Rising interest rates are projected to heavily impact the public finances of autonomous communities. Public debt service is expected to rise broadly across regions. Calculations by the Autonomous Administration indicate that the number of autonomous communities facing higher interest costs could grow between 2023 and 2026. The Applied Economic Studies Foundation, also known as Fedea, estimates payments will climb from 4,174 million in 2023 to 8,659 million in 2026. Using the change in expected interest payments from 2022 to 2026 as a starting point, Fedea finds that communities will incur an additional 5,051 million in interest. This increase represents a substantial share of public debt that must be balanced by reductions in other policy areas.
The report’s authors base their projections on optimistic assumptions, including that all autonomous communities meet the budget targets set by the government. The scenario equates to roughly 0.3% of GDP in 2023, with a budget balance in 2024 and a surplus used to reduce public debt levels in 2025 and 2026.
Under these assumptions, along with rising interest rates and the longer average duration of securities, Fedea’s analysis shows notable differences among communities. For Catalonia, interest payments would rise about 2.3 times from 2022 levels (1,029 million) to 2026 (2,412 million), while the debt stock would increase only modestly by about 1.75%, to 85,806 million.
Generally, Fedea projects that the regional public debt ratio—measured as the outstanding debt stock at year end relative to annual interest payments—will climb from 1.1% in 2022 to 2.7% in 2026. Catalonia’s ratio would rise from 1.2% to 2.8% in the same period.
Differences between autonomy
The impact of higher rates on each community’s finances depends on the starting debt level and the duration of debt titles. The initial rate also matters. In regions with lighter dependence on government financing funds, such as those that rely on the Autonomous Liquidity Fund, the increase in interest costs could be smaller for two reasons: they begin with a higher rate and their securities have longer terms—on average around eight years.
Consequently, for Madrid, Navarra, and the Basque Country, interest expenses in 2026 could be roughly 1.5 times higher than in 2022, according to Fedea’s calculations.
In contrast, the Valencian Community could see a much larger rise. Fedea estimates interest payments could grow about 3.7 times, from 361 million in 2022 to 1,346 million in 2026. Castile-La Mancha could see a similar acceleration, around 3.6 times (to 372 million). The Canary Islands and Murcia are projected to grow about 3.3 times (to 162 million and 313 million, respectively), and Galicia could triple to 306 million in 2026.
Other regions show substantial increases as well: the Balearic Islands could see payments multiply by about 2.9 (to 216 million in 2026); Extremadura about 2.7 times (to 144 million); Andalusia around 2.6 times (to 1,013 million); Cantabria about 2.5 times (to 92 million); Aragon and Asturias around 2.3 times (to 261 million and 125 million, respectively); and Catalonia about 2.3 times (to 2,412 million). Castile and León is expected to see interest payments rise about 2.2 times (to 397 million).
Announcement to autonomous governments
As the report notes, fiscal policy must not overlook the financial impact of past and present debt on regional public accounts over the medium term. All autonomous communities should carefully adjust expansionary fiscal policies now and in the coming years, especially given the potential for new fiscal rules to be implemented in the eurozone in 2024. The authors warn that attempts to implement large tax cuts or high-spending projects with questionable social profitability could jeopardize the sustainability of regional public accounts.