Foreign investors are devouring Spanish public debt. Funds, banks, insurers and retailers beyond our borders have purchased 117 billion euros worth of our bonds (medium and long-term debt) since the end of 2022, as indicated this Tuesday by the Minister of Economy, Carlos Body. the press conference after the Council of Ministers.
With data from the Public Treasury until July 2024, the strong foreign demand for Spanish debt has made it possible to contain the financing cost to around 2.4% of GDP (Gross Domestic Product) — the bill will be around 40 billion dollars in 2024 —. A “sustainable” interest charge [en 2013 llegó a alcanzar el 3,6%]which has also been achieved thanks to the exceptional 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 charge reached a minimum of 2.2% of GDP in 2021, after the ECB itself stepped up its debt purchases from eurozone countries in 2022 to promote economic recovery. The central bank adopted this strategy the following year to combat inflation.
Since the end of 2022, Spain’s debt held by 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, as well as by Spanish families, who bought 26 billion Treasury bonds (short-term debt), according to the figures provided by the minister. of the Economy presented this Tuesday.
This information coincides with the significant arrival of investments from foreign companies reported this Tuesday by the Financial Times. The prestigious economic news media highlights that Spain has become the sixth world destination for foreign direct investment and the third in Europe. This money goes in particular to the renewable energy, automobile, real estate and electronic components sectors.
In this context – where milestones have been reached such as that of Spain financed at a lower cost than France – the Public Treasury has reduced net debt issues each year, since the record of 2020. Spain then needed 110 billion to finance the budgetary imbalance (the deficit, the difference between public spending and income) which caused the shock of the pandemic. In 2021, this figure fell to 75 billion. In 2022, at 70 billion. In 2023, at 65 billion. In 2024, it will remain at 55 billion.
In the same vein, the ratio of public debt to GDP, the first measure of sustainability, increased 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 reaching 4% in 2023. This drop, to exactly 2.91%, is due to the drop in official interest rates of the ECB and allows average financing the cost of our country’s outstanding debt remains at an acceptable level of 2.21%. In 2021, it reached 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 each year.
