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Rising interest rates and the alarming cost of debt

Spain is facing the current crisis without the countercyclical maneuvering capacity in its fiscal policy, which favors spending in the…

By admin , in news , at June 7, 2022

Spain is facing the current crisis without the countercyclical maneuvering capacity in its fiscal policy, which favors spending in the face of a decline in economic activity, which would require it. This is because at the beginning of the last crisis, in 2007, the debt of GDP was 35%, now it is between 115% and 120%.

This is because the increase in debt during Sanchez’s mandate has been exponential: nearly 300,000 million more in debt since he ruled and more than 210 million in debt.

Source: Bank of Spain and INE . self-expanding based on the data of

This means Spain has a debt of 1.45 billion euros as of March 2022 (latest data published by the Bank of Spain). Well, on that part, the state debt in circulation (which doesn’t include the CCAA or local entities), adds up to 1.24 billion euros.

In this way, although the Treasury has done its job well by increasing the average life of the portfolio to 8.12 years, which mitigates the impact of potential future increases in interest rates, all new loans (by 2025 will go to between 75,000) million in its financial strategy for 2022 and around 35,000 million for 2025) will be financed more expensively, as is already happening at this time.

This would give us a significant increase in the cost of debt to reflect in Chapter III, which reflects the current debt of 1.24 billion euros by the Treasury as of April 30, 2022 (state only).

Thus, the current average cost of the last closing year (2021) is 1.64% of the entire portfolio, representing a cost of EUR 20,415.36 million:

• If the average cost of the portfolio rises to the level of 2019 (2.19%), the cost of debt will be €27,261.97 million.

• If the average cost of the portfolio increases to 2.64% (a single point higher than at the end of 2021), the cost of debt would be EUR 32,863.75 million.

• If the average cost of the portfolio increases to 3% (average cost for 2014-2015), the cost of debt would be 37,345.17 million euros.

Thus, for each percentage point increase in the average financing cost of the entire portfolio, the increase in the cost of debt will be 12,448.39 million euros.

In other words, for each principal point increase in the average financing cost of the entire portfolio, the increase in the cost of debt would be EUR 124.48 million.

Source: State Debt Statistics published by the Treasury and Expansion of Self, based on official data from the Treasury Financial Strategy

If we calculate with the 2021 final debt, that’s an increase of 75,000 million new loans, which the Treasury has projected in its financial strategy for 2022, which will put the loan portfolio at 1.32 trillion euros, with every The rate increase will be as follows. ,

• The current average cost of the last closing year (2021) is 1.64% of the entire portfolio, representing a cost of EUR 21,645.36 million.

• If the average cost of the portfolio rises to 2019 (2.19%) levels, the cost of debt will be EUR 28,904.47 million.

• If the average cost of the portfolio increases to 2.64% (a single point higher than at the end of 2021), the cost of debt would be 34,843.75 million euros.

• If the average cost of the portfolio increases to 3% (average cost for 2014-2015), the cost of debt would be €39,595.17 million.

Thus, for each percentage point increase in the average financing cost of the entire portfolio, the increase in the cost of debt will be EUR 13,198.39 million.

In other words, for each principal point increase in the average financing cost of the entire portfolio, the increase in the cost of debt would be EUR 131.98 million.

Source: State Debt Statistics published by the Treasury and Expansion of Self, based on official data from the Treasury Financial Strategy

This is the result of the government’s erroneous economic policy, which favors a forcefully expansionary fiscal policy on the spending side, which compromises the ability of the Spanish economy to sustain said indebtedness. It is not possible to continue down this road, as it will only lead us to a very complicated situation. For this reason, it is essential that financial regulation and stability objectives return immediately, in order to prevent the Sánchez government from further worsening the debt situation of the Spanish economy.

  • Jose Maria Rotellar He is a professor at the University of Francisco de Vittoria.

Rising interest rates and the alarming cost of debt

2022-06-07 02:54:00