Spain will miss its deficit targets this year and next and its debt will jump to more than 90 percent of GDP next year as it recapitalizes its banking sector, the IMF said yesterday.
The IMF said in its fiscal monitor report that the country’s deficit would reach 7 percent of GDP this year and 5.7 percent next year, compared with EU-agreed targets of 6.3 percent of GDP this year and 4.5 percent of the country’s GDP next year.
Spain replaced Greece, Portugal and Ireland as the epicenter of the eurozone debt crisis after it missed its budget targets by a wide margin last year.
The government has pledged to rein in the public finances, but overspending regions and the recapitalization of a banking sector crippled by bad debts from a decade-long property bubble is making the task difficult to achieve in the short run.
Madrid said last week the public deficit would reach 7.4 percent this year, but that would include one-off elements from the recapitalization of the banks that the European Commission has agreed not to take into account when assessing Spain’s efforts.
The commission is to publish updated economic forecasts on Nov. 7.
Spanish Economy Minister Luis de Guindos reiterated on Monday that Spain would meet the targets.
In addition, he said there was no need for additional measures despite a deepening economic contraction.
The government has based its budget plan for next year on a recession of 0.5 percent while the IMF forecast a recession of 1.3 percent in the country next year.
Under current policies, Spain would not return below the EU ceiling of 3 percent of GDP until 2017 and its debt-to-DGP ratio would hit 90.7 percent this year and 96.9 percent next year, the IMF said in the report.
That takes into account a full disbursement of the 100 billion euro (US$129 billion) European credit line Spain sought in June to prop up its lenders.
Madrid said last month it expected to tap only about 40 billion euros.
However, that would still put the debt at around 84.7 percent of GDP this year and 90.9 percent of GDP next year.