The Bank of Spain estimates that the Spanish public debt will be over 100% of GDP in 2025. The financial entity has published a report in which it indicates that the increase in interest rates would increase the financial burden of the public debt, which could make it difficult to meet deficit reduction objectives.
According to the report, Spanish public debt stood at 111.6% of GDP in December 2022. The Bank of Spain estimates that public debt will be reduced to 108.2% of GDP in 2023 and 107.6% of GDP in 2024. However, the financial institution warns that the increase in interest rates could increase the financial burden of public debt, which could make it difficult to meet the deficit reduction objectives.
The report points out that increasing interest rates would raise the cost of repaying public debt. This is because the Spanish Government has a large amount of long-term public debt, which is indexed to interest rates.
Rising interest rates could also reduce demand for Spanish public debt. This is because investors will look for more profitable investment opportunities in other countries.
The Bank of Spain recommends that the Spanish Government adopt measures to reduce the public deficit and increase the competitiveness of the Spanish economy. These measures would help reduce the financial burden of public debt and improve the sustainability of public finances.
