Spain will manage to bring the deficit below 3% of GDP. The International Monetary Fund improved its forecasts for Spain by one tenth in its Fiscal Monitor, published this Wednesday. Thus, the overdraft of Spanish public accounts will remain at 3% of GDP this year. In 2025 they also improve it, since they expect it to close at 2.8%, but it will stagnate until 2029 and will be very far from the Government’s forecasts of 0.8% for 2027.
If these forecasts are met, our country would more than comply with the fiscal rules established by the European Commission, but very much at the limit.
Of course, in terms of debt, Spain will fail to comply with community mandates. According to IMF experts, public debt is on a downward path, but still above the 60% of GDP required by Brussels. Specifically, experts from the Washington-based entity predict that it will drop from 105% of GDP registered in 2023 to 100.7% this year and would close at 97.1% in 2029.
In this sense, the director of the IMF’s Budgetary Affairs Department, Víctor Gaspar, assured in an interview for the EFE agency that this year Spain “is on the right track.” The expert assured that the deficit cut is associated with “the gradual elimination of support measures and a solid and persistent performance of tax revenue growth, which was strong in 2023 and will be even stronger in 2024,” he asserted.
In the middle of this month, the Government sent its Fiscal Plan to Brussels in which it establishes that it will not cut public spending to comply with community rules, but it sees itself capable of reducing the public deficit to 0.8% of GDP in 2031. The plan limits the growth of average net spending to 3% and cuts the debt ratio below 100% as early as 2027.
Regarding this, Víctor Gaspar reiterated that the IMF is “evaluating the economic impact of the fiscal plans.” What he did recognize is that this 3% increase in spending set by the government “would lead to a path of public debt below 100% of GDP already in 2027”, as proposed by Carlos Body’s team.
France and Italy, the great defaulters
Although Spain will not be able to meet its debt, it is not the economy that has the worst situation when it comes to rendering fiscal accounts before the Commission. France and Italy are in an even worse situation, with a huge financial crisis devastating the accounts of both countries.
In the case of the Gauls, as their Government already predicted, they will close this year with their largest deficit since the debt crisis. The IMF Fiscal Monitor confirms the forecasts of Bercy (as the French Ministry of Economy is commonly known) that they will close this year with a deficit of 6% and a debt that will rise to 112.3% of GDP. Already for 2025, the entity led by Kristalina Georgieva is more pessimistic than the French government.
Specifically, the French Prime Minister, Michel Barnier, intends to cut the liabilities to 5.5% of GDP with a Budget plan, which is currently being debated in the National Assembly, in which he proposes an adjustment of public spending of 40,000 million and an increase in collection of 20,000 million euros. But the IMF says that the deficit will be cut to 5.8% in 2025, as several experts predicted, and that it will then rise to 5.9% and remain entrenched until at least 2029.
Regarding the adjustment plan, Víctor Gaspar assured that they are proposals “on the right track” but “we are waiting for more clarity to arrive after the measures already approved by France.”
For its part, Italy also has a problem with its accounts, but in the case of the transalpine country it comes from the debt. Specifically, the Italian Treasury will close this year with a liability in its accounts that will increase from 138.1% of 2023 GDP to 136.9%. A percentage that will increase constantly until reaching 142.3% of GDP in 2029. Regarding the deficit, this year they will manage to cut it from 7.2% in 2023 to 4%, but then it will remain at 3.1% until 2029.
USA, also in trouble
The case of the United States also worries the Fund. Specifically, they warned that, although growth will be robust, the deficit “will only be cut marginally.” Specifically, the Fiscal Panel estimates that this year it will close at 7.6% of its total economic performance and they will achieve cut it to 6% in 2029. On the other hand, the debt will continue to increase: “with current policies, the public debt of the United States will not stabilize and will reach almost 134% of GDP in 2029.”
The multilateral organization has repeatedly warned that public debt is increasing around the world, to the point that this year it will reach the 100 billion dollars (92 billion euros)which will represent 93% global GDP. Furthermore, they predict that global public debt will continue its upward path for the rest of the decade, until approaching 100% of GDP in 2030.
In this sense, Víctor Gaspar pointed out in this Wednesday’s press conference that the public debt “is much higher than at the beginning of the pandemic.” The managing director of the entity, Kristalina Georgieva, also said this same thing in the middle of last week, in her opening speech within the framework of the annual meetings that the IMF and the World Bank are organizing this week.
The agency warns that if countries give in to spending pressures “without raising taxes,” deficits and debt “will continue to increase,” which “in the long run will be unsustainable and cause instability.” They also add that public investment cuts have “serious effects on growth.” However, they regret that “it is usually the most politically convenient way to cut spending.”
Among the recommendations they make, Víctor Gaspar reiterated the need to “promote good governance, eliminate corruption and improve the tax system”, as well as “prioritize education and health.”
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