Without new tax rises or spending cuts, Spain’s public deficit is projected to stay well above 4% of GDP for at least the next five years. Public debt is expected to hover around 110% of GDP through 2027. These are the projections from the International Monetary Fund as outlined in its Financial Monitoring report released during the IMF’s autumn meeting in Washington.
With GDP growth revised upwards for the current year, the IMF predicts the general government deficit will narrow from 6.9% in 2021 to 4.9% of GDP in 2022. This aligns with State projections that place the deficit around 5% for the year.
The path then branches. The IMF does not share the most optimistic view. It forecasts that the deficit will stay above 4% for the next five years, rising to 4.2% in 2024 and 4.1% in 2025 before edging toward 4.3% in the following two years. In contrast, Spain’s government envisions sharper improvements, but IMF assessments show a more gradual improvement is likely to persist.
Rising deficits are a drag on public debt, which IMF estimates would remain near 109.6% of GDP in 2027.
Global debt 91% of GDP
“The deficit and debt fell in 2021 and 2022 but remain above pre-pandemic levels”, notes the IMF in its country group assessment, which includes Spain. Global public debt is projected to stay at about 91% of GDP in 2022, roughly seven and a half percentage points above the pre-pandemic level. Many economies remain at risk of over-indebtedness, underscoring the need for a robust framework for debt relief and prudent fiscal planning.
The IMF points out that the improvement in the deficit and debt in 2021 and 2022 has eased pressure on public accounts from the pandemic and helped counter some inflationary pressures from higher incomes and stronger nominal GDP. Yet, in a climate of high inflation, elevated debt, rising interest rates, and substantial uncertainty, the IMF emphasizes that economic policies should prioritize financial and macroeconomic stability rather than ad hoc corrections. Early signs of inflation persistence signal the need for measures that address price pressures without boosting demand in ways that could worsen inflation.
Across the euro area, the IMF expects a deficit decline to about 3.3% in 2023, with some differences among members. France could see a 5.6% GDP deficit in 2023, Belgium around 4.8%, while Germany’s deficit may shrink from 2.5% in 2023 to near 0.5% by 2027, showing the diversity of fiscal trajectories within the currency union.
Against widespread tax cuts
In the wake of pandemic-related pressures, public accounts faced higher costs for energy and food and a growing push for government action. In the first half of 2022, the IMF recorded 750 measures across 174 countries aimed at tempering food and energy prices, with most steps reducing indirect taxes and energy subsidies.
The IMF revisits its stance on inflation relief, urging measures that strengthen social protection networks instead of broad tax cuts. It warns that general tax relief can be costly and ineffective, recommending targeted support for disadvantaged groups rather than broad reductions that can distort price signals and inflate the inflationary impulse.
Instead of direct energy tax cuts or fuel subsidies such as a 20 cents per liter measure noted in some cases, the IMF argues that price signals should not be distorted. Such schemes can transfer revenue toward fossil fuel producers and sustain higher prices. The IMF also highlights the value of medium-term fiscal plans to cushion the impact of rising rates on public debt and to avoid adding pressure on monetary policy during inflationary periods. A restrained fiscal stance, it asserts, sends a strong signal to financial markets that fiscal and monetary authorities are working in concert to combat inflation.
Related posts:
IMF Insights: Spain’s Tax Revenue Boom and the Road Ahead Central Bank Denies Hidden Ties to Global Finance; IMF Lending in Review Rewritten Article: IMF Forecasts on Global Debt, Climate Costs, and Key Economies EU adopts unified reform of fiscal rules to tighten budgets and set sustained debt reduction Global Debt Trends Shaping Fiscal Policy in North America and Europe Argentina Receives IMF Support: 4.7B Tranche Amid 44B Refinancing Global Growth Outlook for 2024: IMF Insights and Key Economic Trends IMF urges Spain to sunset 2020 relief measures as inflation moderates and budget planning begins Spain’s IMF Review: Growth, Debt, and Reforms in Focus IMF Sees Spain’s Debt Path and Policy Adjustments for 2023–2030 Spain’s AIReF Maintains Growth Outlook Amid Higher Deficit Forecasts Spain’s shifting debt landscape and 2024 outlook