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© 2010 International Monetary Fund
July 2010
IMF Country Report No. 10/254
Spain: 2010 Article IV Consultation—Staff Statement; Staff Supplement; Staff Report; Statement by the Executive Director for Spain; and Public Information Notice on the Executive Board Discussion
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2010 Article IV consultation with Spain, the following documents have been released and are included in this package in reverse chronological order to reflect the significant policy developments and the resulting update in staff appraisal after the Staff Report was originally issued to the Board:
A staff statement of July 13, 2010
A staff supplement of June 29, 2010
The staff report, prepared by a staff team of the IMF, following discussions that ended on May 24, 2010 with the officials of Spain on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 29, 2010. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A statement by the Executive Director for Spain.
A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its July 14, 2010 discussion of the staff report that concluded the Article IV consultation.
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
SPAIN
Staff Report for the Article IV Consultation—Supplementary Information
Prepared by the European Department
(In Consultation with Other Departments)
Approved by Ajai Chopra and Martin Mühleisen
June 29, 2010
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INTERNATIONAL MONETARY FUND
SPAIN
Staff Report for the 2010 Article IV Consultation
Prepared by Staff Representatives for the 2010 Consultation with Spain
(in consultation with other departments)
Approved by Ajai Chopra and Martin Mühleisen
June 29, 2010
Executive Summary 1/
Context: The necessary adjustment is underway and output has stabilized. Imbalances accumulated during the long boom have begun to unwind, though unemployment has soared. The recovery is likely to be weak and fragile, with significant downside risks.
Challenges: Spain’s economy needs far-reaching and comprehensive reforms. The challenges are severe: a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anemic productivity growth, weak competitiveness, a banking sector with pockets of weakness, and difficult financial market conditions.
Policies and staff views: Ambitious fiscal consolidation is underway. But it is based on potentially optimistic macroeconomic projections and the achievement of the targets should be made more credible. A bold pension reform, along the lines originally proposed by the government, should be quickly adopted. This needs to be complemented with growth-enhancing structural reforms, especially overhauling the labor market. Consolidation and reform of the banking system needs to be accelerated. Such a comprehensive strategy, especially with broad political and social support, would underpin investor confidence, and time is of the essence.
Authorities’ views: The recovery is likely to be stronger than staff envisage, boosted by rebounding private consumption and buoyant exports. Fiscal policy is on track to achieve the ambitious targets and any slippage would be promptly met with additional measures. Significant labor market reform is likely in the coming weeks, and pension reform is underway. Savings bank consolidation, which should also be complete in the coming weeks, will substantially reduce banking sector pressures.
Contents
I. Spain and the Global Financial Crisis
A. Spain’s Challenges
B. Global Financial Crisis Impact: Large, Despite a Pro-active Policy Response
II. The Outlook: A Weak and Fragile Recovery
III. The Policy Agenda: Rebalancing the Economy and Boosting Confidence
A. Fiscal Policy: Making the Consolidation More Credible
B. Real Sector: Fostering the Adjustment
C. Financial Sector: Prompting Restructuring and Loss Recognition
IV. Staff Appraisal
Attachments
I. Spain’s Private Sector Balance Sheets
II. Fiscal Consolidation and Fiscal Federalism in Spain
III. The Spanish Labor Market in a Cross-Country Perspective
IV. Reforming the Spanish Savings Banks
V. External and Fiscal Sustainability
Boxes
1. How Much Further Has The Property Bubble to Deflate?
2. The Reform of Savings Banks: the Experience of Italy and Norway
Tables
1. Main Economic Indicators
2. Selected Financial Soundness Indicators
3. Financial Soundness Indicators of the Non-banking Sectors
4. General Government Operations 2007–15
5. Balance of Payments
6. International Investment Position, 2003–09
7. Public Sector Balance Sheet
Figures
1. Spain and the Global Financial Crisis
2. Spain’s Underlying Weaknesses
3. Financial Sector Indicators (I)
4. Financial Sector Indicators (II)
5. Fiscal Developments and International Comparison
6. Fiscal Developments 1995–2009
7. National Accounts
8. High Frequency Indicators
9. Labor Market Indicators
10. Inflation
11. Balance of Payments
12. Structural Labor Market
13. Competitiveness
14. Product Market Reform
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INTERNATIONAL MONETARY FUND
SPAIN
Staff Report for the 2010 Article IV Consultation—Informational Annex
Prepared by the European Department
June 30, 2010
Contents
Appendix
I. Fund Relations
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July 14, 2010
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Public Information Notice (PIN) No. 10/106
FOR IMMEDIATE RELEASE
July 30, 2010
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
On July 14, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Spain.1
