Spain still needs a “sizable fiscal adjustment,” warns IMF
Deficit target miss means more spending cuts may be on the way, but “at a measured pace”
Spending cuts will make a comeback in Spain. The International Monetary Fund (IMF) on Wednesday said that the country’s excessive 2015 deficit means there needs to be “a sizable fiscal adjustment, which should be done at a measured pace.”
This outlook for Spanish policy is in contrast with the general call by the world body for stimulus packages to encourage growth elsewhere.
The suggestion comes after years of effort by Spain to reduce its public deficit in the midst of a crippling crisis. Tax hikes and social cuts brought that figure down from 9.13% in 2011 to 5.8% in 2014 – a full four points in three years.
Spain has to have a medium-term plan which will control the path of the public debt-to-GDP ratio
Vitor Gaspar, director of IMF Fiscal Affairs Department
In 2015, with the economy growing at a clip of 3.2%, the accounts imbalance reached 5% of GDP, nearly a whole percentage point above its EU target.
The fact that 2015 was an election year did not help, as elected officials were loathe to cut back on expenditures that might jeopardize their performance at the polls.
Washington DC experts made a note of Spain’s particular situation.
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“It is important to stress that this is something which is happening at the same time that the Spanish economy is performing well, in the sense that it has strong economic growth,” said Vitor Gaspar, director of the IMF Fiscal Affairs Department, at a presentation of the April 2016 Fiscal Monitor.
“The underperformance comes from the regional governments […] and from the social security accounts,” he added. “If you think about these various elements, what you basically get is that Spain has to have a medium-term plan which will control the path of the public debt-to-GDP ratio and that over the medium term will require necessarily a sizable fiscal adjustment which should be done at a measured pace. When will the Spanish political system deliver such outcome is something that I will not conjecture on.”
This week, the IMF announced that it is slightly cutting its 2016 growth forecast for Spain, down to 2.6% from the 2.7% it predicted in January.
English version by Susana Urra.
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