Public debt: the most important economic scale of the State

Public debt appears at the moment when the government of a country cannot meet spending needs. That is when private sector financing is required. Who requests this funding? The central government, autonomous communities, town halls, councils and social security. The set of these debts is what is called public debt.

The State creates fixed income securities with a specific maturity and interest. They are the well-known Treasury Bills, Bonds and Treasury Obligations. Investors, who can also be individuals and not only large investors or funds, are the ones who buy these Letters so that the State acquires the capital it needs. In return, these investors receive an interest for each Letter.

 

Difference between public debt and country deficit

Difference between public debt and country deficit

The deficit is born from the budget balance. In the same way as a private individual, the state has certain income and expenses. By taking a year as a reference, if more capital has been spent than the inmate, the year with deficit is closed. If the situation is the opposite and the balance is positive, we are facing a surplus stage.

Debt, as you have seen, can be defined as the reflection of the set of accumulated deficits in the country.

 

Situation of Spain at European level

debt problem

In 2015, Spain’s public debt was above 100% of GDP. If we consider that in the third quarter of 2018 that figure remained at 98.30 percent of Gross Domestic Product (GDP), according to the latest date published by Eurostat, we can see a slight improvement. The 28 countries of the European Union achieve a lower average, and the public debt is positioned at 80.8% of European GDP.

In the 28 countries of Europe analyzed by Eurostat you can see how there are countries that exceed 100% of their GDP in public debt, as is the case of Greece, Italy, Portugal, Cyprus and Belgium. On the other hand, other countries like Estonia do not reach 10%.

 

International Action Plan

debt loan

All public entities, and more central governments, are aware that reducing public debt is a determining objective. That is why we work to find solutions, which go through the tightening of financial conditions.

The International Monetary Fund made public, in October 2018, a much more positive forecast. According to the IMF publication, the concern for the sustainability of public finances decreased. This is a consequence of the difference between the economic growth rate and the real interest rate; which will be lower in all member countries of the euro zone, including Spain.

Leave a Reply

Your email address will not be published. Required fields are marked *