Bank of Spain governor sees “risk” of failing to meet deficit target this year

The governor of the Bank of Spain, Luis Linde. said Friday there are “certain risks” that the government will fail to meet its target of lowering the budget deficit to 6.5 percent of GDP this year from 6.84 percent last year.

“Budget execution for the second half needs to be very strict at all public administrations if you want to avoid deviations [from the target] at the end of the year,” Linde told the congressional budget committee. “The reduction is difficult because it is taking place in a very adverse economic context,” Linde added.

Linde said it is important for Spain to meet its targets to restore the country’s credibility after failing to meet them by large amounts in the period 2009-2011. “Although there are risks, I hope we can hit the target this year,” the governor said.

Earlier this week, Finance Minister Cristóbal Montoro said the shortfall in the finances of the country’s public administrations was 3.58 percent of GDP for the first six months of the year, compared with a deficit in the same period in 2012 of 4.15 percent. The ministry is confident of reaching the target because of lower servicing costs for public debt and an expected recovery in activity.

Linde said he expects Spain to have emerged from an extended recession in the third quarter. “The economy appears to be leaving behind the second recession of the crisis,” he said.

The governor said it was also important for Spain to reverse the trend of rising public debt, which is expected to come close to 100 percent of GDP next year. In order to do so, he said it would be necessary to post primary surpluses (without including interest payments on debt) for several years to come. “Of course, the sooner we achieve sustained economic growth, the easier it will be to carry out this adjustment process,” he said.