In particular, the government seeks to reduce the annual growth in real public spending to 0.7% between 2022 and 2027. This is lower than the growth rates of 1.4% and 1.0% in 2007-12 and 2012-17 respectively. Real release growth is expected.
Facilitating and digitizing public services
As outlined in Action Public 2022, the government will continue to strive to facilitate and digitize public services and focus on efficient public spending that promotes all-inclusive and green growth. In addition, the government plans to reform financial management by introducing multi-year spending rules that restrict the growth of government spending. This can only be overcome in times of crisis and after careful parliamentary scrutiny.
A progressive integration process centered on the cost aspect is appropriate
The government’s plan to gradually reduce the fiscal deficit through cost-based integration is appropriate because it would be more effective than revenue-based plans. This will help start the economy in a healthy way after the crisis. Rapid and premature consolidation can have negative consequences on growth and can affect credit stability in the long run. However, this increasing approach to budget consolidation has been based on materially weak financial bases, at least in the medium term.
France’s planned start-up financial balances are weaker than other eurozone countries than AA-rated sovereigns such as Belgium, the Czech Republic, the United Kingdom or the United States.
The budget deficit is expected to be high
The French budget deficit is expected to average 4.6% of GDP over the next seven years, and is projected to fall to less than 3% of the Maastricht border by 2027. This includes France’s $ 100 billion financial impact, and it includes a recovery plan and the elimination of support measures taken to address Covit-19. Similarly, the government debt ratio will not remain at 118% of GDP until 2024-26 and will begin to decline in 2027 unless there is a significant economic shock in the transition years.
The level and trend of French debt is similar to that of other sovereign creditors rated as Scope AA (otherwise with significantly lower debt in the Czech Republic), the government debt burden may be hit by a sudden rise in interest rates, and investor hunger suddenly worsens. Similarly, shrinking financial space restricts the scope for counter-revolving financial activities in the event of another major negative shock.
While lower financial costs support the financial platform, more decisive financial control is needed
As French interest payments on revenue are expected to continue to decline in the coming years, the weakness of the financial base is likely to be mitigated somewhat by the lower financial costs available to the government. It is clear that more structural reforms are needed to increase growth potential and initiate decisive long-term fiscal consolidation, which will permanently reduce the debt-to-GDP ratio.
This will be difficult given the weak public and political support of the Emmanuel Macron government. Following strong popular opposition to some government reforms, polls suggest Macron’s success rate is declining compared to Marine Le Pen’s popular rival, which increases the likelihood of a change of leadership after the 2022 election.
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Jusana Svetrovsky is the Director of Sovereignty and Public Sector Appraisal at the Institute Purpose Ratings GmbH. Thibo FossAn analyst who evaluates the scope contributed to this opinion.