Falling spending and rising tax revenues have brought some balm to the heart of public accounts heavily affected by the health crisis and the soaring energy prices exacerbated by the war in Ukraine.

Public debt fell to 111.6% of gross domestic product (GDP), against 112.9% in 2021, in line with government expectations, said Tuesday the National Institute of Statistics (INSEE).

The public deficit did better than expected, falling from 6.5% to 4.7% of the GDP, falling below the official target of 5%.

Economy Minister Bruno Le Maire on Tuesday praised the "resilience" of the economy that has led to this improvement, while reaffirming his "determination (...) total" to restore public finances, in a climate electrified by the opposition to his pension reform.

Economy Minister Bruno Le Maire at the National Assembly in Paris, March 21, 2023 © Emmanuel DUNAND / AFP/Archives

Because the debt and deficit remain well above their pre-crisis level in 2019, because of the "whatever it takes" deployed by the government to support households and businesses, and which it now intends to reduce. Public debt then represented 97.4% of the GDP when the public deficit lay at 3.1%.

In absolute terms, the France's debt increased by 126.4 billion euros in 2022 over one year, reaching 2.950 billion euros, approaching the symbolic milestone of 3,000 billion euros.

The public deficit lay at 124.9 billion euros, benefiting from rising revenues (53.4% of GDP against 52.6% in 2021) while spending fell to 58.1% of GDP (against 59.1%).

Revenues increased by 7.3% (or €95.7 billion) thanks to the continuation of the post-Covid catch-up of the French economy (+2.6% in 2022), as well as inflation, which swelled VAT receipts. "The good news is that there has been a dynamic in the French economy that has allowed spending to grow as fast as revenues," said Charlotte de Montpellier, an economist at ING.

"It's a little better than we might have feared, but the public finance figures are still unfavorable" and place the France among "the worst European countries," she told AFP.

"Several billion" in savings

To restore public finances, the government is mainly counting on a faster increase in GDP than spending, which would be the subject of "several billion euros in savings".

The Ministry of Economy and Finance, in Paris, November 15, 2022 © JOEL SAGET / AFP/Archives

It anticipates growth at 1% in 2023, a forecast higher than those of international institutions.

"The difficulty for the future is that the strong dynamism of tax revenues will not necessarily last," warns Mathieu Plane, deputy director of the analysis and forecasting department of the OFCE. "In 2023, we are on a much more slower growth trajectory," he told AFP.

The government is due to present its multi-year trajectory for public finances by mid-April. At this stage it is counting on a public deficit of 5% in 2023 which would be gradually brought below the European limit of 3% in 2027, while debt would stabilise at 110.9% over this horizon.

At the beginning of March, the Court of Auditors was alarmed by the lack of ambition in its opinion of these objectives.

This surge in debt since the health crisis weighs on public finances by considerably increasing the debt burden. It has also increased with the rise in interest rates, while part of the outstanding amount is indexed to inflation.

The burden of public borrowing has increased by 15.1 billion euros in one year, to 53.2 billion in 2022, according to INSEE.

At this stage, investors are not worried. French debt is considered a safe asset and the difference ("spread") with Germany's interest rates, which is a reference in the EU (European Union), has not widened significantly.

But the pressure will also increase at European level: suspended during Covid, the Stability Pact limiting the budget deficit to 3% of GDP and public debt to 60% will soon be reactivated.

© 2023 AFP