Spain public debt would drop to 110% of GDP in 10 years if structural deficit falls by 0.25% annually, according to Fedea

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CdM | La Fundacion de Estudios Economía Aplicada (Fedea) calculates that if all the Public Administrations make an effort on fiscal consolidation which reduces the structural deficit to the tune of 0.25% of annual GDP, this would leave the indebtedness level at 110% of GDP in 2032.

For the autonomous communities subsector, and with a similar structural adjustment, Fedea flags that the policy objective of 13% of GDP for the autonomous public debt, established in the current law of budget stability and financial sustainability, would not be met.

Fedea published this Monday a report by Manuel Díaz (Fedea), Carmen Marín (Fedea) and Diego Martínez (Universidad Pablo Olavide and Fedea) about the determining factors for the level of public debt and its likely future evolution in the Spanish Public Administrations as a whole, with special attention to the case of the autonomos communities.

According to the authors, two principal motives exist for paying attention to the evolution of public debt in our country. The first one is the intrinsic preoccupation which the high volume itself generates. In this respect, the report highlights that although its origins go back to the undertow of the Big Recession, the impact of Covid-19 has aggravated the potential sustainability problems we might face in the future.

Another motive arises from the fact that it seems the design of the new European fiscal governance will revolve around an ultimate objective for public debt as a percentage of GDP.

In the case of the years 2020 and 2021, Fedea sees a “clear” effect of the variations in nominal GDP and of the interest on debt on its accumulation.

But in the case of the autonomous communities the authors of the report have detected, in addition, that the evolution of their debt does not completely correspond to their needs or financing capacity. It rather seems that a considerable part of the communities new net indebtedness is the result of the acquisition of financial assets. That is to say, mainly an accumulation of cash.

For that reason, given the current volume of the administrations’ indebtedness, Fedea insists that the efforts in the area of fiscal consolidation required in the medium-term are “on a considerable scale”.

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