IMF report calls on Spain to take action against high debt and deficit

The International Monetary Fund (IMF) has issued a report on Spain praising its economic recovery, but warning that “several downside risks are clouding the medium-term outlook.”

In its annual report, known as the Article IV Consultation, the IMF notes that the Spanish economy is posting growth above the European average, creating jobs and achieving a more deleveraged private sector.

The IMF insists on the need to act now to reduce the deficit and debt levels to create a cushion in the event of a new shock

But growth is increasingly sluggish, unemployment remains high at 14.6%, and public debt is still close to 100% of GDP.

What’s more, growth (projected to be 2.5% of GDP in 2018 and 2.2% in 2019) has been driven mostly by “strong private consumption and investment demand,” while the country has failed to introduce structural reforms to offset any future downturn.

And while the deficit is expected to fall below 3% this year, “much of this reduction can be attributed to the strong economic cycle and low interest rates.”

The IMF insists on the need to act now to reduce the deficit and debt levels to create a cushion in the event of a new shock. The report says that this is compatible with the Spanish government’s goal of reducing inequality, and suggests measures such as raising sales tax (VAT) and green taxes to increase the state’s revenues for redistribution.

The report comes a day after Brussels warned about the risk of Spain missing its budgetary goals after examining the 2019 budget blueprint sent in by Madrid. The EU executive is particularly concerned about the planned increase in spending, and about the efforts to make structural adjustments, which it views as insufficient.

English version by Susana Urra.