The International Monetary Fund (IMF) advocates that Spain should not extend beyond December 31, 2023, the aid measures that have supported families and businesses since mid-2021 amid energy and food price pressures. With average inflation in 2023 projected to be significantly lower than in 2022—about 3.5 percent versus 8.3 percent—the IMF suggests the time has come for Spain to wind down the 2020 measures. The aim is to finish the year on a stabilizing note and gradually tighten the public financial position while reducing the public debt burden.
The incumbent Government is required to present its 2024 Budget Plan to Brussels by October 15, including signals on possible extensions or expansions of the measures.
According to IMF representatives, this is a clear recommendation. With energy prices having normalized, the IMF European Director, Alfred Kammer, indicated at a Marrakech press conference that the measures should expire. The IMF estimates that the 2023 budget impact of Spain’s energy-price compensation measures stands at roughly 13.5 billion euros of GDP-related costs.
Measures on essentials
Recent actions have included discounts and exemptions designed to ease the burden on households. In particular, there were VAT reductions on certain foods, a 5 percent VAT rate on oils and pasta, and a 0 percent rate on basic staples such as bread, eggs, fruit, and vegetables. Public transportation subsidies for urban and intercity travel, at least 50 percent, and suspensions of certain relief measures for vulnerable families were also in play, along with safeguards against layoffs in firms that received public aid and direct aid programs.
Looking ahead, the plan contemplated continued support through VAT relief on electricity and natural gas, with electricity tax dropping from 7 percent to 0.5 percent and a partial suspension of electricity generation taxes. There was also talk of extending electricity bill discounts for vulnerable households and possibly creating targeted aid for middle-income families. The electricity price ceiling would likely expire at year’s end, as would the regulated heating rate TUR and related direct assistance, including a neighborhood TUR scheme.
If the 31 December expirations are not renewed in 2024, the IMF projects a government deficit just below the 3 percent of GDP threshold in 2024 (about 2.95 percent of GDP). The projection also contemplates potential extensions that would push the deficit higher, approaching roughly 3.4 percent of GDP in the remaining years of the IMF’s macroeconomic outlook through 2028.
However, no final stance has been announced on whether all measures will expire or if some will be extended. The acting vice president of the government, Nadia Calviño, has stressed that the ultimate decision will come as the year draws to a close. For now, the government must prepare its 2024 Budget Plan, outlining total expenditure across all public administrations, including autonomous communities and local enterprises, to signal intentions. Calviño also noted that because the government remains in office, the plan will be drafted under a framework of continuous legislation, implying that none of the existing measures are automatically extended unless explicit decisions are taken later.
Akam Kammer, head of IMF Europe, acknowledged in Marrakesh that policy uncertainty remains until a new government is formed and policy directions are clarified. He emphasized, though, that fiscal consolidation should take priority and that any decisions will require careful sequencing and credibility to avoid undermining fiscal stability.
Avoid premature shifts in interest rates
From a broader European Union perspective, Kammer highlighted the need to steer euro-area inflation toward the 2 percent target. The IMF argues that, barring new price shocks, the current monetary stance should be capable of delivering 2 percent inflation over time. Still, the European Central Bank (ECB) should remain ready to respond quickly if fresh inflationary pressures emerge. The IMF cautions that cutting rates too soon could backfire; even if inflation trends improve, policymakers should avoid premature easing. The message is clear: if errors occur, tightening too much could be less damaging than loosening too early. The IMF’s stance has consistently urged central banks to resist hasty rate cuts while inflation remains a risk factor.
In its assessment, the IMF sees the euro-area main policy rate at 4.5 percent as a credible starting point to guide inflation toward the target, provided there are no unexpected shocks. The emphasis is on gradual adjustment and vigilance, with the ECB urged to maintain a disciplined approach until inflation pressures subside and become more predictable. The overall takeaway is that monetary policy should be deliberate, avoiding impulsive shifts that could destabilize growth or debt sustainability.