“The negative effects of the covid-19 crisis are less than initially expected and the economic situation in Luxembourg looks very favourable in comparison with Europe,” says Marc Wagener, president of the CNFP. As a result, the deficits remain under control.

The deficit of the structural balances--i.e. the balances of the public administration, central government, the municipalities and social security--is improving. From -2.4% in 2020, it should reach -0.7% in 2021 and -0.3% in 2022. This is not far from the medium-term budgetary objective (MTO) set at +0.5%. The balance is expected to be positive again in 2023 and to peak at +0.4% in 2022 and 2023.

Public debt, however, continues to grow.

It reached €15.942bn in 2020, or 24.9% of GDP. At the end of 2021, it is expected to reach €18.322bn (26.9% of GDP) and further increase to €22.292bn (27.6% of GDP) by 2025. This is below the target that the government set in 2018 when it took office, i.e. a debt of less than 30% of GDP.

In a favourable macroeconomic scenario, debt could be around 15% of GDP by 2025. But if the economic situation were to deteriorate--which Marc Wagener does not rule out--debt could explode to 45% of GDP, or roughly €39bn. For the record, since the beginning of the crisis, the government has launched three bond issues with a total volume of €6.5bn raised.

Satisfactory results for the government

Given the circumstances, i.e. the application of the exceptional circumstances clause which exempts the government from meeting the MTO targets, the CNFP will not issue any major recommendations this time until its next assessment of public finances, scheduled for this autumn on the occasion of the draft 2022 government budget and the draft multi-year financial programming law for the period 2021 to 2025.

However, the council has made a number of requests. First, a clearer presentation of the assumptions on which the calculation of the structural balance is based, indicating the origin of any discrepancies with those used to calculate the Statec forecasts. Secondly, an overview of bond issues, which has been lacking since 2020, needs to be established. And finally, an overhaul of the presentation of the expenditures and revenues of the social security sector. This would allow the board to better understand the steady decline in the social security balance, which was €1.2bn in 2019 and is expected to be only €598m in 2025 according to the latest projections.

This article was originally published in French on Paperjam.lu. It has been translated and edited for Delano.