Fiscal imbalances in Spain: Progress and risks
Fecha: noviembre 2021
Santiago Lago Peñas
Fiscal imbalance
SEFO, Spanish and International Economic & Financial Outlook, V. 10 N.º 6 (November 2021)
Spain’s 2020 deficit came in at 10.1% of GDP, better than estimated but still topping the EU-27 ranking. Looking forward, there are reasons for optimism such as the Next Generation-EU funds, the recovery in tax collection, and extension of the Stability and Growth Pact escape clause, though these do come with notable downsides. While current forecasts for 2021’s deficit are below the government’s budgetary plan, the structural deficit could prove a weak spot in the coming years, as it is forecast to reach 4.5% in 2022. Regarding the Stability and Growth Pact, the most likely outcome is a reformist approach, with greater flexibility built around a medium-term debt anchor, a simple expenditure benchmark and a general escape clause. However, Spain cannot wait for the official rewriting of the EU’ fiscal rules. As it stands, the country lacks a credible and ambitious medium-term budget strategy. Over the next five years Spain’s public deficit will not fall below 4.2% of GDP, while public debt will still be stuck at close to current levels. Curtailing spending will become even more difficult due to Spain’s ageing society, with spending on dependency care, employment, education, health, science and innovation, government, and a fair transition likely to increase.