Spain Looks at Public Debt and Fiscal Rules Through Airef’s Lens
Spain’s Independent Authority for Fiscal Responsibility (Airef) projects that the public debt ratio to GDP will ease from 107.7% in 2023 to about 106.3% by the end of 2024, aligning with government forecasts. The agency also estimates that starting next year, meeting the new fiscal rules agreed on February 9 between the European Commission, the European Council, and the Council will require an annual adjustment to either spending or revenues equal to 0.64% of GDP each year from 2025 through 2028.
Translated into euros, 0.64% of GDP represents an annual adjustment of roughly 9.9 billion euros if the Government’s 2024 nominal GDP reference is used. This figure mirrors the fourth tranche of EU funds Spain expects to receive in the current semester or about half of the unemployment benefits budget.
Airef’s Debt Observatory report, published this Thursday, states that a higher interest-rate environment introduces a vulnerability to the sustainability of public finances, given the high debt that must be refinanced at noticeably higher rates. In 2023 the average cost of new Treasury issuances rose to 3.44%, a level not seen since 2011. This marks a turning point in the average debt portfolio cost, which climbed from a historical low of 1.64% to 2.09%, according to the institution led by Cristina Herrero.
As the final wording of the fiscal reform is awaited, Airef continues to run tentative scenarios to illustrate the needed adjustment for the accounts of all public administrations in Spain. The new estimate echoes the previous October projection, which calculated a perpetual 0.64% of GDP annual adjustment for 2025-2028, totaling about 2.56 percentage points over this four-year span (around 39.5 billion euros in 2024 terms).
Airef notes that this adjustment would allow Spain to sustain a plausible downward debt path while meeting the deficit and debt safeguards embedded in the new fiscal rules. The organization emphasizes that the structural postures of fiscal plans will shape the policy road map for four years, with some deployments extending to seven years under certain investment commitments. These Medium-Term Structural Fiscal Plans must be submitted by the deadline of September 20, 2024, and they will determine the budgets for the state, autonomous communities, and municipalities for 2025.
In Spain’s case, among a group of countries with debt levels above 90% of GDP, a 0.64% annual adjustment in primary spending (excluding interest payments and cyclically adjusted unemployment spending) could meet the new rules even under stress scenarios. The fiscal rules define the needed adjustment on primary spending but allow a smaller cut if additional revenue collection is achieved. This conservation of the revenue side provides flexibility for maintaining essential public services while staying within the broader debt targets.