The sustainability of Spanish public accounts presents risks in the medium term due to the aging of the population and the greater spending on pensions that the State coffers will have to support in the coming years, when the horrible ‘Baby’ generation is scheduled to retire. boom’. The warning was made this Monday by the European Commission within the framework of its annual report on this matter. The document places Spain among the countries whose debt-to-GDP ratio will remain above 90% for the next five years, along with France, Italy, Belgium, Portugal, Greece, Romania and Finland.
The Debt Sustainability Analysis (DSA) worsens its calculations, which are a key reference because they will serve to set the countries’ trajectories for the implementation – starting next May – of the new fiscal rules, which are pending approval by the European Parliament. The partners must take them into account to prepare the medium-term fiscal plans that they have to present to the community executive before next September 20.
“The larger expected increase in the costs of population aging for some countries is due to updated forecasts of pension outlays, which are higher for most member states. Revisions to other items are generally smaller “states the document, which foresees that public debt will skyrocket to 118.4% of GDP in 2034, six points above what it had estimated in its previous calculation.
The document warns that although the public debt-to-GDP ratio has decreased despite persistent budget deficits, “the risks to budgetary sustainability are considered globally high in the medium term” and also highlights that the pressures on the balances of the Households have grown, particularly those with lower incomes.
The impact of anti-crisis measures
The Commission points out that the fiscal deficits projected for the future will continue to increase the volume of debt. Thus, although in its latest forecasts Brussels estimates that the imbalance in public accounts will improve to 3.2% of GDP this year thanks to the gradual elimination of anti-crisis measures related to energy, the expiration of others such as the tax on financial institutions . and the solidarity tax on large fortunes will weigh “negatively” on the public deficit in 2025, raising it to 3.4% of GDP.
“The risks to budgetary sustainability are globally low in the short term, high in the medium term and medium in the long term,” summarizes the analysis, which appreciates several additional risk factors, such as those that may be amplified by the adverse impact of the tightening of Financial conditions on the situation of households and companies.
This is because in its central scenario the Debt Sustainability Analysis foresees that the ratio of public debt to GDP will remain high in the medium term, decreasing to 106% in 2026, before approaching 110% again. “This projection assumes a structural primary deficit of 1% of GDP, which seems plausible in light of previous results,” details the Commission.
The ‘snowball’ effect of growth
Until 2031, the projections will benefit from a still favorable (although decreasing) snowball effect of around -0.6% of annual GDP on average during the period 2025-2031. Growth will also be supported by the positive impact of Next Generation funds. Brussels places the average annual increase in real GDP at around 1.3% during the period 2025-2034. “General government gross financing needs are expected to remain high over the forecast period, slightly exceeding 20% of GDP in 2034,” he adds.
Despite all of the above and in the opposite direction, it is recognized that the lengthening of debt maturities in recent years, relatively stable sources of finance and a broad and well-diversified investor base help mitigate these risks. It also highlights the commitments to structural reforms incorporated into the Recovery, Transformation and Resilience Plan that, if fully implemented, “could have an additional positive impact on GDP growth in the coming years and, therefore, contribute to mitigating the debt sustainability risks,” he points out.
