what is the actual spanish deficit
I was reading this article, and I came across a very interesting sentence:
The auctions mean that Spain has now completed almost 77% of its borrowing needs for this year.
Like a lot of you, I have been following this Eurocrisis for quite some time, and I wondered if the various numbers being thrown around were accurate. In the Spanish case in particular, the mainstream media has been counting down remaining Spanish financing needs since the Spring. Every poor Spanish auction result contained the palliative, “…but Spain has now completed X% of its financing needs for the year. I wondered where this number came from, because the mainstream media neither showed its work nor attributed this number to anyone. It seems to be conjured from thin air.
What piqued my interest in this number is that it has been consistently rising as Spain auctions debt, but Spain’s budget deficit has worsened from 5.3% of GDP to 6.3% officially to 8.08% unofficially based on projections from the first half. I wanted to see if I could come to 77% by using all of the available Spanish financial information out there. I started by adding all Spanish debt sales year-to-date to see how they compared to the budget deficit plus the amount of old debt that needed to be rolled over.
Allow me to work through the math. (All figures rounded. Check out the chart for the exact numbers) I added up all of the bond sales for the year including the September 6 auction. Next, I subtracted the short-term bill sales that would mature by the end of the year, because those sales do not reduce the financing needs for 2012. I obtained €102bn.
This number is supposedly 77% of Spain’s financing needs for the year based on the sentence from the WSJ above. Dividing €102bn by 77% yields an implied figure of €133bn for the rest of the year meaning that Spain has to sell about €31bn in bonds for the rest of 2012.
My calculations show that this number is way off. Spain has €98bn in debt coming due in 2012. Adding the projected budget deficit of 6.3% of GDP, €74bn, gives us financing needs of €172bn. That means remaining financing needs from now until the end of the year are €70bn, and Spain is only 60% of the way there, not 77%.
The situation is actually much worse than this, because the budget deficit was actually running at a rate of 8.08% based on the first half figure of 4.04%. With the Spanish economy bleeding to death, it has certainly gotten worse since June 30, but this number is the most recent we have. Using this figure, we find that the budget deficit is closer to €95bn, which yields financing needs of €193bn with €91bn remaining. Spain is only 53% of the way there under what I believe is the more accurate scenario.
It looks like Mr. Draghi is going to be buying a lot more bonds than he thought. By the way, if Spain is off by this much, what do you think the actual numbers for Italy look like?
Please check my work, and use the comment field if you have anything interesting to add:
Click here for part two: