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The economic crisis following the outbreak of the pandemic is putting public finances to the test across the world as countries deal with the health crisis and strive to alleviate the economic effects of lockdowns and restrictions. The policy responses to COVID-19 containment measures are costly and government debt has been rising in many countries. According to Eurostat, the statistical office of the European Union, the government debt to GDP ratio in the euro area stood at 98% at the end of 2020, compared to 83.9% a year earlier. For the whole of the EU, the debt ratio increased from 77.5% to 90.7%.

2nd lowest public debt

Luxembourg launched an extensive range of economic support measures in order to help its companies face and overcome the COVID crisis. As public finances were in a very healthy condition prior to the pandemic, the country fares well in terms of its public debt. With a government debt of 24.9%, it ranks second lowest among the EU member states, preceded only by Estonia (18.2%).

Improving public finances

The state finances are also improving. A press release issued by the government points out that as March 2020 was the first month to be affected by the pandemic, an annual comparison is particularly relevant for assessing the impact of the crisis on public finances and the strength of the recovery at the time when the light at the end of the tunnel starts to be visible.

After the indication of optimism that we could see over the first two months of the year, the public finances of our country are clearly continuing on the path to recovery.

“After the indication of optimism that we could see over the first two months of the year, the public finances of our country are clearly continuing on the path to recovery,” says Minister of Finance Pierre Gramegna. “In total, the public revenues collected until 31 March 2021 amount to €5.4 billion, which represents a growth of +9.5% compared to the first quarter of 2020. Despite the health restrictions in place, public finances are thus showing undeniable resilience and the Luxembourg economy continues to benefit from the government’s balanced choices in the fight against the pandemic.”

Recovery and innovation

The government pursues its policy of relying on quality public investments in order to support recovery and innovation. Excluding an exceptional accounting impact recorded in 2020, direct and indirect investments increased by €42.7 million, i.e. +13.4% compared to the end of March 2020.

“After having observed a slight decrease in the deficit from February 2020 to February 2021, I’m delighted today that the balance of the Central Administration is now in the black with a surplus of €56 million as of 31 March 2021, i.e. €434 million more than the balance observed on 31 March 2020,” comments Minister Gramegna. “Even though it is too early to draw conclusions for the year 2021 as a whole, the current state of our public finances inspires confidence and provides a credible basis for continuing the recovery effort when the pandemic comes to an end thanks to an ambitious vaccination policy.”

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