MADRID – Spain faces considerable risks to its recovery and must deepen and conclude reform work to allay market concerns, the International Monetary Fund said yesterday.
In an annual mission report, the IMF said Spain’s wide-ranging policy response last year had helped the economy to rebalance, but the repair of the economy was incomplete and risks were considerable.
“There can be no let-up in the reform momentum, including further enhancing the credibility of fiscal consolidation, completing financial sector restructuring,” the IMF said.
Spain has been under intense scrutiny since the beginning of the euro zone debt crisis over concerns the bloc’s fourth-largest economy would be forced to follow Greece, Ireland and Portugal in seeking a bailout package.
Spain’s economy minister, Elena Salgado, said the report was positive and the IMF’s position that the reforms should be consolidated was shared by the government. “We completely agree with the IMF and, in order to do this, we will see this legislature through to the end,” she said.
Spanish media has been speculating that the government, led by prime minister José Luis Rodriguez Zapatero, would not last until general elections in March and would call voters to the polls before the end of the year.
The government’s latest overhaul of collective bargaining would be ratified by parliament tomorrow, Ms Salgado added.
The government’s public deficit target of 6 per cent of gross domestic product this year, after 9.2 per cent of GDP in 2010, was “within reach”, the IMF said.
If near-term risks materialize then some additional measures may be needed, the IMF warned.
In the medium term, the key risk was a protracted recovery, and especially stubbornly high unemployment. The IMF also said the recovery would continue to be export-led, with growth rising to 1.5-2.0 per cent.
– (Reuters)