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Spain: Government takes further actions on fiscal consolidation

July 1, 2011

On 1 July, Deputy Prime Minister Alfredo Perez Rubalcaba, announced that the government had approved several additional measures to rein in the fiscal deficit and boost economic growth. The most important measure was the set-up of an expenditure ceiling for the regional governments, which will be linked to economic growth. The inability to force highly indebted regions to meet the government's budget recommendations raises concerns on Spain's capability to narrow its fiscal deficit this year to the 6.0% of GDP target. Moreover, the IMF urged the government to step up economic reform efforts as the country continues to face considerable risks. Although the government has already made great advances ? imposing the hardest austerity measures in three decades ? reforms are still required and the IMF urged the government to further enhance the credibility of fiscal consolidation, complete financial sector restructuring and to further strengthen labour market reforms. The pension system reform, an important element in the fiscal consolidation, is pending a final vote in the Senate. However, further labour market reforms are difficult to implement in the current political climate.


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