September 22, 2020

The State will lend 13,800 million to Social Security in 2020 to pay pensions




The State will continue to borrow in 2020 so that Social Security can pay pensions. The Treasury has presented this morning its financing strategy for this year, which includes an extension of the Social Security loan amounting to 13,800 million euros. This amount is similar to that registered in each of the last years and, as described this morning by the Secretary General of the Treasury, Carlos San Basilio, emanates from the actual extension of the 2018 accounts.

In this way, for the fourth consecutive year, the Treasury will provide Social Security with sufficient resources to pay pensions, although San Basilio has indicated that the loan “does not have to be of this amount” despite the estimate of its department.

Along with the circumstance of continuing two years with the same accounts, the factor that most conditions the debt strategy is the path that the European Central Bank (ECB) will follow. The Treasury foresees that net emissions (that is, gross emissions discounting maturities) will reach 32,500 million euros, that is, 12,500 above the 20,000 that were finally given last year but below the projected 35,000 In the beginning. San Basilio has blamed this difference between the projected in 2019 and finally issued to “extrabudgetary circumstances” that occurred.

Among them, the reduction of financing costs in the face of the frustrated change in the ECB’s strategy, which has finally continued with its expansionary monetary policy. Thus, the average cost of debt has continued to land at historical lows of 2.19% (compared to 2.3% in 2018) with an average rate of the liability issued of 0.23%. The planned gross issue will reach 196,504 million euros, 6.2% less than the 209,525 of last year that were estimated at the beginning, although above the 192,000 that were finally placed. In this way, the debt maturities that the new Executive of PSOE and United We can face this year exceed 240,000 million euros.

“We are not going to break the commitments with the EU”

Actually, the margin of the new Government of Pedro Sánchez and Pablo Iglesias is narrow, since it is the one drawn by investors and the European Commission itself. San Basilio has indicated that the budget approved by the next Executive will abide by the “Stability and Growth Pact”. “We are not going to break the commitments with Brussels”, the Treasury secretary has sentenced. The government program agreed between the PSOE and the United We can include ambitious spending measures that question compliance with the fiscal adjustment set by the European Commission, but San Basilio has opted for the public sector to continue reducing its red numbers.

The public sector has to keep moving forward in this debt reduction to deal with possible moments of vulnerability and because it has a beneficial effect, it is one of the variables that are measured for rating increases, which not only benefit the Administration but also for all the companies to which the grade can go up ” , explained St. Basil.

The Treasury expects that the Government will reduce financing costs since San Basilio expects that after investing in Pedro Sánchez “the differentials will be narrowed.” He also waits for the rating agencies to raise the grade to Spain, and he blamed “the delay in the rating increase” to “the political uncertainty that we hope will dissipate.” “The budget path will combine the correction of imbalances not only macroeconomic but also social. Then we will see the reforms, as investors and analysts ask us for a government with a sufficient majority to approve important reforms.

Along with this, the Treasury foresees that the financing needs of the autonomous communities, in net terms (that is, discounting the pre-payments that return debt to the State) will be 10,000 million, as last year, although San Basilio has not detailed how much gross needs amount to.

Catalonia will not be released in 2020

What has clarified is that Catalonia will not go to the markets this year, as announced by the Generalitat. “At the moment Catalonia does not meet the conditions to go to the markets. I had to get out of the FLA to Financial Facility and meet the rating requirement, which right now does not happen, ”has abounded. The rating of the autonomous community is in “junk bond” which prevents it from going out to be financed on its own, so, as ABC advanced; He will resort entirely to the Central Government for another year. The region that is pending debt is the Balearic Islands, which has asked the Treasury and still does not know if it can continue to go to the markets in light of whether it met its fiscal goals in 2019.

Another of the factors that impacted last year and that explain that the Treasury finally issued less than estimated is that several autonomous communities voluntarily pre-mortgaged 5.273 million of debt that they repaid in advance to the State. San Basilio has stressed that this was partly because some regions went out to the markets and secured loans to more advantageous interests among private investors, which has allowed this early return to the state. Last year the regions issued some 5,000 million.

“Green” bond for the ECB

One of the changes that the Treasury will introduce is the issuance of a twenty-year bond linked to environmental objectives in the second half of 2020. San Basilio has announced that the Treasury forecast is that in the medium term the minimum circulation volume reaches 10,000 million, although it has indicated that the first syndication will not reach this amount and that it will be carried out progressively.

This “green bond” will be discounted by the ECB, which may be purchased in its interventions in the open market, and will be used to finance environmental projects that will be included in the General State Budget for 2020. Hence, it will be placed in the second half of the year, when it is estimated that the accounts will already be approved.


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