The IMF Forecasts Spain’s Deficit at 6.8% this Year
January 27th, 2012
According to the Institution’s updated ‘Fiscal Monitor’ report, the International Monetary Fund (IMF) has drastically worsened its deficit forecast for Spain in 2012 and 2013 to 6.8% and 6.3% respectively, figures which double the 3% deficit target the Spanish economy must achieve in the next year. The organisation, chaired by Christine Lagarde, revised its forecasts sharply upwards for the September issue of its report, namely by 1.7% for 2012 and 1.9% for 2013, representing the worst forecast for the Spanish economy for these two years of all the years analysed by the Fund.
Similarly, the Institution has updated its estimate of the deficit the Spanish economy recorded in 2011, raising it from 6.2% to 8%, which is consistent with that forecast by the PP Government emerging from the general elections on 20th November. The IMF believes that Spain is moving further away from the targets set for 2012, when it must reach 4.4%, and for 2013, the year in which the European Stability and Growth Pact indicated they should close at 3%.
In the same vein, the IMF has revised upward by 2.6% its forecast of debt in respect of the gross domestic product (GDP) for 2011, up to 70.1%, compared with the September report. However, this deterioration will be even greater in the next two years, since they have adjusted their estimates by 7.9% for 2012, up to 78.1%, and 11.2% for 2013, up to 84%.
Despite this upward revision of its projected deficit, the IMF notes that Spain, like many other advanced economies, has already approved new measures to achieve their deficit targets. They emphasised that the first package of measures adopted by the new Spanish government, which is equivalent to 1.1% of the GDP, includes spending cuts and temporary tax increases on income, capital and higher value housing, but also entails a limited increase in social and fiscal spending, such as tax deductions for housing.
Consolidation and Growth
In its report, according to Diario Sur, the IMF says that continuing with the adjustments is necessary for debt sustainability in the medium term, but argues that these should ideally be carried out at a rate that “adequately” supports the growth of production and employment.
“Given the big adjustment already underway this year, Governments should avoid responding to any unexpected fall in growth by further adjusting its policies, and should instead allow the automatic stabilisers to operate as long as funding is available and allows doubts over the sustainability,” they suggested.
Reconsider the Pace
The Fund emphasised that the deficits in many of the advanced economies fell significantly in 2011, placing the average cut in deficit among the IMF’s member countries at 1%, while stressing that many countries also plan to carry out “significant” adjustments this year. For this reason they believe that those economies with sufficient fiscal space, including some in the eurozone, should reconsider the pace of adjustments in the short term, while at the same time they called for the United States and Japan to clarify their strategies for reducing the deficit in the medium term.
The IMF also insisted on the necessity for adjustments to be supported by the availability of adequate funding outside of the markets, as must happen in the eurozone, where market confidence is slow in responding to the reforms. “A major adjustment during a fall may exacerbate rather than ease tensions in the markets through its negative impact on growth,” they added.
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The deficit forecast in Spain will not be partly alleviated until foreign purchasers of property can buy with confidence of spurious and dishonest subsequent claims by towns halls many of which are currently bankrupt.
I have been resident in Spain for nine years and currently living on an urbanisation in Oliva, Costa Blanca. The Oliva town hall is seeking to assert the urbanisation has not been urbanised notwithstanding there are roads , lighting,, electricity and phones. Most of the home owners are Spanish.
Currently each home owner faces a potential cost of 60 Euros a square metre. There has only been one tender for the so called need to urbanize and , not surprisingly, it is from a contracter in Oliva!!!!!!
In the nearby urbanisation which comes under La Font town hall the residents were surprised to find the roads has been re tarmacked . Next, they all received large bills for the privilege. La Font town hall denied any knowledge!. It now appears Santander Bank is endeavouring to recoup its losses from the residents having funded the builder who went into liquidation.
My advice to anyone purchasing in Spain is to think twice. You cannot buy with any certainty of being left in peace by unprofessional and corrupt Town Halls which simply have too much power.
I do not anticipate you will publish this!.