Spain committed to Brussels in April that it would reduce the deficit next year to 3% and the International Monetary Fund (IMF) yesterday endorsed this forecast. The Spanish Government argued that this reduction to the almost magical figure of 3% would be achieved in 2024, a year earlier than expected, due to economic growth and the dynamism of the labor market, which accelerated the reduction of the deficit.
Now the IMF shares this forecast, according to the Fiscal Monitor report it presented yesterday. One of the reasons for this reduction in the deficit next year is the withdrawal of the measures still in force to combat inflation, such as reductions in energy taxes and VAT on food, among others. The central government has not officially announced its withdrawal, but the IMF takes it for granted in its projections.
It is a particularly significant reduction because it will be achieved in the year in which the European tax rules will be in force again which, although it is still under negotiation how they will be established and the gradualness of their application, will set the target, between others, not exceeding a 3% deficit.
However, the doubts do not completely disappear, because the IMF also points to an increase in the deficit from 2025 (until 2028 the calculations arrive) to 3.4%, which indicates that, if to stay within the desired limit, additional measures should be taken.
The IMF also lowers the deficit forecast for this year by six tenths, leaving it at 3.9%, which matches the numbers promised by the Executive. This year’s adjustment is due to a downward correction of the public expenditure estimate.
“We are benefiting from strong economic growth to resume this downward path”, said the first vice-president and minister of the economy, Nadia Calviño, who added that the Spanish economy shows “remarkable resistance” with a recovery “very strong” from 2021. Precisely this Sunday is the deadline for the Economy to deliver the budget plan for 2024, in accordance with community rules. A plan that, as Calviño affirmed yesterday, will present a scenario without changes in economic policy, since it is a government in office.
With regard to the growth forecast, this Tuesday the same IMF predicted that Spain is moving forward, but more slowly than expected. Specifically, it confirms growth of 2.5% this year, but reduces it to 1.7% in 2024.
IMF officials maintain, in statements to Efe, that fiscal consolidation should begin to gradually eliminate anti-inflation measures and that it will require additional measures to face the pressures on the pension system. They also say that extraordinary taxes on energy companies, banking and large fortunes will bring in between 3,500 and 3,600 million euros, which is “an important contribution”. However, they add that “these measures should be temporary and not considered substitutes for the necessary tax reform”.
Regarding debt, the IMF also improves the outlook for this year and marks a downward path for the coming years. It will be at 107.3% of GDP in 2023, 4.3 points less than in 2022; then drop to 104.7% in 2024 and 103.9% in 2025.
