The International Monetary Fund Raised Its Forecast For Spain’S Deficit And Government Debt

2021-01-28   |   by CusiGO

In October last year, the International Monetary Fund (IMF) added two figures to make Spain the leader of the world economy: in 2020, Spain’s gross domestic product (GDP) will decline by 12.8%; public account imbalance will reach the highest level in history, at least since the civil war, 14.1% of GDP. That is to say, about 1400 million euros, or, similarly, the state’s money is spent on the pensions of nine million retirees.

Three months later, last year’s economic X-ray is still depressing: GDP growth will reach 11.1%, and the government deficit will remain at 11.7%. That’s a bad percentage, yes, but not as much as the Washington based agency portrayed three months ago. Moreover, public debt will not exceed 120% of GDP in 2020 or 2021, as the fund thought a few months ago. These debt and deficit forecasts are very close to the government’s forecast for the current two-year period.

What’s going on? Most importantly, the third quarter of last year was better than expected. This helps to drive growth data for 2020 – although forecasts for 2021 are also down – and forecasts for public account mismatches are not so bad. “Developed economies are recovering faster, in part because of expansionary policies and faster access to vaccines than other developing countries,” Gita Gopinath, chief economist of the fund, explained on Monday.

Despite some improvement, the epidemic continues to plague public finances in all countries. According to the forecast of the International Monetary Fund, the public deficit of the global economy will be 11.8% in 2020 and will remain at 8.5% this year. The cost of the crisis is still rising sharply. The most industrialized economies have already paid $14 trillion (about 11.6 trillion euros) to deal with the crisis: about $8 trillion in additional spending and $6 trillion in capital injections, loans or guarantees. Since the fund last calculated these losses in October, the bill has added $2 trillion.

Spain is the largest euro zone economy with the largest public deficit in 2020, accounting for only 11.7% of GDP, close to 10.9% of Italy and 10.6% of France. But outside the European club, many countries have surpassed it. Canada accounted for 20%, followed by the United States (17.5%), the United Kingdom (14.5%) and Japan (13.8%).

In terms of government debt as measured by GDP, Japan is still growing at nearly 260%. This was followed by Italy (close to 160%) and the United States (about 130%). The Washington based agency expects Spain’s public debt to reach 118 per cent this year and last year, close to the stability plan issued by Vice President Nadia Calvi รณ o to Brussels. The document predicts that by 2020, government debt will fall from 118.8% to 117.4% this year. As for the deficit, the government expects to keep it at 11.3% last year and 7.7% this year.

In a document released on Tuesday, the International Monetary Fund acknowledged that most countries will succeed in reducing their huge public deficits this year due to the recovery brought about by vaccines. “However, without new fiscal support policies beyond those covered by the 2021 budget plan, they may reduce the impact of the recovery, which remains highly uncertain,” they added, as a warning to those who have begun to talk about the need to consolidate public accounts.

Until the end of the crisis, governments must continue to take “decisive action” to ensure that “vaccines are deployed to protect the most vulnerable families and viable businesses,” said Victor Gaspar, director of IMF finance.

The increase in debt and government deficits is particularly evident in richer countries. According to the IMF’s analysis, the deficit of developing countries is also increasing, but this is not so much due to the public policies adopted to cope with the social consequences of the crisis as due to the decline in income caused by the economic recession. Gaspar and other economists in his team added: “global public debt has risen to 98% of GDP by the end of 2020, compared with 84% in the year before the pandemic.”