The recovery predicted by the Government this year is delayed and this will have an impact on public finances, which will be considerably worse than originally anticipated. The Executive sent the Stability Program to Brussels yesterday, worsening its growth, deficit and public debt forecasts for 2021, before a year in which it will grow less and spend more. The Minister of Finance, María Jesús Montero, presented yesterday the update of the fiscal path from 2021 to 2024 and, if before she foresaw 7.7% of the GDP of public deficit, now this rises to 8.4%, that is, about 8,000 million euros more. A figure similar to 7,972 million that the Executive believes will cost the extension of the ERTE and the provision for cessation of activity in 2021, as stated in the National Reform Plan.
All this, at a time when the Executive rushed until the last moment yesterday to send the Recovery and Resilience Plan to Brussels, a few days before the Madrid elections.In this way, the Government yesterday sent a plan without detailed reforms. , without references to the return of ultra-activity in the labor framework or to the limitation of rental prices committed to Podemos, but with the provision that will raise payrolls to civil servants and pensioners according to the CPI from 2022 to 2024, a few days after the meeting with the polls.
«As of 2022 and thereafter, an iSalary increase for public employees and pensions in line with price trends», Says the Stability Program. With these estimates, Spain will no longer meet the 3% limit of the Stability Pact this legislature, since the Treasury estimates that the lag will be 5% in 2022, 4% in 2023, to drop to 3.2% in 2024. The European Commission, yes, has suspended the fiscal rules for 2020, 2021 and is now debating whether to extend it to 2022 while Montero herself opened the door for Europe to review the rules prior to the pandemic.
Regarding the public debt, the Government spokesperson also announced that the Executive expects public debt to fall from 120% of GDP to 119.5% in 2021. The Executive expected 117.4%, but when including Sareb’s assets in 2020, public liabilities jumped from 117% to 120%, which thwarted its previous estimates. For 2022, it predicts 115.1% and 113.5% in 2023, so that the path would continue to decrease to 112.1% in 2024.
In the words of Montero, after closing 2020 at 10.97% of GDP, this would be the second largest drop in the deficit in the historical series in a year, mainly driven by the growth of the economy. The extension of the ERTE and the approval of direct aid to companies and more support measures, for 11,000 million, explain this worsening, together with the fact that the economy will grow less than the 9.8% forecast in October by the Government.
Of course, the path does not incorporate any measure or reform. Therefore, it is a string of forecasts in an inertial scenario. Funcas senior economist María Jesús Fernández believes that the forecast for 2021 is “somewhat high.” “Our forecast was -8 and I highly doubt that we will make it worse. But I do not see that scenario of large declines. The deficit I do not think that it will drop from 4.5-5% in the long run, if measures are not taken, much less will it drop to 3.2% by 2024 in an inertial scenario, having a greater structural deficit ”, he describes. The IMF predicted a deficit of 9% of GDP this year, 5.8% in 2022 so that in 2024 it did not drop below 4.3%.
The minister also pointed out that she expects European funds to start arriving from July. It is estimated that then 9,000 million may arrive, although the Executive had reserved 27,000 in the accounts for this year.
In any case, the Fiscal Authority (Airef) said yesterday that it endorsed the government’s forecasts, although it warned that it contains “risks biased to the downside in the event of an eventual prolongation of the pandemic.” The body commanded by Cristina Herrero also criticizes the uncertainty of the plan and the lack of information, which makes it “impossible” to judge whether the Government’s calculation that it will provide two growth points per year is in line with reality. “Without this information it is impossible to judge the multiplier effects on growth and employment, the attractiveness of private investment, nor its potential effects on the growth potential of the economy and productivity,” concludes the agency.
The State, the one with the most deficit
In any case, the fiscal sketch drawn up by the Executive indicates that the State will be the administration that will be left with a greater deficit in the coming years. The central government will accumulate a deviation of 6.3% of GDP this year compared to 7.5% in 2020. This is explained by transfers from the Central Administration to communities and Social Security. The path drawn by the Executive foresees 3.5% in 2022, to continue with 3.1% in 2023 and 2.5% in 2024. That is, only the State will have by then the deficit that all administrations registered before the pandemic in 2019.
For their part, the regions will increase their imbalance from 0.2% to 0.7% of GDP, lower in any case than the reference index of 1.1%, due to lower resources from the State Covid fund. Subsequently, they will reduce it to 0.6% in 2022, 0.4% in 2023 and 0.2% in 2024. Regarding Social Security, by transferring its non-contributory expenses to the State, its deficit is reduced by 2, 6% to 1.5% of GDP. Subsequently, it will decrease to 0.8% in 2022, 0.7% in 2023 and 2024. For their part, local corporations will close in equilibrium this and next year and will accumulate a surplus of 0.3% of GDP in 2023 and 2024 .