Staff papers - Public Finance

Why have the public debt ratio targets set in the public finance programming laws not been met?

The public debt ratio targets set out in public finance programming law have so far not been achieved. The purpose of this note is to identify the sources of the observed gaps between the public debt ratio targets set out in three public finance programming laws (2012-2017, 2014-2019 and 2018-2022) and their actual outcome. It distinguishes the impact of macroeconomic factors, assessed through the difference between the apparent interest rate and the rate of growth of GDP in value terms, the ratio of primary public expenditure and public revenue to GDP, and the impact of stock-flow adjustments.

Staff report No. 2025-1.pdf

Comparison of the impact of inflation on public finances in 2022 and 2023 in six eurozone countries

The vast majority of eurozone countries have seen their public debt ratio fall between 2021 and 2023, but the decline varies widely from country to country, ranging from 0.8 points of GDP in Latvia to 33.1 points of GDP in Greece (2.4 points in France).

Note d'étude n°2024-1_eng.pdf

In 2022, the higher inflation is expected to increase the public debt burden

Higher inflation is deemed to reduce the public debt burden as it increases the denominator of the public debt-to-GDP ratio in value terms, thereby making it easier to repay any debt inherited from the past.

However, aside from this positive “mechanical” effect, the impact of higher inflation on the public debt-to-GDP ratio is more complicated. The public debt trajectory is dependent on the extent to which interest rates and the primary balance adjust to higher inflation.

HCFP Staff Report 2022-4 Higher inflation and public debt burden_0.pdf