National debt will reach 120% without spending cuts

Financial Stability Report

He Bank of Spain joined International Monetary Fund (IMF) in his criticism of high state debt Spanish language. Like this organization, it believes it is essential that the government Pedro Sanchez adopt a fiscal consolidation plan that will reduce government spending; Otherwise, he believes the debt ratio will continue to rise in the future until it reaches 120% GDP.

“In the absence of consolidation measures, compliance with the new tax rules In European countries, Bank of Spain forecasts continue to suggest a moderate increase in the coming years in the average value and level of public debt,” explains the minister. Financial Stability Report published semi-annually by the Bank of Spain.

It therefore analyzes “the expected evolution of Spain’s public debt ratio up to 2040, assuming no changes in fiscal and fiscal policy (which would imply a violation
new tax rules). This is expected to result in public debt reaching levels close to 108% of GDP in 2026 and around 120% in 2040.

The banking supervisor admits that “the ratio of public debt to GDP fell by almost 4 percentage points. (percentage points) to 107.7%, supported by strong growth in nominal GDP,” that is height economic added to inflation. “This level of public debt is noticeably lower than the maximum reached after the start of the pandemic (125.3% in March 2021), but still higher than what was in effect at the beginning of the pandemic (98.2% in December 2019), and is high in relation to other countries of the Economic and Monetary Union (EMU),” he recalls.

For this reason, the Bank of Spain warns of the danger of maintaining such a high public debt: “In accordance with these expectations, the diagnosis that public debt represents significant vulnerability for the Spanish economy. Limited budget space may make it difficult to develop new disorder about our economy, real or financial in nature. And a high level of government debt can make expenses issues due to changes in financial markets based on expectations of changes in official interest rates or risk perceptions.

average cost new releases debt in 2023 reached 3.4%, up 2.1 percentage points from 2022 levels, and according to the stability report, the average value of all outstanding debt (2.3% in 2023) “will rise by about 0.3 percentage points.” points in the next three years, reaching 2.6 percentage points.” % in 2026. Adding to the greater financial burden will be other pressures for increased government spending caused by factors such as aging population, investment needs related to climate change, digitalization and defense spending.

Coincidence with the IMF

Last Friday, the IMF released a report lamenting that Sanchez had squandered the opportunity for record tax revenues to more aggressively reduce deficits and debt: “Over the medium term, as growth slows, inflation will normalize and tax revenue boom weakened, the fiscal deficit and public debt will stabilize at around 3% and 104% of GDP, respectively, in the absence of additional consolidation measures.

So he asked ” multi-year consolidation program keep debt on a clear downward trajectory and restore fiscal space. The fact that the economy is operating at near capacity and benefits from non-refundable transfers from NGEU funds justifies restrictive financial guidance be supported to restore the ability of fiscal policy to respond adequately to future crises and reduce high debt over the medium term.