The Treasury reduces its public debt issuance target for the third year due to the rise in interest rates

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The Public Treasury is going to reduce the net financing volume planned for this year by 5,000 million euros, less than a quarter before the end of the year and after having announced the Roadmap budget for 2024 that has been sent to Brussels. This is the third consecutive year in which it has revised downwards its own initial estimates, since it also did so in 2021 and 2022, when it closed with a final net issuance of 70,063 million euros compared to the 75,000 million it contemplated when the year began. On this occasion, the public body planned to maintain the same net figure issued last year, over 70,000 million, but in the end it will remain 5,000 below, at 65,000 million euros, 7.1% less, as reported by the Ministry of Economy this Monday. At this point, 85% of the financing needs have already been covered.

The rise in interest rates is a variable that is difficult to ignore after the European Central Bank (ECB) has driven the cost of financing to the highest levels seen in 2000, up to 4.5%. This implies a higher outlay not only for households, but also for public coffers, which must assume a much larger interest bill. Based on 2022, that bill increased by 5.6 billion euros, reaching 31.6 billion euros in interest. The forecasts, until the downward revision that the Public Treasury has just carried out, pointed to a similar increase for this year and that it would reach 40,000 million in two years for this concept alone.

It is important to emphasize that the impact on the public debt portfolio occurs in a very granular manner. It is estimated that approximately 13% of the debt issued matures each year, so the average cost of financing increases very progressively. In fact, the Treasury has managed to keep the average life of the debt slightly below 8 years. “The anticipatory work carried out by the Treasury in recent years is allowing, despite the rapid increase in interest rates since last year, financing costs to remain at contained levels in historical terms. Thus, The cost of the total debt as a whole stands at 2.06%, only 33 basis points higher than last yeardespite the 450 basis point increase in the ECB’s interest rates,” they clarify from the Economy Department.

These 65,000 million euros of planned net emissions target maintain a downward trend, but are far from hitting a floor. The collection of the Public Treasury reached a maximum in the middle of the pandemic, since in 2020 109.9 billion euros were captured in the market, which contrasts with the minimum in 2019, which was 20,000 million euros.

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