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The situation and outlook of French public finances


The Covid-19 pandemic has major consequences on French public finances. Yet France did not benefit from a sound initial fiscal position to address the crisis. The results for 2019 show that the structural deficit has not been reduced and that public debt has remained stable at a high level. In 2020, the shock to public finances is massive. Public money has played a role as "last resort insurer" of the economy and revenues, but public debt increased further, to more than 120 points of GDP.  
Medium-term debt sustainability is a central issue.  
France will have to rebuild a strategy to strengthen public finances, based on an in-depth review of the quality and efficiency of its public policies. This approach should preserve public investments with proven effectiveness, for example, to support ecological transition or public health.

2019 Situation: incomplete repair of public finances

The State (central Government) deficit has been reduced to 3 percentage points of GDP in 2019, down from 7.2 points ten years ago. But these efforts have not been particularly successful in comparison with those of neighbouring countries. Thus, France's deficit has persisted at a significant level in 2019.

Public debt, which had risen sharply following the financial crisis at the end of the 2000s, has not been reduced in recent years, continuing to diverge from that of our partners.

2020: an unprecedented shock for public finances

Faced with the health crisis, France reacted by accepting the fall in public revenue induced by the historic drop in activity and by committing exceptional expenditure of a considerable amount (€57.5 billion) to fight the epidemic and cushion the economic shock.

 As a result, the public deficit is expected to reach 11.4 points of GDP this year and public debt would increase to 121 points of GDP. This deterioration in public accounts is expected to affect mainly the central State, but also substantially Unemployment Insurance system (Unédic) and the social security systems. Local authorities and a large number of other public entities are likely to be affected, in particular because of the decline in their revenues.

The estimated magnitude of the recession (-11% in volume terms) appears plausible, even cautious in light of the latest available information. While significant uncertainties surround growth and public finance assumptions, the government deficit forecast for 2020 appears broadly balanced.

Prospects beyond 2020: the challenge of debt sustainability

As the European institutions, implemented the "general escape clause" of the Stability and Growth Pact, it provided temporary flexibility to fight the epidemic and support the economy. Proposals for common budgetary instruments to replace national budgets in supporting activity were also put forward.

While a return to normal economic activity offers the prospect of a significant reduction in the deficit after 2020, more plausible but less favourable scenarios foresee, in the absence of an effort to strengthen the public finances, the maintenance of a high level of deficit that would not be compatible with debt control.

It is therefore important to set a new public finance strategy that ensures debt sustainability. A credible strategy could be based on a consolidation effort that is pursued consistently and over time, within a strengthened multi-annual framework. It should foster an overall improvement in the quality of public expenditure, but with a focus on priority expenses with proven efficiency, while preserving public investment as a factor of growth and socio-economic progress.

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