IMF recommends Spain not extend inflation-fighting measures until 2024

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The International Monetary Fund (IMF) recommends that Spain not extend after December 31, 2023 the aid measures for families and companies adopted since mid-2021. energy and food inflation. Given that average inflation in 2023 will be less than half that in 2022 (3.5% compared to 8.3% according to the IMF’s own figures), the international organization thinks it is time for Spain to stop implementing the measures of 2020. The principle ends at the end of 2023 in order to move towards consolidating the public deficit and reducing public debt.

The incumbent Government must present its 2024 Budget Plan in Brussels before 15 October, with some indication of the possible extension or expansion of the measures.

“This is our recommendation. Since energy prices have normalized, they should let them expire,” Alfred Kammer, the IMF’s European director, said at a press conference in Marrakech, where the international organization is holding its annual meeting. The IMF estimates that at some point in GDP (almost 13.5 billion) Budget impact in 2023 of the measures taken by the Spanish Government to compensate for the increase in energy prices.

Measurements on eaves

Especially last June, measures such as reducing emissions VAT on food5% on oils and pasta and 0% on basic products such as bread, eggs, fruit and vegetables; discounts public transport urban and intercity, at least 50%; suspension evacuations from vulnerable families; the ban on dismissal In companies that have received public aid; and direct aid carrier.

In principle, precautions as follows VAT discount on electricity and natural gas (from 21% to 5%) and custom tax electric (from 5.11% to 0.5%) or suspension of 7% tax electricity generationas well as extending discounts on electricity bills vulnerable families or Creating special aid for the middle classes. The increase limit in electricity prices expires at the end of the year. regulated heating rate (TUR) and direct aid for this rate and a special rate arranged for neighborhood communities (TUR Vecinal).

Assuming that the measures that expire on December 31 will not be extended in 2024, the IMF estimates that the public deficit will be slightly below the limit of 3% of GDP (2,957% of GDP) in 2024, but is calculating which will be extended. it then recovers and remains around 3.4% of GDP in the remaining years over the time horizon of macroeconomic projections extending to 2028.

State; But he has not yet made clear his intentions on whether he will let them all expire. Measures ending on December 31 or, on the contrary, if it will lengthen some of them. Acting first vice president of the government, Nadia CalvinoHe insists that the final decision will be made as the end of the year approaches.

For now, the incumbent Government must submit its own statement. 2024 Budget Plan. In this document, with the large budget figures of all public administrations (as well as autonomous communities and local companies), the incumbent Government can offer some indication of its ultimate intentions. However, Calviño said that since the Government is still in office, the document will be prepared under the following conditions: The principle of “continuous legislation” Without legislative change. If so, this is equivalent to saying It will be assumed that none of the measures in the document are extended These decisions, which currently have an expiry date, also leave the door open to any decisions that the Government to be established may take later.

With reference to the current situation formation process Afred Kammer, the head of the Spanish government and the IMF for Europe, acknowledged in Marrakesh that “of course this increases uncertainty about what the policy will be” and that this uncertainty will then continue until a new Governor is elected. explain their policies in more detail. In any case, he stressed, “fiscal consolidation will be needed, so this should be a priority for the Government.”

Avoid premature declines in interest rates

More generally, from the perspective of the European Union, Kammer primarily emphasized the need to direct inflation in the euro area towards the 2% target. The IMF representative emphasized that “European officials must continue to focus on beating inflation.”

According to the Monetary Fund’s analysis, in the absence of new price shocks, the current level of interest rates in the euro area (the main interest rate is 4.5%, the highest since 2001) is enough to bring inflation to 2%. But Kammer said the ECB must remain “ready to react nimbly” if new inflationary forces emerge. Conversely, even if there were positive developments towards correcting inflation, the ECB was advised to “remain determined” and avoid cutting rates too early. “In case of error, if monetary policy is tightened too much, the consequences will be less severe than if it is loosened too early,” said the IMF manager, who has repeatedly insisted that central banks should “avoid prematurely cutting” interest rates.

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