One of the most relevant developments of the recent period is the intensification of the Spanish economy’s debt reduction abroad. External debt has been a persistent legacy of the credit bubble whose burst devastated Spain starting in 2008. At that time, the total external liabilities, that is, the money we owed to foreign investors, touched 100% of GDP (in terms of net international investment position) and financial burdens skyrocketed, swallowing, for example, almost all of the income derived from international tourism: the net income generated by tourism barely served to cover the interest on the debt. Starting in 2015, thanks to the surpluses generated by exports, the external debt began a downward path, but the process was slow. In 2020, as a consequence of the financing needs derived from the pandemic, the volume of foreign liabilities rose to 85% of GDP, a level clearly lower than the figures of the financial crisis, but still very high.
Since then, however, the volume of liabilities contracted with international investors has sharpened its de-escalation to represent 53% of GDP. The result is that interest payments have also been reduced: these are now barely equivalent to 15% of tourism income, despite the increase in the price of money piloted by the ECB. We therefore come from afar, and this is recognized by the European Commission in its In-depth review monitoring of imbalances in Member States.
Furthermore, the debt structure has improved, mitigating financial risk. A growing part of the liabilities consists of debt securities with long-term maturities, and above all in direct foreign investments in Spanish companies, a relatively stable variable by definition. The Commission’s reference external debt indicator, which excludes foreign direct investment in Spain as well as other liabilities without risk of default, has fallen to 25% of GDP, almost half that in 2020 and 54 percentage points less than in the height of the financial crisis. This colossal effort to reduce debt, together with the entry of stable capital to equip the Spanish productive fabric, conveys an image of greater confidence.
However, debt levels still exceed the thresholds commonly considered prudent (the Brussels reference is 17% for net international investment position). So this is a front of vulnerability that has not disappeared. To mitigate it, it is first necessary to maintain the extra competitiveness, a factor that generates surpluses in international exchanges, that is, resources that serve to continue advancing in the reduction of private sector liabilities. Another condition is the containment of budgetary imbalances, given the weight of non-residents in the purchases of new Treasury debt issues. It will have to be done with good temper so that growth is not derailed, this being a crucial variable to have the economic capacity to assume financial burdens. For this, the takeoff of the internal investment effort is sine qua non.
In the immediate term, the inertial dynamics of the economy and the external surplus seem guaranteed, leading to an additional decrease in external debt as a proportion of GDP. Furthermore, we will need a new push to create a favorable environment for investment and the containment of the structural public deficit, this being the main factor in the persistence of external debt. Despite recent progress, the legacy of the crisis continues to weigh on external accounts, evidencing the longevity of financial cycles. The deepening of these advances is the key to reducing our exposure to the fluctuations of the financial markets, and thus widening the margin of action of economic policy.
Trade surplus
In 2023, the balance of foreign exchanges (current account balance) showed a surplus of 38 billion euros, a historical maximum. This result comes both from the reduction of the deficit in the trade balance of goods (partly due to the cheaper imports) and from the increase in the surplus in the balance of services, both tourist and non-tourist. The balance of non-tourist services, almost zero a few years ago, now exceeds 2% of GDP. The growing surplus with the EU is another relevant trend.