Budget deficit: IMF lowers Spain’s growth forecast for 2021 to 5.7% | Economy and business



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In its new World Economic Outlook for October 2021, the International Monetary Fund (IMF) partly coincides with the Spanish government’s own macroeconomic forecasts for this year and the next, but disagrees with its projections for long-term deficit.

The international organization has slashed Spain’s growth outlook for 2021 to 5.7%, five tenths of a point lower than it said in its July update. And in 2022, the IMF expects Spain’s economic output to grow 6.4%, six-tenths of a point higher than its previous estimate. In September, the Spanish government released its own growth projections of 6.5% for 2021 and 7% for 2022.

The IMF report also shows that Spain is expected to gradually reduce its debt and deficit levels this year and next, but make very little progress on these fronts from 2023, contrary to the government’s own projections.

Covid-19 crisis

In June 2019, Spain was emerging from a decade of austerity following the deep crisis of 2008. Brussels responded to the good news by lifting corrective measures after certifying that the country’s deficit level had returned below the EU’s target of 3% of gross domestic product. (GDP).

The optimism was short-lived. Less than a year later, the economy had shrunk by a record 10.8% due to the Covid-19 pandemic, a figure not seen since the days of the Spanish Civil War in the 1930s. And the government has been forced to deploy its fiscal artillery to deal with the crisis, including a job retention program and deferred tax payments. The combination immediately pushed up the national deficit to 10.9% of GDP for 2020.

Although Spain recently entered the low-risk coronavirus scenario thanks to a drop in infections due to high vaccination rates, the economic fallout remains significant, and the Spanish cabinet last week approved the master plan for the 2022 budget, which he described as the biggest public spending effort. in the history of Spain.

Debt and deficit

The Spanish government – a center-left coalition of the Socialist Party (PSOE) and Unidas Podemos – hopes to end 2021 with a budget deficit of 8.4%. After that, the goal is to bring that number down to 5% in 2022, 4% in 2023 and 3.2% in 2024.

The IMF agrees with the first part of this diagnosis, but estimates that between 2023 and 2026 the deficit will remain above 4% of GDP. More precisely, it should be 4.4% in 2023 and 4.2% thereafter.

This means that for at least the next five years, Spain would be in violation of the EU’s Stability and Growth Pact, which sets a ceiling of 3% for the deficit and 60% for the debt. However, the pact has been suspended until 2023 due to the Covid-19 pandemic, and the European Commission is expected to launch a review of its fiscal rules on October 19, Reuters news agency reported.

As for public debt, the IMF also disagrees with the forecasts of the Spanish executive. The latter indicated that he planned to increase the figure from 120% of GDP in 2020 to 119.5% in 2021 and 115.1% in 2022. The international organization thinks on the contrary that it will be 120.2 % in 2020, and that it will not see a reduction until 2022. At this point, the figure would probably hover around 116% or 117% for several years.

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