French audit office sees interest rates adding pressure to finances

PARIS (Reuters) - France's long-term budget planning is once again at risk of getting blown off course by overly optimistic forecasts, with high interest rates adding new pressure, the national audit office said on Friday.

In its annual report, the Cour des Comptes said the government was too optimistic about its growth outlook in the years to 2027 and too vague about plans to keep spending growth to a minimum.

The independent public audit body has made similar criticisms before, but it said this time public finances would come under additional pressure if the government's borrowing costs remained above currently planned levels.

The government's long-term budget planning does not foresee France's 10-year benchmark bond yield above 3% before 2027, when its current long-term budget planning ends.

However, the yield is currently above that level on the bond market and is likely to go higher as the European Central Bank keeps raising rates in the months to come to fight inflation.

The audit office said if the borrowing rate remained one percentage point above the government's expectations between now and 2027 that would add 17 billion euros ($18 billion) to debt servicing costs by then.

In turn, that would push the public debt burden from an expected 111.2% of economic output this year to 113% by 2027, the audit office calculated.

To put the public finances on a more reasonable path, the auditor called on the government to detail plans to rein in public spending and set financial targets in stone with a multi-year budget planning law, which lawmakers have so far failed to pass.

($1 = 0.9459 euros)

(Reporting by Leigh Thomas; Editing by Andrew Heavens)