The IMF predicts that Spain will have a soaring deficit until 2026 and that it will be the country that will take the longest to reduce it

Spain will keep the deficit and public debt skyrocketing for at least the next five years. According to the forecasts provided this Wednesday by the IMF, the Spanish deficit will remain at 9% of GDP this year, two and a half points below the mark in 2020 (11.5%, the worst among the EU Member States). In addition, it will be the country that later to recover: by 2026 it will not have returned to pre-pandemic levels. By then, the deficit will be at 4.3%, when in 2019 it was 2.9%. With debt, the dynamics will be the same. The IMF estimates that it will close 2021 by 118.4% (1.3 points higher than in 2020) and that in 2026 the figure will remain the same.

The forecasts for other neighboring countries are better. In the case of Italy, the IMF believes it will reduce the deficit of 8.8% this year to 1.8% in 2026, already at pre-crisis levels. On the other hand, public debt will continue to be an endemic evil for the transalpine country, since it will remain at 151% in five years, the highest in Europe. In the case of Germany and France, both will reduce their budgetary imbalance at a good pace, and even the Germans could achieve surpluses as early as 2023. To do so. France, the fund expects a 3.5% deficit in 2026, a figure very similar to that of 2019 (3%). The Gauls, on the other hand, will not return to the precise level of debt, something that Germany will achieve, going from 70.3% in 2021 to 57.1% in 2026.

The data released this Wednesday join the IMF projections on growth, released yesterday and which left positive news and another more worrying for the Spanish economy. The fund expects a GDP rise of 6.4% for this year, thus Spain becomes the fastest growing country around it. However, it will not recover to pre-coronavirus levels until at least 2023 and it is, together with Italy, the country that will take the longest to overcome the fall caused by the pandemic.

Raise taxes or create new ones

Faced with this delicate situation, the agency proposes to resort to taxes, either by increasing existing ones, especially high incomes, or by creating new rates. “Strengthening fiscal capacity in the post-pandemic world will be crucial so that both advanced and developing economies can cope with the large spending needs, “he explains in the document published this Wednesday. In addition, it focuses on large companies.” International cooperation and the agreement on the effective minimum corporate taxation can help curb increased tax competition and allow countries to maintain higher rates and reduce tax expenditures, “he adds in the report.

The IMF insists on the importance of the tax system to get out of the crisis and asks the countries to explain to the public how useful it is: “They can emphasize the joint effect of taxes and expenditures communicating that higher tax revenues will finance specific needs, such as health care, “argue the experts, while highlighting that the demands of the population should be key in these tax decisions.

Risk of increasing inequality

The report, on the other hand, warns about the risk that the pandemic will cause a significant increase in inequality, thus highlighting the importance of social assistance. “Direct taxes and transfers, in the long run, have reduced income inequality by more than a third in advanced economies“The IMF explains in the document.” They are especially important programs in developing economies “given the” high informality “of the labor market. In this sense, the fund calls on countries to adapt the labor market to digitization,” that is going to accelerate “after the pandemic. That pace can pose a problem for the return to the market of less skilled workers.

“Because Covid-19 disproportionately affects the most vulnerable groups, poverty and income inequality are projected to increase“Wields the IMF. These imbalances are also seen in the labor market.” In developing economies, low-skilled workers, informal workers and young people have experienced the most pronounced effects, “they argue, explaining that the fall Employment has been more acute for low and medium-skilled occupations. Likewise, recalls the fund, women are overrepresented in the sectors most affected by the pandemic, since they represent around 60% of service workers accommodation and retail in OECD member countries.

“Because Covid-19 disproportionately affects the most vulnerable groups, poverty and income inequality are projected to increase”

Inequality, adds the IMF, can be alleviated on the other hand by reinforcing investments in public services. “Public expenditure may partially compensate for the differences between rich and poor“, reflects the report. In this sense, health and education are key.” Data from different countries show that public spending on education can reduce the importance of family history, “the report says.

In conclusion, the IMF calls for investments to be made seeking effectiveness, and warns: “The weakness of public investment and the governance of social spending, the misallocation of educational and health resources, inequality and the limitation of the institutions tend to cause low spending efficiency“.

The analysis of the fund takes place at an important moment: this month Spain -and the rest of the member countries- will have to present to the European Commission the national reform plan to access the 140,000 million corresponding to it from the EU recovery funds (750,000 million euros in total). Brussels assures that the Spanish roadmap is “well advanced”, and the measures, broadly speaking, must be aimed at alleviating the high level of unemployment, improving digitization and reforming the pension system, among others.