We Pay Less With 120% Debt Today Than With 70% In 2011

Last Wednesday, in the event Recover Spain: keys to public finances and the state of the economy, organized by BFF Banking Group, with the collaboration of elEconomista , Pablo de Ramón-Laca, general director of Treasury and Financial Policy, together with Cristina Nogaledo, an economist expert in macroeconomics and fiscal policy, presented their scenarios for Spain and its Public Administrations, in an event moderated by Daniel Yebra, editor of Mercados at elEconomista .

Nogaledo focused his presentation on the growth and debt data currently being handled, presenting the main risks facing the Spanish economy. “We continue talking about robust growth for Spain, but the forecasts are no longer as high as expected,” he explained, highlighting “the cut that the National Institute of Statistics has carried out in September, the largest revision that has been made in the growth, going from 2.8% to 1.1% for the third quarter “.

The biggest risks
Taking into account the growth prospects that are being handled now for Spain (5.7% for this year, and 3.4% for 2022, according to the IMF, and a public debt of around 116% of GDP for the year that comes), Nogaledo wanted to highlight the great dangers that the Spanish economy faces in the coming months.

In his view, an incomplete and asymmetric recovery, as it is highly dependent on EU funds; bottlenecks, which are lasting longer than expected; inflation, due to its persistence over time; the energy transition and its cost, and the public deficit. The latter, according to Nogaledo, demands “an ambitious reform agenda, without which our growth will not be consistent, but temporary.”

The economist emphasized the fiscal and indebtedness situation that the different autonomous communities of our country now maintain. On this front, the situation is “fragile”, he explained, and “in 2021 no autonomous community will comply with the 13% debt / GDP limit set by the Organic Law on Budgetary Stability”, something that most will not reach “until well entered 2040 “.

It is not a debt crisis
The message he wanted to convey at the Pablo de Ramón-Laca event is clear: “This is an asset crisis, not a liability crisis, and Spain must take advantage of the great opportunity to invest and reform that is presented thanks to European funds. time, the debt situation is less serious, since, in recent years, the Treasury has done its homework to reduce the cost of financing and to extend maturities “.

“Where the game is played is not on the liability side, but in the use of that debt. If within three years we have not managed to begin to change the productive model of Spain, for which Europe gives us a historic opportunity, the markets could doubt. But until then, we have the enormous advantage that not only the monetary policy provides us, but the step that we have made from high rates to low rates , “he explained.

The fear of a rate hike from the European Central Bank (ECB) may be excessive at this time, according to the director of the Treasury, since “for the interest burden to increase immediately, rates would have to permanently rise 650 points”, a scenario that the market does not contemplate.

“Any rise less than that will imply that the interest burden continues to fall,” explains the director. “That is why, for the Spanish Treasury,” when it arrives, tapering will be welcome, because it will happen when Europe grows. ”

The reality that De Ramón-Laca presents at this time is that, with a debt ratio over GDP much higher than in the past, the cost of Spain’s debt has not increased, which can be a cushion that allows our country to make productive investments for the coming years, with which to boost growth, something that, in turn, will reduce the debt ratio in the future.

The Treasury has done its homework
“Since 2014, the Treasury has done its homework. We have increased the average life to 8 years. We have prepared the portfolio for a possible rise in interest rates and, if in 2011 we had a ratio of 70% of debt to GDP , now we pay a little more than 1,000 million less [25,225 million in 2020], and we have a ratio of 120%, “he says. While the average cost of financing in Spain is now 1.64%, in 2013 it was close to 4%.

De Ramón-Laca emphasizes the importance that “we have two or three years in which the interest burden will continue to fall, and it is a golden opportunity that the markets are giving us, because we now have a way to grow based on investment, with especially cheap money , “he says.

Regarding the autonomous communities, the general director of the Treasury considers that “in general, they have consolidated their accounts”, and believes that now “they are better payers.” The main danger that De Ramón-Laca perceives is “the increase in energy prices”, while, regarding the rate of execution of European Next Generation funds, he is not excessively concerned, since “what is not spent this year, it will be done next year. The challenge will be to spend well. ”

Javier Molinero, general director in Spain of BFF, closed the event by thanking them for having been able to hold a face-to-face meeting again, after the pandemic, and recalled that, “while all the uncertainties are resolved, BFF is here to help them.” In this effort, the Italian bank has published an edition of quarterly reports on macroeconomics entitled Macro perspectives for Spain and the finances of its regional governments.

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