improved.”
Average cost of new debt at highest level since 2011
The estimated debt level for the second quarter (111.2% of GDP) represents a decrease of 14 percentage points compared to the ceiling of 125.2% reached in the first quarter of 2021. However, Spain is currently one of the countries with the highest debt ratio in the euro zone. debt level behind Greece and Italy and at a similar level Portugal and France. “In 2019, Spain was already one of the eurozone countries with the highest debt ratio, and the pandemic contributed to the consolidation of this situation,” Airef emphasizes.
Recent increases in interest rates have translated into higher costs of public debt. Thus, after reaching its minimum level in 2021 Average cost of new Treasury issues increased from -0.04% to 3.33% in August 2023, A value not recorded since 2011Just before the start of the epidemic, according to Airef 2012 debt crisis.
This high emission cost also created a turning point. average cost of debt portfolio It rose to 2.02% from the state’s historical minimum of 1.64%.
According to Airef forecasts, in 2023 average emission rate It will close the year at just over 3 percent, rising to 3.4 percent in the coming years. Such issuances will increase the average proportion of the debt portfolio to 2.8% and interest expense to 2.9% of GDP in 2026 (2.02% and 2.3% of GDP respectively in 2022).