The Tax and Customs Administration raises an earlier estimate of the financial burden that the State will have to bear between now and 2025 for the payment of interest by 12,000 million
The Independent Authority for Fiscal Responsibility (AIREF) is issuing a new wake-up call to the government in light of the impact that the rise in interest rates by the European Central Bank (ECB) will have on the payment of interest on the debt.
The institution that monitors the public accounts now calculates that interest charges will have risen by 12,000 million euros by 2025. his latest report compared to his earlier estimate. For example, the total imbalance between now and 2025 would amount to 32,000 million euros.
This was stated on Tuesday by the organization’s president, Cristina Herrera, who, while attending the APIE summer courses in Santander, recalled that this estimate is based on a prediction of a three-tenths increase in the implied rate of debt, to 2.3%, and four-tenths of GDP of the financial burden, to 2.4%.
His words come just 24 hours after, at the same seminar, economic vice president Nadia Calviño assured that only 15% of the debt portfolio is subject to rising interest rates, which must be refinanced this year. A message that the government has begun to reiterate this past week, following days of maximum tension that led to the 10-year bond yield crossing 3%, with the national risk premium rising 137 basis points.
From the executive, they are insisting that the average percentage of debt in circulation remains below 1.6%, with an average life extended to more than 8 years, covering practically 60% of the financing program planned for this year. is completed.
A message of calm to the market that does not, however, disguise the fragility that government accounts still contain and the extreme control that the government will have to exercise over them to prevent additional spending from complying with the deficit reduction path sent to Brussels in the Stability Plan.
In fact, Airef calculates that there are currently 65,000 million euros in debt linked to inflation and each additional point increase implies an additional 700 million euros in interest payments.
However, Herrero explained that these numbers can vary throughout the year, as everything depends on the level at which the market moves. “Everything will depend on how determined the ECB acts with the anti-fragmentation instrument announced,” as well as on the evolution of the new cycle of rate hikes that will start in July with the first hike in 11 years.
Monetary organization moves are aimed at controlling runaway inflation which, in the Spanish case, closed at 8.7% in May. “The data is closely linked to the price of energy and food, but if we factor in both one type of product and another, we find that more than 50% of our products show growth rates of more than 3%. And more than 40% of 4%,” Herrero stated during his presentation. In other words, the inflation of energy and food is already carried over to the rest of the basket.
Despite the deterioration in financing conditions, Airef maintains a deficit for this year that is below the government’s and will reach 3% of GDP in 2024, a level that will be maintained in 2025.
While this scenario points to a relatively quick approach to the Pact threshold (3% of GDP), AIReF warns that the country’s position is fragile, as the expected reduction will only respond to growth and the removal of aid measures, the survival The shocks may require additional measures, estimates of the structural balance point to a deterioration as a result of the crisis, inflation may deteriorate the budget balance in the medium term and there is considerable uncertainty about fiscal and monetary policy.
According to AIReF, this situation may not be sufficient to stabilize public debt, which could resume its upward path from 2025. In fact, reducing debt would require a substantial improvement in the primary imbalance. Stabilizing the debt-to-GDP ratio at around 100% of GDP in 2040 would require a reduction in the primary balance of at least one-tenth of GDP per year. Bringing the ratio to 80% of GDP by 2040 would require a larger cut of 0.35 points, in order to reach a balanced budget by 2035 and a manageable interest burden of around 2.5% of GDP or a primary surplus of 2.5% of GDP.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
