The inflation and the consequent interest rate hikes of the central banks have caused an increase in the financing costs of the new issuances of public debt in the countries of the OECDwhich have more than doubled since 2021.
In addition, the debt issuance needs, which had decreased after the historical peak of 2020 to face the flood of public spending due to the covid, will grow again in 2023 by 6%, calculates the Organization for Economic Cooperation and Development (OECD) in a report released Monday.
Between 2021 and 2022, the interest rates Central bank benchmarks in what is known as the “developed world club” increased from 0.8% to 5.3% on average, but the evolution was not even in all members.
In the emerging countries” of that club and in the Europeans that do not belong to the euro zone, the increase in the price of money was much stronger than in the rest.
That was particularly visible in Hungarywhere it rose to 13% in December 2022 (compared to the 0.6% minimum in the 2021-2022 period), in Colombia up to 12% (compared to 1.8%), in Chili up to 11.2% (compared to 0.5%) and in Mexico up to 10.5% (versus 4%).
The rate hikes of the central banks they were much more moderate, especially in the euro area (2.5% in December 2022 compared to 0% in 2021), and even more so in the Nordic countries.
The rise in rates increases the cost of debt
Added to these rate hikes are geopolitical tensions, particularly since the start of the Russian invasion of Ukraine at the end of February 2022, and the uncertainties about the global economy.
All this has had an impact on the interest that States have to pay for the new emissions of debt securities that, in the whole OECD it went from an average of 1.4% in 2021 to 3.3% in 2022.
The volume of sovereign securities awarded at negative rates has decreased from 17% in 2021 to 8% in the following year.
The average maturity terms of the debt have been prolonging in recent years and reached a historical record eight years and two months in 2022, which is two years more than in 2012.
But even so, 47% of the total will have to be repaid or at least its interest rate renegotiated before the end of 2025.
The authors of the report recall that after the historic peak of issuances in the OECD due to the covid in 2020 with 15.4 trillion dollars in titles that went on the market that year to cover the needs of the coronavirus, the volume fell by 21% in the two years following. Even so, that volume was 35% higher in 2022 than in 2019, before the pandemic broke out.
Debt issuances will grow by 6% in 2023
The evolution is also being reversed and this year they predict a rise of 6% to 12.9 billion dollars, which is largely explained by the countries most affected by the Russian invasion of Ukraine, especially those bordering the conflict .
The total debt contingent in the OECDwhich had been about 40 trillion dollars in 2019 and 49 in 2020, continued to rise albeit slightly in 2021 to 50 trillion, stayed at that level the following year and will reach about 52 trillion in 2023.
Although this increase has been verified in absolute terms, if it is related to the gross domestic product (GDP) since the beginning of the covid crisis it has gone from 90% in 2020 to 83% in 2022. That percentage should remain unchanged this year. But we must remember that it is 10 percentage points higher than the pre-pandemic level.
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