It's spinning, a loan of 500 million euros is not escaping us: The public debt is constantly increasing, until when?

The Minister of Finance signed the loan from the Hungarian Exim Bank in the amount of 500 million euros. Another loan with the same amount is being announced, which will be used to return the money from the Eurobond of 500 million euros issued in 2018.

It is already clear that in addition to the agreed 500 million euros from Hungary, which will soon be transferred to the state account, another loan of 500 million euros, also from Hungary, will be signed by the end of the year. According to announcements from the Ministry of Finance, it will serve to refinance the Eurobond of 500 million euros that will mature in January 2025.

What emerges as a question, undoubtedly, is how long the state will endure to constantly refinance instead of repaying debts.

Economists constantly repeat two key things: that the borrowed money should create added value that will allow the borrowed money to be returned, and that the interest on the loans should not exceed the growth of the gross domestic product.

Economic analyst Sinisha Naumoski says that the first loan of 500 million euros can be expected to stimulate economic growth, while the good side of the refinancing of the Eurobond is that it will be closed with a loan with a lower interest rate.

- From the first tranche of 500 million euros, 250 million are intended for the local self-government. Here I see a decentralized approach, to be able to encourage economic growth from the bottom up. All investments at the local level, be it water fountains, playgrounds..., will result in a much higher GDP in 2025. As we can see, there is interest in such projects from the local government. The second 250 million euros, from this first tranche, will be directed to the companies. It is necessary to be very careful here, that the state coordinates with the management of the banks through which the money will be placed, so that it does not happen that the money is placed with a greatly increased interest. For the companies, this money will mean an increase in stocks, so they will be focused exclusively on the growth of what is their basic activity, and they will also encourage economic growth - explains Naumoski.

He also explains that the interest on Eurobonds is higher than a loan taken with a bilateral agreement.

- With this you buy liquidity, this is a game with time, and the return of the money will be with a lower interest - says Naumoski and concludes that this borrowing is "well played", and it is possible only as a political decision that comes down to a country to wants to help another country with favorable credit to help spur economic growth.

The government adopted the Strategy for the management of the public debt for the period 2025-2027 with prospects until 2029. The Strategy states that as of the first half of this year, the public debt reached 8,87 billion euros, or 60,5% of the gross domestic product. Public debt includes the debt of the state and of public enterprises established by the state, or municipalities. But this public debt, with the new borrowings, according to the Strategy, will reach 2024 percent by the end of 66,4, and in 2025 – as much as 65,2 percent!

Economic analyst Abil Bausch warns that one should be careful with the increase in public debt.

– The loan from Hungary will increase the public debt, which may cause long-term fiscal problems. Each new loan means additional interest costs and the possibility of financial instability if economic conditions worsen. Furthermore, past experiences show that these loans are not always used efficiently and transparently. Corruption and inefficient administration can lead to funds being used irrationally, ultimately leaving citizens with greater debt and little visible results. An alternative to the loan is the attraction of capital investments from foreign investors - says Bausch.

That the debts are just piling up over the years, without having the money to return anything, except to reprogram it for a better interest rate, the data on how the public debt moved in relation to a decade ago also illustrate. In 2014, the debt level was not even half of the current debt, i.e. it amounted to 3,92 billion euros, compared to 8,87 billion euros at the end of the first half of the year.

In the next 4 years, 2,4 billion euros of Eurobonds will mature

Due in the following repayment period: the bond of 500 million euros in 2025, which was issued in 2018, 700 million euros due in 2026 as a result of the eurobond of 2020, 500 million euros in 2027 for the eurobond issued in March 2023 and EUR 700 million due in 2028 as a result of the Eurobond issued in 2021.

Public debt below 60 percent of GDP only in 2029

In order to keep the level of public debt within sustainable limits, without disrupting fiscal sustainability, a limit is established in total public debt in the medium and long term, which should not exceed the level of 60 percent of GDP, it is written in the Strategy, but it is also stated that this goal is not being achieved for the time being.

"Medium-term projections presented in the Strategy show that the public debt in relation to GDP will exceed the maximum threshold of 60 percent. Based on the medium-term budget framework from which the need to finance the budget deficits in the medium term, the needs for the repayment of previous debts, as well as the implementation of projects outside the central government, the movement of the public debt in the medium term will record a moderate decline in 2025 as a result of gradual fiscal consolidation. The downward trend will continue in the period 2026-2028 and in 2029 the public debt will stabilize and be below the limit of 60 percent of GDP.

According to the Law on Budgets, public debt should not exceed 60 percent of GDP, which is also in accordance with the Maastricht criteria.

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