Foreign investors are devouring Spain’s public debt. Funds, banks, insurers and retailers from beyond our borders have bought 117,000 million euros in our bonds (debt with medium and long-term maturities) since the end of 2022, as indicated this Tuesday by the Minister of Economy, Carlos Body. , at the press conference after the Council of Ministers.
With data from the Public Treasury until July 2024, the strong foreign demand for Spain’s debt has allowed the cost of financing to be contained to around 2.4% of GDP (Gross Domestic Product) —the bill will be about 40,000 million in 2024— . A “sustainable” interest burden [en 2013 llegó a alcanzar el 3,6%]which has also been achieved due to the outstanding economic growth, and despite the increases in interest rates of the European Central Bank (ECB) and its withdrawal from the market precisely since 2022.
This interest burden reached a minimum of 2.2% of GDP in 2021, after the ECB itself intensified its debt purchases from eurozone countries in 2022 to promote economic recovery. The central bank pivoted to this strategy the following year to fight inflation.
Since the end of 2022, Spain’s debt in the hands of the Eurosystem (the ECB through the Bank of Spain) has been reduced by around €27 billion. A demand that has been more than replaced by foreign investors, attracted by the good performance of our country’s economy, along with Spanish families, who have bought 26,000 million in Treasury Bills (debt with short-term maturity), according to figures that the Minister of Economy presented this Tuesday.
This information coincides with the important arrival of investment from foreign companies that the Financial Times reported this Tuesday. The prestigious economic information medium points out that Spain has become the sixth global destination for foreign direct investment, and the third in Europe. That money is coming especially to the renewable energy, automotive, real estate and electronic components sectors.
The ECB lowers interest rates
In this context – in which milestones have been achieved such as Spain being financed cheaper than France – the Public Treasury has been reducing net debt issues each year, since the record of 2020. Then, Spain needed 110,000 million to finance the budget imbalance (the deficit, the difference between public expenditures and income) that caused the shock of the pandemic. In 2021, this figure dropped to 75 billion. In 2022, to 70,000 million. In 2023, to 65,000 million. In 2024, it will remain at 55,000 million.
Along the same lines, the ratio of public debt to GDP, the first measure of sustainability, has been falling from 119.3% in 2020 to 105.1% in 2023, with the objective of remaining at 102. 5% at the end of this year.
Likewise, among the data disclosed by Carlos Body, two aspects stand out. The cost of new debt issues from the Spanish Public Treasury has already fallen by one percentage point after touching 4% in 2023. This drop, to 2.91% exactly, is due to the decreases in the ECB’s official interest rates , and allow the average financing cost of all outstanding debt in our country to remain at an acceptable 2.21%. In 2021, it made a low of 1.64%.
Finally, the Minister of Economy added that it is important that the average life of public debt is close to its maximum of eight years, “which makes the refinancing risk minimal”, because only 15% of all debt matures. the debt each year.
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