The Treasury increases debt needs this year to 60,000 million, 5,000 more than in 2024, by DANA

The Public Treasury has raised the target for net debt issuance this year to 60 billion, 5 billion more than in 2024, to “maintain a wide margin to meet the needs of the area affected by DANA” in October.

The Government defends that “this slight increase” is “in line with the commitment to provide all the necessary support for the reconstruction and relaunch of the economy of the affected area.” And he assures that it will not prevent Spain from fulfilling the commitment to reduce the deficit [el desequilibrio entre los ingresos y los gastos públicos, que se financia con deuda] from 3% of GDP (Gross Domestic Product) for the year, to 2.5% in 2025.

Economic growth, GDP, is key to this reduction in the deficit without lowering the target of net debt issuance. In a scenario of strong progress in activity and as reaffirmed by the Minister of Economy, Carlos Body, in the press conference after the Council of Ministers this Tuesday, the Executive maintains “for another year the firm commitment to fiscal responsibility.” , especially given the reestablishment of the rules of the European Union (EU).

“The debt-to-GDP ratio will maintain its downward path, with the foreseeable reduction to 102.5% in 2024, more than 20 percentage points below the maximum reached in the first quarter of 2021, and up to 101.4% by closing of 2025”, explained Body. This is the first measure of the sustainability of the countries’ public debt.

“The financing strategy will be developed in an international situation that continues to be complex and a context of ‘quantitative tightening’ by the European Central Bank (ECB), which is gradually reducing its debt holdings of the eurozone countries. In this context, the positive evolution of the Spanish economy is especially relevant, which, together with the Government’s commitment to fiscal consolidation and the prudent management carried out by the Treasury in recent years, are allowing it to maintain a solid and diversified investor base. and financing costs contained,” details the Ministry of Economy.

Average debt life of eight years, “a shock absorber”

As reported by the Treasury, most of the net debt issues – the objective of 60,000 million – will be covered with medium and long-term instruments. [conocidos como bonos del Estado]with 55,000 million euros, contributing to the objective of maintaining the average life of the portfolio. The remaining 5,000 million will be covered with net issues of Treasury Bills, to continue providing liquidity to these instruments in a context of high retail demand from families.

“With this prioritization of the longest terms, the forecast is to maintain an average life of the debt in circulation of around eight years, a historical maximum reached in 2021. This high average life has made it possible to soften the impact of the rise in interest rates. interest rates in recent years, so that the average cost of debt in circulation has risen only 57 basis points from its historical minimum in 2021, compared to a cumulative rise of 350 basis points in official rates [del BCE] in the same period,” says Economía.

The key issue is that the average life of eight years allows Spain to only have to refinance between 12% and 14% of its total debt each year. It works as a “shock absorber,” as Carlos Cuerpo describes it.

As in recent years, in 2025 transfer disbursements from the Recovery Plan will continue to be received, accompanied for the first time by significant amounts of loans, “also linked to the fulfillment of the milestones and objectives agreed in the Plan,” it continues.

The risk premium is reduced to 65 basis points

“The Public Treasury closed the 2024 financing program with solid access to the market and high investor confidence, which translated into the containment of financing costs and the reduction of the risk premium.” [el diferencial entre el interés de referencia que se exige a la deuda de España respecto al de Alemania, considerado el mejor pagador de la eurozona]which was reduced by more than 30 basis points compared to 2023, around 65 basis points at the end of the year, its lowest level in the last three years,” states the Ministry of Economy.

“The total net issuance amounted to 55,000 million euros, 10,000 million less than what was issued in 2023, thanks to the greater growth of the Spanish economy and the commitment to fiscal responsibility,” he adds.

“The Treasury has maintained a strong position in the market. All issues have had high demand, highlighting the syndications carried out in January and September, which registered a record of requests at the European level, demonstrating the high confidence of investors in the Spanish economy,” he continues.

The cost of the total debt set stands at 2.21%, only 12 basis points above the end of 2023. Meanwhile, the average cost of debt in issue also continued to reduce in 2024 to 3.16%, 28 basis points below the 3.44% of 2023 and 80 below the peak (3.96%) reached in October 2023, a reduction in line with the decline accumulation of ECB rates.

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