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Treasury debt interest payments grow at the rate of the 2013 and 2010 crises

Date: February 24, 2024 Time: 22:51:29

The debt of the Public Administrations continues to grow. It has skyrocketed in 2023, it has exceeded the barrier of 1.5 trillion euros, more than 300,000 million above pre-pandemic levels and the start of the legislature of the current Government of Pedro Sánchez. Instead, the ratio to GDP fell to 113%, twelve percentage points below the 2020 peak. However, there is a third metric that investors are beginning to look at in 2023: interest payments for having contracted that load and that it is necessary to sustain it.

The upward turn in interest rates is also knocking month after month on the door of the State with an increase in receipts each time it goes on the market for money from investors who finance the debt. Now the cost of servicing that debt is growing at the fastest rate since the 2013 Greece crises.

The latest statistics available, up to April, places the average interest at 1.88% after twelve consecutive months of growth. It has increased by 34 basis points (0.34 percentage points) above the all-time low of March 2022 at 1.539%, according to data from the Public Treasury. The forecast is that it will be above 2% at the end of this year as the state issuer continues to auction bills and bonds to finance the public deficit and refinance maturities.

A bill of 40,000 million a year

In absolute terms, the increase in interest payments on the debt will exceed 10,000 million euros in 2023, a figure that will raise this item in the next general budgets above 40,000 million euros per year, according to financial sources. The annual increase in cost is between 35% and 40%, which exceeds the increases of 2013 and 2010, in addition to breaking the annual debt service record of ten years ago when more than 38,000 million are paid.

The increase in public financial costs has occurred in a context of historically low interest rates due to the fact that Spain’s total debt has tripled in just fifteen years. In 2022 the downward trend of ten consecutive years in which the Public Treasury lowered the average rate of its outstanding debt was broken. Despite this, interest payments will go to a record level with that average reference rate around 2% compared to 2013 or 2011 when the State paid double (3.8%-4%) for borrowing but had less total debt .

The bulk of the increase in public debt has been acquired by the Central Administration (102.4% of GDP compared to 89% in 2019), followed by Social Security led by José Luis Escrivá, which already represents 8% of GDP compared to 2.5% of 2018, according to the Bank of Spain. On the other hand, Autonomous Communities and Local Corporations (town councils, councils) have cleaned up their accounts in these four years, reducing the weight relative to GDP of debts that dragged down to 23.9% and 1.7%, respectively.

Why does debt and interest grow?

The escalation of the debt has a simple explanation: the accumulation of public deficits year after year has just started to swell the structural and long-term indebtedness of the State. Its origin is simple: spending above income, despite the fact that tax collection has grown at a record rate in the last two years.

According to data published last Wednesday by the Bank of Spain, public debt increased by 81,540 million euros, 5.6% more compared to the same period of the previous year, up to a debt account of 1.53 trillion euros. euro.

Of this figure, the central administration accounts for 1.36 trillion, 7% more year-on-year, but Social Security, also under the management of Moncloa, is also growing at a faster rate (+7% year-on-year), up to -106,178 million, another record that has led the analyst community and the supervisor Airef to raise the tone again.

The debt spiral into which the government has entered, however, is coming to an end due to the calls for fiscal consolidation from Brussels but, above all, due to the end of the extraordinary financing of the European Central Bank (ECB), which since In 2020 it had become the main ‘investor’ in Spanish auctions. But along with the policy of rate hikes to also curb inflation, the monetary authority is withdrawing from the market to gradually reduce its balance sheet.

In the summer of 2022, it ended the net purchases of bonds in the market of the APP stimulus program that it launched in 2014 and which has allowed the risk premiums of the states to be alleviated. The month of July will cease the upcoming reinvestments that they have been making with the yields of their portfolio. Experts consider that it will cause a further increase in the costs of private and public financing without raising interest rates again.

In fact, estimates suggest that it will mean a balance reduction of up to 30,000 million euros per month, from the current 15,000 million, without having to go out and sell bonds. At the end of 2024, the ECB plans to do the same with the PEPP, the other monetary bazooka linked to the pandemic with which it accumulated 1.85 trillion euros in public debt of the European states. The Treasury will thus have to face the demands for higher yields from banks, investment funds and sovereign wealth funds, the traditional buyers of the majority of public debt.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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