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Debt, interest rates: the Bercy scenario for the five-year term


The figure surprised and worried: by announcing within the framework of the rectified draft budget that the debt burden for the State was going to jump by 17 billion euros this year compared to the initial forecast, the Ministry of Finance made send the message that the era of free money was well and truly over. In six months, the ten-year interest rates paid by France to finance its debt have climbed: still zero at the end of 2021, they exceeded 2% in June before falling back since around 1.3%.

However, most of the additional bill in 2022 is not (yet) linked to this rate hike, the effect of which will only spread gradually. It is the peak of inflation which explains it to a very large extent, part of the State bonds being indexed on the evolution of prices in France and in the euro zone.

The welcome ebb of inflation

For 2023 and the rest of the quinquennium, the executive has not yet disclosed specific forecasts. But the stability programme, the budgetary roadmap which is the subject of a debate in the National Assembly on Tuesday (before the Senate on Wednesday), gives interesting elements on the growing cost to come of a debt which represents today nearly 112% of GDP.

Next year, Bercy paradoxically anticipates a decline in the overall interest charge, to 1.6% of GDP against 1.8% this year. The expected decrease in inflation in France (+3.2% expected next year, after +5% this year) and in the euro zone would in fact make it possible to significantly reduce the bill for indexed securities. A pendulum effect with the movement observed this year which should more than offset the growing impact of the rise in interest rates: in its macroeconomic scenario, the Ministry of Finance is counting on ten-year rates for the French debt at 2 .6% at the end of 2023 (i.e. twice today).

France on a crest line

But then, this interest charge would increase throughout the five-year period under the double effect of the rise in rates which would continue (Bercy puts forward the hypothesis of a regular continuation of the rise in rates, up to 3% in 2027) and the refinancing of bonds issued at a time when interest rates were still negative. Knowing that the average maturity of French debt securities is around eight years.

The overall public debt interest burden would thus rise to 2.1% of GDP in 2027, indicates the stability programme, against 1.4% (at its lowest) in 2021. A significant impact therefore, which will reduce budgetary leeway for other public policies.

But an impact that would remain relatively contained as a proportion of GDP, thanks to a robust growth forecast, moderate inflation and a return of the deficit to below 3% at the end of the five-year term. With a public debt close to 112% of GDP throughout the legislature, according to figures from the executive, France will however remain vulnerable in the event of a strong shock on the financial markets.

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