France faces debt surge unless spending curbed, report says

PARIS, July 15 (Reuters) - France faces a sharp deterioration in its public finances over the rest of the decade unless policymakers act quickly to curb spending, an independent report commissioned by the government said on Wednesday.

The report, prepared by economists Xavier Jaravel, Xavier Ragot, Jean-Luc Tavernier and Natacha Valla, projected that France's budget deficit would widen from 5.0% of gross domestic product in 2026 to nearly 7% by 2030 if no corrective action is taken. Public debt would rise from 118% of GDP in 2026 to more than 130% by the end of the decade.

Commissioned in May by Finance Minister Roland Lescure, the report is intended to frame what is expected to be a contentious debate over public finances when parliament begins examining the 2027 budget from October, ahead of next year's presidential election, which polls suggest far right veteran Marine Le Pen could win.

It comes amid growing concern that France's €3.5 trillion ($4.0 trillion) public debt burden could balloon as government borrowing costs outpace economic growth.

The report warned debt-servicing costs would become an increasingly heavy burden as bonds issued during years of ultra-low interest rates are refinanced at higher rates. Annual interest payments are projected to rise to €124 billion by 2030 from €78 billion this year.

To stabilise the debt-to-GDP ratio during the next five-year presidential term, France would need cumulative budget tightening worth €126 billion by 2032, the report estimated.

Delaying action until after the 2027 election would require ever larger adjustments later and could undermine investor confidence, it said.

Rather than broad spending cuts, the economists called for targeted structural reforms and urged policymakers to reconsider the automatic inflation indexation of some welfare benefits and pensions.

Jaravel heads the national economics council, Ragot is president of the OFCE think tank, Tavernier is a former head of the INSEE statistics agency and Valla is dean of the management school at Paris' Sciences Po university.

($1 = 0.8747 euros)

(Reporting by Leigh Thomas. Editing by Mark Potter)