IMF recommends that Spain increase the fiscal capacity of regional governments

The International Monetary Fund (IMF) has reviewed and improved its economic growth forecasts for Spain, going from a 2.5% growth rate for 2015 forecast in April to a 3.1% one foreseen this June, and from 2% to 2.5% for 2016. However, the IMF has also issued recommendations and warnings, emphasising that Spain will have to carry out "additional fiscal efforts" and "structural reforms" in order not to jeopardise the country’s economic recovery. The IMF recommends that Spain reduce the costs of public healthcare and education by making users pay for part of the services. According to the international organisation, Autonomous Community governments – such as Catalonia's – should have greater fiscal responsibilities in such systems since they exclusively manage them. In this vein, the IMF has praised the fiscal consolidation efforts undertaken over the past few years by regional governments and has asked for an increase in their funding and fiscal powers, as well as for the adapting of the deficit targets to their needs.

Christine Lagarde, who leads the IMF, a few months ago (by ACN)
Christine Lagarde, who leads the IMF, a few months ago (by ACN) / ACN

ACN

June 8, 2015 09:51 PM

Barcelona (ACN).- The International Monetary Fund (IMF) has reviewed and improved its economic growth forecasts for Spain, going from a 2.5% GDP growth for 2015 forecast in April to a 3.1% one foreseen this June, and from 2% to 2.5% for 2016. However, the international organisation led by Christine Lagarde has also issued a long list of recommendations and warnings, emphasising that Spain will have to carry out "additional fiscal efforts" and "structural reforms" because there are still "vulnerabilities" and "profound structural problems" that could jeopardise the country’s economic recovery. One of these reforms is the revision of the funding scheme and fiscal responsibilities and capacities of the Autonomous Community governments, which should have greater funds and powers, according to the international organisation.


The IMF recommends that Spain reduce the costs of public healthcare and education by making users pay for part of the services. According to the international organisation, Autonomous Community governments – such as Catalonia's – should have greater fiscal responsibilities in such a system since they exclusively manage them. In this vein, the IMF has praised the fiscal consolidation efforts undertaken over the past few years by regional governments in Spain and has asked for an increase in their funding and fiscal powers, as well as for the adapting of the deficit targets to their real needs.

Taking into account the structural differences and needs among the different Autonomous Communities, regional governments should be able to set their own fiscal targets. In addition, it urges the Spanish Government to review the funding scheme of the Autonomous Communities – which was designed before the 2008 financial crisis and expired in January 2014 – as otherwise their fiscal capacities will be limited and they will lack "incentives for fiscal consolidation".

Spain's growth, "much higher" than that of the Eurozone

The IMF stressed that Spain's economic growth has been a positive surprise. The country "has recovered strongly and employment is increasing, thanks to the reforms passed". However, reforms should continue as there are still pending issues to be solved. Spain's economic growth in 2015 and 2016 will be "much higher" than the Eurozone average thanks to the recovery of trust and investment levels. Other positive factors have been the decrease in oil prices, the lower exchange rates of the Euro and the European Central Bank's policy to acquire debt, stressed the IMF.

However, the international organisation highlights that "there are still 5 million Spaniards, many of them young" who are unemployed. In addition, the reduction of private debt levels has slowed down over the past few months. The IMF recommends that in order to profit from the current momentum, Spain should pass further reforms, and warns against going backwards in the reforms already adopted, which would "create uncertainty and could paralyse the economic recovery".