Compiled with the help of artificial intelligence, based on Spanish-language information. Source below the article.
Interest bill set to rise by 22.5%
The Canary Islands will pay €659 million in interest generated by its debt between 2027 and 2029, a 22.5% increase on the previous three-year period (2024-2026). This is according to a study titled Estimación del gasto futuro en intereses de la deuda autonómica (Estimation of future interest spending on regional debt), published this week by Fedea (the Foundation for Applied Economics Studies).
The report analyses the evolution of interest spending on regional public debt up to 2029 and highlights the relative good health of the Islands’ public finances. It calculates that the Archipelago will pay out €192 million in 2027, €217 million in 2028 and €250 million in 2029, compared with €199 million in 2024, €165 million in 2025 and the €174 million forecast for 2026. In absolute terms, financial spending will grow by €121 million, representing the aforementioned 22.5% increase on current levels.
Among Spain’s lowest debt burden regions
Despite the rise, the Canary Islands ranks among the regions with the lowest absolute financial costs in the country. The €659 million forecast for 2027-2029 is a fraction of the €7,696 million estimated for Catalonia, the €4,470 million for the Valencian Community, the €3,850 million for Madrid or the €3,310 million for Andalusia. Only Cantabria, Navarre and La Rioja record lower cumulative spending over that time horizon.
The Fedea projection also underlines the relative soundness of the Canary Islands’ public accounts. Regional debt would fall from 13.2% of GDP in 2022 to 9.1% in 2029, a reduction of 4.1 percentage points that would keep the Canary Islands among Spain’s least indebted regions, behind only Navarre. The debt stock would barely increase by €291 million between 2022 and 2029, also one of the smallest rises in the country.
A concerning starting point
The study, written by economists and researchers Manuel Díaz and Carmen Marín, starts from a worrying observation: regional governments have been “one of the levels of administration with the greatest fiscal deterioration” following the Great Recession and the Covid-19 pandemic, episodes that pushed regional debt from 6% of GDP in 2008 to 27% in 2020. Although that percentage has since fallen, Fedea warns that the improvement is mainly due to GDP growth rather than genuine fiscal consolidation.
The authors justify the need for the study by reference to the new monetary environment. “All these reasons, together with the increase in interest spending observed recently in the regions, make it necessary to study what the expected increase in this budget item may be,” they state in the report. The foundation notes that the European Central Bank (ECB) has raised interest rates and, given the behaviour of prices, is expected to do so again in September. That rise in the cost of money has a direct impact on outstanding debt, meaning financial costs will grow.
Regional interest spending to more than triple
Marín and Díaz project that regional spending on interest will rise from €3,608 million in 2022 to €11,528 million in 2029, more than tripling in just seven years. This increase will occur regardless of whether the debt-to-GDP ratio continues to fall. Why? Because interest will still have to be paid, and will be financed partly through refinancing of maturing debt, which will be negotiated at higher rates than those attached to the debt being retired.
The estimates are based on the scenario calculated by AIReF (the Independent Authority for Fiscal Responsibility) of a regional deficit of 0.1% of GDP in 2026, balance in 2027 and a surplus of 0.1% in 2028 and 2029. The projections also incorporate nominal GDP growth of above 4% and a financing cost of around 3% for new debt issuance. Fedea clarifies that “the results” reflect a projection exercise based on constant policies, which gives them a non-predictive character.
What it means for the Canary Islands
In the case of the Canary Islands, the forecast evolution is especially significant because it combines rising financial spending with a downward debt trajectory. Annual interest payments would rise from €174 million in 2026 to €250 million in 2029, while the weight of debt relative to the regional economy would fall below 10% of GDP. That combination distinguishes the Islands from territories such as the Valencian Community, Catalonia, Castilla-La Mancha and Murcia, which would remain above 20% in 2029.
Fedea concludes that the higher cost of financing will force the regions to allocate a growing share of their budgets to debt servicing, and calls for prudence in expansionary fiscal policies. The foundation warns that significant tax cuts or spending programmes with low social returns could compromise regional financial sustainability in a context of persistently higher interest rates.
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