Thursday, September 29

The IMF cuts Spain’s growth to 4.6% for this year

  • The organization, which urges to maintain the expansive fiscal policy until the recovery is consolidated, calls for preparing plans to reduce public debt

  • The international entity insists on the need to delay the retirement age to guarantee the sustainability of the system and to lower the cost of dismissal

The International Monetary Fund (IMF) returns to the load with the need to extend working life, what supposes delay retirement age; Y lower the cost of dismissalor. These are some of the conclusions of the mission of this organization regarding the situation of the Spanish economy. After applauding the vaccination strategy carried out in Spain against the coronavirus and highlighting that employment has exceeded pre-pandemic levels, the international body insists on the need to maintain a “expansive fiscal policy in general terms “until the Recovery and focus on the most vulnerable.

In any case has lowered the growth forecast for this year to 4.6% and next to 5.8%, in line with the reduction agreed last week by the Bank of Spain, agreed last week, to 4.5% and 5.4% and almost two points from the estimates maintained by the Government: 6.5% and 7%, respectively. Last October it already lowered them to 5.7% and 6.4%.

In any case, after admitting the importance of public support to alleviate the effects of the crisis, the IMF representatives warn of the high public debt of the country, located at 120% of the gross domestic product (GDP), which, they add, “is a source of vulnerability“For this reason, in addition to encouraging an expansive fiscal policy favored by the European ‘Next Generation’ funds (they calculate that their cumulative impact could be 1.5 to 2 points of GDP by the end of 2022) they warn that” with time, Spain will have to reduce debt to more prudent levels and create fiscal margin to respond to future ‘shocks'”.

The head of mission of the IMF, Dora Iakova, explains in a press conference the general lines of the examination carried out on the Spanish economy and has highlighted the importance of “selecting projects with high social performance, efficient coordination and focusing on transparency and accountability”, to obtain the maximum use of European funds. To questions from journalists, he has admitted that high inflation is also a risk for 2022, although he has assured that a fall in energy prices is expected to take place that would reduce the escalation.

In relation to debt, the IMF warns that “if discretionary measures are not taken, it is expected that in the medium term the public deficit will continue to be above pre-crisis levels.” As a consequence, “must be undertaken a sustained and gradual process of fiscal consolidation once the output gap is closed and the economy has entered a path of sustained growth. “That requirement, they point out,” would be fulfilled in 2023. ”

System sustainability

The IMF, which calls for the elaboration of “credible medium-term” plans that increase revenue and streamline spending to strengthen investor confidence, stresses that the reform of the pensions has initially prioritized “social acceptability and sufficiency”, with measures such as linking the revaluation of benefits to the inflation and the suppression of sustainability factor. All this, they add, does not prevent concern about sustainability in the event that no additional measures are implemented “.

And they remember, therefore, that they are required “additional efforts to counteract pension spending pressures “, with an estimated annual rise of 3.5% of GDP until 2050. Among the solutions they suggest mechanisms to restrict spending, for example, prolonging working life more and, in the collection section, increasing the maximum income subject to contributions. “Some of these measures are expected to be incorporated in the second phase of reforms in 2022,” they recall.

In the section on increasing collection, they propose an expansion of the tax bases and “an increase in environmental taxes “. In expenses, efficiency improvements, based on expense evaluations. In this sense, they applaud the creation of the permanent division in the Independent Authority for Fiscal Responsibility (Airef) to give continuity to the evaluation of spending.

Reduction of working time

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In labor matters, the IMF representatives insist on “making permanent contracts more attractive for companies, reducing the cost generated by the legal uncertainty related to dismissal of permanent workers, as well as working time reduction schemes “well designed”, which would give companies the ability to cushion temporary ‘shocks’ “. These mechanisms, they add, should not pose a burden to public finances and advocate for”more effective active employment policies “, that reassign workers between companies and sectors in cases of structural crises. In turn they defend a greater flexibility in collective bargaining, allowing “company-level agreements with broad parameters set at the sectoral level “.

Talking about housing policies, the Fund criticizes the ceilings on rent increases in stressed areas because “they can introduce inefficiencies and restrict the availability of real estate for future tenants.” They also advocate “simplifying the regulations on land use and streamlining the permitting processes of the autonomous governments.”

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