Interest rate historically low in 2013

15/05/2014 15:00

With 2.4 percent, the interest rate on the public debt reached a historically low level in 2013. Although public debt is growing, the interest paid over the public debt is diminishing. At the international level, the interest rate the Dutch government has to pay is also relatively low.

Interest down, public debt up

In 2013, the Dutch government paid the lowest amount in interest on the public debt (10.4 billion euros) since 1983, versus 17.2 billion euros in record year 1995. The total amount paid in interest was lower, while public debt has almost doubled since 1995 to nearly 450 billion euros. The total amount paid in interest expressed as a percentage of the public debt declined from 7.4 percent in 1995 to 2.4 percent in 2013.

Interest payments and Dutch government debt

Interest payments and Dutch government debt

Low interest rate due to high creditworthiness…

The Dutch government can borrow money against a historically low rate. One of the reasons is that the Netherlands is considered a reliable party for financiers. As a result of differences in creditworthiness between countries, the interest rates vary widely within the eurozone. In general, the more creditworthy a country is, the lower the interest rate it has to pay.

The total amount paid in interest expressed as a percentage of public debt in the seventeen countries which have the euro as their currency averaged 3.1 percent in 2013. Countries deemed creditworthy like the Netherlands, Finland and Luxembourg pay low interest rates. Countries with relatively high debts are generally considered less creditworthy. Italy and Ireland pay high interest rates.

Greece holds an exceptional position. Despite a huge public debt, the Greece was able to finance its public debt against relatively low rate in 2013. This is due to the bailouts Greece has received since 2010. The interest rate is kept low.

Interest charges as a percentage of public debt, European governments, 2013

Interest charges as a percentage of public debt, European governments, 2013

… and relatively high number of short-term loans

The manner in which the public debt is financed also plays a part in this respect. Long-term loans are more expensive than short-term loans. The Netherlands has a relatively high number of short-term loans compared to other European countries, which explains why the total amount paid in interest expressed as a percentage of public debt is higher for Germany than for the Netherlands.

Arjan Neef and Floris Jansen