After a decade of falling interest rates, Spanish public debt now faces a steep climb. HE average cost of new public debt Treasury’s bond issuances in 2023 are currently at the highest level since 2011, when the financial crisis occurred. Independent Accountability Authority in (airef) latest ‘Debt Observatory’. Additionally, for the first time since 2011, interest rates will increase starting from 2024. New names for 10 years Accordingly, it will be more expensive than bonds that mature. Establishment of Savings Banks (Funcas).
All this is related to the tightening policy launched by the European Central Bank (ECB) at the end of 2021. official price of money 4.5% (highest level since May 2001). On the same Thursday, the ECB faced the dilemma of whether to keep the price of the currency at this level or make a new turn, as most analysts predicted.
cycle change
Funcas, export cost in 2024 10 year bonds It will be 4% (according to the last Treasury auction held last September). Meanwhile, securities issued ten years ago, in 2014, will mature in 2024 at a much lower interest rate of 2.7%. “Producing yield curve inversion. The interest on newly issued bonds by the Treasury will be higher than the interest on matured bonds for the first time in 10 years. This is something that will have an impact on the fiscal spending of administrations and represents a front of vulnerability for the Spanish economy,” Funcas Director of Economic Affairs and Statistics Raymond Torres warned during the presentation of the report. New economic forecasts for the 2023-2024 period.
All this, according to the Government’s own estimates, envisages greater difficulties in terms of public debt sustainability. 1.58 billion euros 1.64 trillion at the end of 2023 (108.1% of GDP) and 1.64 trillion in 2024 (106.3% of GDP).
Public administration expenditures currently interest payment According to the Budget Plan sent to the European Commission by the incumbent Government, the public debt will increase from 35,550 million Euros (2.4% of GDP) in 2023 to 39,078 million Euros (2.5% of GDP) in 2024. ) is expected to appear. This amount, close to 40,000 million, could double the amount allocated to unemployment protection (estimated at 21,000 million for 2023).
Interest expense on debt will increase in the coming years The main burden on public accounts in the coming years. According to estimates International Monetary Fund (IMF)In the absence of regulatory changes, Spain will run a deficit of 3.4 percent of GDP in 2028, with interest payments responsible for three out of every four euros of this deficit. Hence the insistence of organizations such as Airef to undertake a decisive budget consolidation plan for the Government.
Money Politics
With the change in the monetary policy cycle The long phase of improving public debt sustainability This followed the 2011 crisis and the bailout of Spanish banks in Europe, aided by the rate-cutting path launched by the European Central Bank (ECB) in November of that year.
Now, lately Tightening of ECB’s monetary policy started in December 2021 -supported in July 2022, with the announcement that there would be a reduction in public debt purchases ( First interest rate increase in 11 yearsAs Airef and Funcas warn, it is already damaging public accounts and will continue to do so in the coming years.
New, more expensive issues…
After reaching the minimum of -0.04% in 2021, average cost of new emissions The Treasury staged a recovery to reach 3.6% in September 2023 (the most expensive since 2011, when it reached 3.9%); This gives an average of 3.36% so far this year. Thus, the average interest rate on debt in circulation rose slightly to 2.05 percent, and this trend will continue in the coming years: Airef predicts that the average interest rate will be 2.8 percent in 2026.
…which increases the cost of outstanding debt
Since 2011, the ECB’s gradual softening of monetary policy and falling issuance costs have allowed the Treasury to reduce the average interest rate. debt in circulation Less than half in just ten years: from 4.07% at the end of 2011 to 1.64% in December 2021 or 1.73% in 2022. This is a time when the Treasury has an advantage. prolong half life Increasing the debt portfolio from 6.20 years in 2013 to 7.82 years in 2023, helping to ensure better sustainability of financing.
However, the high cost of new issues in 2023 (3.6% on average) has caused the average interest rate on debt in circulation to already rise to 2%. According to Treasury data, Returns from recent auctions reached 3,556 percent quarterly letters; 3.862% 12 months letters; 3.527% for bonus three years; 4.067% for liabilities 10 years and 3.874% 50 years of titlesamong other references.