France sees debt burden easing, but interest costs surging
2023.04.20 05:15
© Reuters. FILE PHOTO: A view shows the Bercy Economy and Finance Ministry in Paris, France, August 17, 2022. REUTERS/Sarah Meyssonnier
By Leigh Thomas
PARIS (Reuters) -France will see its national debt burden fall faster than previously expected even though the cost of interest payments is set to soar, Finance Minister Bruno Le Maire said on Thursday.
The national debt burden, which reached a record just shy of 3 trillion euros at the end of last year, is expected to ease from 111.6% of economic output in 2022 to 108.3% by 2027, Le Maire. It had been previously been expected to hover around 111% over the period.
“We want to accelerate France’s debt reduction,” Le Maire told journalists.
Economists say that it is natural for high inflation to reduce debt as a share of nominal gross domestic product because it boosts the prices used to calculate GDP, automatically lowering the ratio.
Le Maire said, however, that the faster pace of debt reduction was due to plans to rein in spending and 30 billion euros in savings from the planned end of exceptional measures to ease the cost of high energy prices.
“It’s not the inflation that reduces the debt, it’s our spending cut decisions that reduce the debt,” Le Maire told journalists.
With the interest rate on France’s benchmark 10-year bond seen above 3% in the coming years, Le Maire said that the cost of servicing France’s debt burden would top 70 billion euros by 2027, making it the state’s biggest budget item.
The ministry updated its long-term forecasts as part of its annual financial stability programme that euro zone countries send to their EU partners to show that they are not letting dangerous budget problems build up.
The ministry said it expected the fiscal shortfall to widen slightly this year to 4.9% of economic output from 4.7% last year, when the state coffers benefited from exceptionally strong tax income.
Le Maire said a push to rein in spending growth, which included plans for each ministry to reduce spending by 5%, would reduce the deficit to below an EU limit of 3% by 2027.
The ministry maintained its 2023 economic growth forecast of 1%, even though other institutions from the International Monetary Fund to the central bank have pencilled in lower estimates.
The ministry also stuck to a forecast that inflation would fall from 4.9% this year to the European Central Bank’s 2% target by 2025.
