France – 2021-2027 Stability Programme: Public debt ratio stabilised at high level

France – 2021-2027 Stability Programme: Public debt ratio stabilised at high level
  • Major priorities of the 2021-2027 stability programme
  • A look back at the 2020 budget figures
  • Budget deficit to remain a hefty 9% of GDP in 2021
  • First impressions of the 2022 public deficit
  • Debt ratio soars
  • An ambitious spending programme
  • Debates on the public finance strategy

In resume

In mid-April, the government presented its 2021-2027 stability programme that updates the trajectory of public finance over that period. The strategy for 2021-2027 is expected to help restore public accounts as of 2022, after they had been suddenly affected by the COVID-19 crisis, and ensure the debt's sustainability. It is also expected to support the post-crisis economic recovery and strengthen growth potential. The budget strategy relies on controlling the pace of public spending increases. The average increase in spending will be limited to 0.7% per year in real terms in 2022-2027. In 2021, the deficit will remain a very high 9% of GDP. It is forecast to reach 5.3% in 2022 and fall to 2.8% in 2027. The public debt ratio sharply increased in 2020 to 115.7% of GDP, and is set to rise again to 117.8% in 2021. It is projected to then largely stabilise, reaching 117.7% in 2027.

France – 2021-2027 Stability Programme: Public debt ratio stabilised at high level

The debt-to-GDP ratio stabilised in 2019 at 97.6%. However, it spiralled to 115.7% in 2020. For one, the coronavirus downturn increased the deficit to 9.2% of GDP. For another, the stabilising balance, the balance that stabilises the debt ratio, which is usually close to -2 /-3% of GDP, sliddeep into negative territory and hit 6.3% of GDP as the value of GDP has fallen. This translated into a massive 15.5% hike in the debt ratio, which is the difference between deficit-to-GDP and the stabilising balance. In 2021, the public debt ratio looks set to grow again, to 117.8% of GDP. The deficit is expected to rise to 9% of GDP. The stabilising balance will definitely return to negative territory, -5.9% of GDP. All other things being equal, this would raise the debt ratio by 3.1 points of GDP (9 – 5.9 = 3.1). Conversely, “stock flows” are expected to slightly improve the debt ratio by 1.1% (cash flow effects). Overall, the public debt will therefore rise by slightly more than 2 points of GDP. In 2022, the debt ratio looks set to decline by 1.4 points of GDP, to 116.3%. The public deficit is expected to fall to 5.3% of GDP, slightly higher than the stabilising balance (-5.7%). Then, the debt/GDP ratio is expected to increase slightly in 2023-2025, stabilise at 118.2% in 2026, and fall slightly to 117.7% in 2027.

Olivier ELUERE, Economist