Years of austerity sparked by an enduring recession following the financial crisis had “paid off”, the IMF said. This, combined with the “fiscal loosening” since the country rejected further austerity economics in its general election last year, has seen growth rebound.
Growth is expected to reach 3.1% this year, after a 3.2% expansion last year. However, the IMF expects to see about 1% shaved off that in 2017, and growth to have fallen to 1.6% by 2021.
To sustain the recovery as some economic drivers, including low oil prices, a weak euro and fiscal stimulus start to dissipate, Spain will need to press ahead with earlier reforms, especially to the labour market, the fund said.
Gradual tax hikes and spending cuts should be resumed in order to reduce public debt and the deficit, it continued.
Spain remains subject to the European Union’s excessive deficit procedure, a measure intended to correct deficits in its member states that are deemed too high.
The country has been subject to the measure since 2009, and has missed its target to reduce its deficit every year since then.
After it became clear the country was set to miss its deficit target of 2.8% of GDP in 2016 too, which would have seen Spain exit the procedure, the European Commission increased this to 4.6%.
According to the IMF, without reforms to increase incentives for prudence at the regional level, such fiscal targets are at risk.
“This calls for more automatic and stricter enforcement of targets and providing regions with greater powers to mobilise their own revenues,” it said. “And finally, the introduction of performance-based transfers could... strengthen incentives.”
Nationally, Spain has “room to raise revenues”, the fund continued. It suggested reducing VAT exemptions, raising excise duties and environmental levies and conducting spending reviews to find further efficiency gains.
While congratulating Spain on its strong job creation in the past few years, the IMF said further reductions to unemployment, especially among young people, will be a challenge.
Portugal, another EU nation hard-hit by the global financial crisis and struggling with high debt and deficits, was also threatened with fines by the European Commission earlier this year after missing deficit targets.
Yesterday, two United Nations rights experts voiced their concern that Portugal’s economic crisis, and its subsequent push for austerity had on its citizens’ right to housing, water and sanitation.
The human rights of Portugal’s “new poor” – those pushed into poverty by recession and austerity – are vulnerable, said Léo Heller and Leilani Farha, UN special rapporteurs.
Marginalised populations, including the unemployed, retired, migrants and Roma communities, are most at risk.
“We visited informal settlements with deplorable housing conditions including no access to water and sanitation services, or electricity and talked to different persons with unaffordable access to those services,” said Heller and Farha, who focus on the right to safe drinking water and sanitation and adequate housing respectively.
“In a country like Portugal, this is hard to accept.”
