## 1. Real Sector and Inflation ## Source details **Canonical URL:** [1. Real Sector and Inflation](https://www.imf.org/-/media/files/publications/cr/2026/english/1espea2026001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1espea2026001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1espea2026001.pdf.json) --- ### Recent developments: growth, demand, labor, and inflation - Growth slowed from 3.5 percent in 2024 to 2.8 percent in 2025, still significantly outpacing the rest of the euro area. - Tourism services export growth fell from 12.4 percent in 2024 to 4.4 percent in 2025. - Exports subdued due to lower goods shipments to the US and a stronger euro; accelerating domestic demand offset weak external demand. - Public investment rose by 51.3 percent in real terms since 2019, versus 8.5 percent for private investment. - Consumption remained strong, supported by solid employment and real wage gains. - Immigration contributed around ¾ of the cumulative employment gains between 2022 and 2025; almost ¾ of immigrants originated from the rest of Europe and Latin America. - Native working-age population and average hours worked fell; unemployment appears to be stabilizing at around 10 percent. - Hourly labor productivity growth picked up recently, though structural versus cyclical nature remains unclear. - HICP headline inflation: declined to 2.5 percent in February, then rose to 3.4 percent in March 2026 due to higher oil prices from the war in the Middle East. - Core inflation was 2.9 percent in March 2026. - Collectively bargained nominal wage growth per employee remained around 3.5 percent; actual nominal wage growth per employee was 4.9 percent by end-2025. - Services inflation has slightly picked up; wage drift remains elevated amid a tight labor market. ### Credit, housing, and balance sheets - Credit to households gained momentum, driven mainly by strong mortgage lending and continued consumer credit growth. - House prices accelerated to about 13 percent year-on-year, with pressures broadening beyond core urban and coastal markets. - Credit growth to corporates strengthened in construction and real estate-related sectors but remained moderate overall. - Household debt-to-GDP ratio edged down to 43 percent in 2025. - Corporate debt-to-GDP ratio declined to 80 percent in 2025; debt service ratios broadly unchanged; share of firms with interest coverage ratio <1 continued to decline. - Banking system profitability remained strong, supported by robust new lending, stable net interest margins, and sustained non-interest income. - Asset quality sound with low and slightly declining NPL ratios; capital, leverage, and liquidity coverage ratios comfortably above regulatory thresholds. - Vulnerabilities among low-income households declined, supported by strong employment, income gains, lower interest rates, and rising prevalence of fixed-rate mortgages. ### Fiscal developments and near-term fiscal stance - Overall fiscal balance improved to -2.4 percent of GDP in 2025 from -3.2 percent in 2024, 0.1 percentage points stronger than authorities’ original target. - CAPB estimated to have improved by about 0.2 percentage points. - Revenues (excluding NGEU grants) rose from 41.5 percent of GDP in 2024 to 42.1 percent in 2025. - About one-third of revenue growth driven by VAT revenues and about two-thirds by direct taxes on firms and households. - Non-indexation of tax brackets supported PIT revenues above GDP by approximately 0.1 percentage points of GDP. - Phasing-in of higher pension reform contributions increased social security revenues by 0.1 percentage points of GDP. - Primary spending growth was 5.4 percent excluding NGEU grants. - One-offs from court rulings fell to 0.3 percent of GDP in 2025 (from an exceptionally high 2024 level). - Post-DANA reconstruction expenditures were about 0.2 percent of GDP in 2025 versus 0.4 percent in 2024. - Defense spending under the NATO definition rose from 1.4 to 2.1 percent of GDP following the April 2025 national defense plan announcement; near-term deficit impact minimal due to reallocation and off-balance-sheet timing. - Energy measures announced by authorities amount to 0.3 percent of GDP (planned to expire end-June); staff estimate temporary energy support measures worsen the fiscal balance in 2026 by 0.3 percent of GDP. - In 2026 temporary tax cuts to counter high energy prices will lower tax collection by approximately 0.2 percent of GDP; energy support measures will add 0.1 percent of GDP in subsidies and transfers in 2026. - A public sector salary rise of 4.5-5 percent based on a multi-year wage contract expected to permanently add approximately 0.2 percent of GDP to expenditure from 2027 onwards. ### External sector and NIIP - Non-energy goods and services trade balance shrank from 6.1 to 5.6 percent of GDP between 2024 and 2025. - Current account surplus declined from 3.2 percent of GDP in 2024 to 2.9 percent of GDP in 2025. - NIIP decreased from -41.0 percent in 2024 to -44.8 percent of GDP in 2025 due to negative valuation effects. - External position in 2025 preliminarily assessed to be moderately stronger than implied by medium-term fundamentals and desirable policies. - Higher oil prices expected to raise the value of oil imports by about 0.4 percentage points of GDP between 2025 and 2026. - Current account surplus projected to decline from 2.9 percent of GDP in 2025 to 1.9 percent in 2027 and 1.5 percent by 2031. ### Outlook: baseline projections and sensitivities - Baseline GDP projections: about 2.1 percent in 2026 and 1.8 percent in 2027. - Medium-term potential growth projected around 1.7 percent, reflecting a sharp slowdown in labor force growth including moderation of net migration partly offset by pickup in productivity. - Under staff’s baseline (spot and future energy prices of mid-March 2026, implying a temporary shock): - Headline inflation projected to reach 3.0 percent by end-2026 and fall to 2.2 percent in 2027. - Core inflation projected at 2.6 percent by end-2026 and 2.3 percent by end-2027. - Domestic demand expected to remain strong in the short term; private consumption supported by immigration, strong labor market, and normalization of high saving rate. - Investment supported by consumer demand, final year of NGEU funding, and intangible investment growth. - Oil shock sensitivity: an additional 10 percent increase in oil prices beyond staff’s baseline, sustained for a year, would: - Damp growth by some 0.1 to 0.15 percentage points. - Raise inflation by around 0.3 percentage points. ### Downside and upside risks, and severe-scenario impacts - Balance of risks predominantly on the downside. - Main downside risk: a lengthy war in the Middle East. - Under the IMF April 2026 WEO severe scenario (higher-for-longer oil and gas prices, stronger second-round inflation effects, much tighter financial conditions), deviations from baseline estimated as: - Real GDP growth: -0.6 (2026), -0.7 (2027) percentage points. - Headline inflation: +1.1 (2026), +2.5 (2027) percentage points. - Overall fiscal balance: -0.3 (2026), -0.3 (2027) percentage points of GDP. - Government debt: +0.9 (2026), +1.6 (2027) percentage points of GDP. - Policy recommendation under severe scenario: avoid broad-based discretionary fiscal stimulus; allow automatic stabilizers to operate around the structural tightening path proposed by staff; replace current energy support package with temporary non-price distortive support measures narrowly targeted to vulnerable households and firms. - Other downside risks: sharp asset price correction; intensification of geopolitical tensions; escalating trade barriers disrupting value chains. - Domestic political fragmentation risk: may undermine ability to deliver fiscal consolidation commitments and implement measures to reassure markets, amplified by a third consecutive budget rollover and derailment of legislative plans. - Upside scenarios: stronger-than-expected tourism diversification and reduced seasonality; households cutting saving rates faster; higher-than-projected net migration (if immigration stabilized around 2025 level, potential growth by 2030 could be about 0.1 percentage point higher); accelerated adoption of AI could raise labor productivity by some 0.1 to 0.2 percentage points per year (IMF staff estimate). ### Fiscal consolidation plans, debt outlook, and recommended adjustment path - Authorities’ government projections (pre-dating the war in the Middle East) foresee deficits of: - 2.1 percent of GDP this year, 1.8 percent in 2027, 1.6 percent in 2028. - MTFSP envisions further reduction to 0.8 percent of GDP by 2031 (without a clear set of measures). - Staff baseline (current-policies-only) deficit projections: - deficit will fall to 2.3 percent of GDP for 2026 and 2027; absent additional measures, stabilize at 2.1 percent by 2030. - Staff recommended consolidation: complete consolidation by 2030 rather than 2031, implying a yearly adjustment of 0.5 percentage points in 2026-2030; additional measures amounting to 1.5 percent of GDP are needed beyond the baseline to achieve the recommended consolidation. - Staff recommend any future positive revenue surprises be fully saved to rebuild fiscal buffers and that most temporary energy crisis measures be discontinued upon planned expiration unless severe energy price deterioration warrants targeted extension. - Fiscal projection series (Overall Balance, Percent of GDP) — exact figures: - Staff Baseline: 2025 -2.4; 2026 -2.3; 2027 -2.3; 2028 -2.2; 2029 -2.2; 2030 -2.1; 2031 -2.1; 2025-2031: 0.3 - Recommended: 2025 -2.4; 2026 -2.0; 2027 -1.7; 2028 -1.4; 2029 -1.0; 2030 -0.6; 2031 -0.4; 2025-2031: 2.0 - MTFSP 2024: 2025 -2.5; 2026 -2.1; 2027 -1.8; 2028 -1.6; 2029 -1.5; 2030 -1.2; 2031 -0.8; 2025-2031: 1.7 - Debt (Percent of GDP) series — exact figures: - Staff Baseline: 2025 100.7; 2026 98.6; 2027 96.6; 2028 94.6; 2029 93.4; 2030 92.1; 2031 90.7; 2025-2031: -9.9 - Recommended: 2025 100.7; 2026 98.3; 2027 95.9; 2028 93.1; 2029 90.9; 2030 88.1; 2031 85.0; 2025-2031: -15.7 - MTFSP 2024: 2025 101.4; 2026 100.1; 2027 98.4; 2028 96.6; 2029 94.8; 2030 92.8; 2031 90.6; 2025-2031: -10.8 - Projected public debt-to-GDP ratio of 90.7 percent by 2031 under staff baseline; gross financing needs projected at 13.8 percent of GDP by 2031. - Staff assess overall sovereign stress risk as moderate but note sensitivity of baseline debt trajectory to shocks and significant long-run risks unless measures taken. - AIReF and 2024 EU Ageing Report project increases in public pensions, health, and long-term care spending of 4.5 to 5.1 percent of GDP between 2025 and 2050; long-term debt risk assessed as high. ### Revenue-side and expenditure-side consolidation options - Revenue-side recommendation: remove reduced VAT rates from the normal VAT for a wide range of products (e.g., hotels and restaurants, vacation rentals, health, and education and fuel taxation) and equalize the diesel excise tax to that of gasoline — could deliver about 2 percent of GDP in new revenues. - Combine revenue measures phased over three years with compensating transfers to lower-income households of 0.4 percent of GDP to offset regressive impacts. - Model simulations indicate such a package phased over three years could achieve staff’s recommended consolidation for 2026-28 and entail a modest GDP growth cost of about 0.1 percentage point for two years. - Expenditure-side and structural reforms: - Gradual moderation of public expenditures via pension reform (e.g., lengthening years of contributory history used in benefit calculation) and broader spending efficiency gains (social spending has grown by about 1.5 percentage points of GDP since COVID-19). - Reconsider safeguard clause design to base corrective action on a clear sustainability criterion; strengthen Ministry of Finance’s Spending Review Monitoring Unit; broaden AIReF’s scope and autonomy. ### Subnational financing, market-based issuance, and regional reforms - Since 2012, central government-sponsored financing instruments supported autonomous communities with impaired market access; discounted financing contributed to several communities not reducing total debt levels or returning to public markets. - Draft law proposals and recommended design features: - Require preparation of multi-year debt strategies by regions receiving concessional financing in 2026. - Streamline central government-sponsored financing instruments. - Discontinue the Facilidad Financiera and repurpose the Fondo de Liquidez Autonómico into a true last-resort lender with stricter eligibility, tight Ministry of Finance monitoring, and discouraging interest rates. - Contemplate partial acquisition of regions’ outstanding debt by the central government as a one-off action to increase fiscal space conditional on participating regions committing to credible consolidation plans. - Proposed reform of the “common regime” would expand autonomous communities’ funding envelope by approximately 1.1 percent of GDP; trade-offs include reduced central government fiscal space and need for gradual phase-in. ### Housing market pressures and borrower-based measures (BBMs) - Rapid house price growth likely to persist, driven largely by immigration-driven demand and inelastic supply in high-pressure areas; appreciation broadening regionally. - Price boom has not led to major misalignment to date, though a mild gap has opened vis-à-vis equilibrium metrics; housing affordability deteriorated especially where price/rent growth outpaced income gains. - Financial stability risks remain limited: household and bank balance sheets healthy, lending standards prudent, share of fixed-rate mortgages increased; tentative signs of easing standards include pickup in share of new residential mortgages with high LTV. - Empirical findings (European DataWarehouse, 2004–2021): - Loans with LTV > 80 have a 1.1 pp higher probability of default than loans with LTV ≤ 80. - Loans with both high LTV (>80) and high DSTI (>40) have a 1.7 pp higher probability of default than lower-risk loans. - Staff recommend implementing mortgage-related BBMs in the coming year, centering on collateral-based limits (e.g., LTV or LTP ceilings) reinforced with income-based measures such as DSTI; start as supervisory guidance and shift to mandatory limits if standards ease materially or house price growth fails to moderate. - Stress-test evidence: combinations of BBMs (e.g., LTV 80%; LTI=5; DSTI=30%; speed limits) reduce portfolio losses under a three-year stress scenario aligned with EBA 2025 assumptions; effects vary by measure and calibration. ### Financial stability, NBFIs, and macroprudential policy - Spain’s nonbank financial sector accounts for around 26 percent of total financial sector assets and about 88 percent of Spain’s GDP; sector about half the size of the euro area’s nonbank sector. - Investment fund holdings account for just about 5 percent of households’ total assets. - Share of non-residents in Spanish government debt holdings around 47 percent (compared to 42 in 2022). - Systemic risks remain low; phasing-in of one-percent CCyB at intermediate cyclical systemic risk levels is strengthening banking resilience (two 0.5 steps in October 2025 and October 2026). - Early evidence: phasing-in is strengthening resilience and preserving capacity to support credit without material tightening; CET1 ratios increased for most systemically important banks; new private lending remained strong. - Policy caveats: postpone activation of BBMs or pause CCyB implementation in a severe scenario involving significant tightening of financial conditions to avoid amplifying a slowdown. ### Labor market reforms, activation, and structural policies - Continue to expand recent reforms of employment protection legislation, ALMPs and benefit systems, and improve minimum wage setting. - Policy recommendations: - Raise social security contributions for employers who lay off and recruit workers more frequently (experience rating). - Rigorously evaluate rise in fixed discontinuous contracts in sectors such as contracting and sub-contracting; consider extending more stable construction sector contract if job stability not improved. - Strengthen activation of the unemployed by introducing output-based performance measures rewarding regional employment services that improve job placement. - Evaluate the 2024 social assistance reform and consider extending combined earn-and-benefit periods beyond 6 months or progressive benefit tapering for those aged 52 and above if impact modest. - Strengthen minimum wage advisory commission by granting independence, more resources, and high-profile academics; consider employment and in-work poverty objectives. - Minimum wage guidance: do not raise above government’s target of 60 percent of the net average wage; avoid de facto indexation on consumer prices to dampen potential low-skilled job losses in adverse shock. - Prioritize introducing an in-work tax credit to better target low-income households and support employment. ### R&D, innovation, NGEU, and housing supply measures - Spain’s R&D tax credit is generous but overly complex; streamline ex ante certification and ex post verification; expedite cash refunds for loss-making startups; target younger firms. - Illustrative simulations: doubling take-up rate of R&D tax credit and targeting younger firms could lower Spain’s innovation gap and might raise long-term TFP growth by a quarter of a percentage point. - NGEU implementation: - Authorities intend to obtain full amount of NGEU grants—€ 80 billion, 69 percent disbursed by March 2026. - Out of € 83.2 billion in available loans, plan to take up € 22.7 billion, 70 percent already disbursed. - Streamlining milestones and targets (54 percent fulfilled by March 2026) will help secure full disbursement of grants; implementation needs acceleration. - Government plans to inject € 10.5 billion of loans and € 2.8 billion of grants to the ICO and operate a productivity/fundraising/housing fund. - Housing supply: accelerate urban development plans, simplify and speed up construction permitting (including best practices such as streamlined licensing and use of AI), revive Land Law reform, expand social housing via Casa 47 and ICO involvement. - Rent regulation evidence: early evidence from Catalonia suggests adverse impacts on rental supply and unintended composition effects; unless thorough evaluation disproves this, rent controls should be discontinued after initial three-year term. ### Sovereign risk, DSA highlights, and risk assessment - Staff assess overall risk of debt distress as moderate, with higher risks in medium-to-long term. - Key DSA highlights: - Public sector gross debt: 100.7 percent of GDP (current level). - Baseline projection: debt falls to 98.6 percent of GDP in 2026 and to 90.7 percent of GDP by 2031. - Debt fanchart index (DFI) = 2.2 → Risk signal: High; probability of debt non-stabilization = 32.0 percent. - Gross financing needs (GFN) average baseline = 14.3 percent of GDP; GFI = 9.6 → Risk signal: Moderate. - Baseline memo indicators (selected exact figures preserved): - Real GDP growth: 2025 = 2.8; 2026 = 2.1; 2027 = 1.8. - Inflation (GDP deflator; percent): 2025 = 2.9; 2026 = 3.0; 2027 = 3.0. - Gross financing needs (percent of GDP): 2025 = 15.1; 2026 = 15.0; 2027 = 14.8; 2031 = 13.8. - Effective interest rate (percent): 2025 = 2.5; 2026 = 2.7; 2027 = 2.8; 2031 = 3.2. - Long-term risk: aging-related expenditures projected increases between 2025 and 2050 of 4.5 to 5.1 percent of GDP; unaddressed aging pressures could raise debt-to-GDP by 4 percentage points higher in 2040 and 22 percentage points higher in 2050 (AIReF-based staff projection). - Policy implication: further reforms needed to complement 2021–2023 pension reforms—either increase social security revenues or contain future outlays—to avoid upward debt trajectory from the mid-2030s. ### Data adequacy and implementation monitoring - Staff assess overall data quality for Fund surveillance as adequate; median rating A. - Sectoral median ratings: National Accounts B; Prices A; Government Finance Statistics A; External Sector Statistics A; Monetary and Financial Statistics A; Inter-sectoral Consistency A. - Suggested data improvements: reduce sizes of expenditure-based GDP component revisions; improve GDP data granularity including separate publication of private and public investment; enhance consistency across data sources (e.g., national accounts vs BOP) at preliminary releases. - NGEU execution reporting improved but not yet in national accounts terms; staff call for more systematic data linkable to firm-level records. *Source: IMF staff — "1. Real Sector and Inflation" (Spain country report chapter).* ### 1. Real Sector and Inflation ______________________________________________________________________ 35 ### 1. Real Sector and Inflation ### Recent developments: growth and demand - Growth slowed from 3.5 percent in 2024 to 2.8 percent in 2025, still significantly outpacing the rest of the euro area. - Tourism services export growth fell from 12.4 percent in 2024 to 4.4 percent in 2025. - Exports were subdued due to lower goods shipments to the US and a stronger euro; accelerating domestic demand offset weak external demand. - Public investment rose by 51.3 percent in real terms since 2019, versus 8.5 percent for private investment. - Consumption remained strong supported by solid employment and real wage gains. ### Labor supply and productivity - Immigration contributed around ¾ of the cumulative employment gains between 2022 and 2025. - Almost ¾ of immigrants originated from the rest of Europe and Latin America. - The native working-age population and average hours worked fell; unemployment appears to be stabilizing at around 10 percent. - Hourly labor productivity growth picked up recently, though its structural versus cyclical nature remains unclear. ### Inflation and wages - HICP headline inflation declined to 2.5 percent in February, then rose to 3.4 percent in March 2026 due to higher oil prices from the war in the Middle East. - Core inflation was 2.9 percent in March 2026. - Collectively bargained nominal wage growth per employee remained around 3.5 percent; actual nominal wage growth per employee was 4.9 percent by end-2025. - Services inflation, sensitive to wages, has slightly picked up; wage drift remains elevated amid a tight labor market. ### Credit, housing, and balance sheets - Credit to households gained momentum, driven mainly by strong mortgage lending and continued consumer credit growth. - House prices accelerated to about 13 percent year-on-year, with pressures broadening beyond core urban and coastal markets. - Credit growth to corporates strengthened in construction and real estate-related sectors but remained moderate overall. - Household debt-to-GDP ratio edged down to 43 percent in 2025. - Corporate debt-to-GDP ratio declined to 80 percent in 2025; debt service ratios broadly unchanged; share of firms with interest coverage ratio <1 continued to decline. ### Banking sector and financial vulnerabilities - Banking system profitability remained strong, supported by robust new lending, stable net interest margins, and sustained non-interest income. - Asset quality sound with low and slightly declining NPL ratios. - Capital, leverage, and liquidity coverage ratios comfortably above regulatory thresholds. - Vulnerabilities among low-income households declined, supported by strong employment, income gains, lower interest rates, and rising prevalence of fixed-rate mortgages. ### Fiscal developments - Overall fiscal balance improved to -2.4 percent of GDP in 2025 from -3.2 percent in 2024, 0.1 percentage points stronger than authorities’ original target. - Cyclically-adjusted primary balance (CAPB) estimated to have improved by about 0.2 percentage points. - Revenues (excluding NGEU grants) rose from 41.5 percent of GDP in 2024 to 42.1 percent in 2025. - About one-third of revenue growth driven by VAT revenues and about two-thirds by direct taxes on firms and households. - Non-indexation of tax brackets supported PIT revenues above GDP by approximately 0.1 percentage points of GDP. - Phasing-in of higher pension reform contributions increased social security revenues by 0.1 percentage points of GDP. - Primary spending growth was 5.4 percent excluding NGEU grants. - One-offs from court rulings fell to 0.3 percent of GDP in 2025 (from an exceptionally high 2024 level). - Post-DANA reconstruction expenditures were about 0.2 percent of GDP in 2025 versus 0.4 percent in 2024. - Defense spending under the NATO definition rose from 1.4 to 2.1 percent of GDP following the April 2025 national defense plan announcement; near-term deficit impact was minimal due to reallocation and off-balance-sheet timing. - Favorable deficit and debt dynamics contributed to Spain’s 10-year government bond yield vis-à-vis Germany falling to its lowest level since COVID-19. ### External sector - Non-energy goods and services trade balance shrank from 6.1 to 5.6 percent of GDP between 2024 and 2025. - Current account surplus declined from 3.2 percent of GDP in 2024 to 2.9 percent of GDP in 2025. - Net international investment position decreased from -41.0 percent in 2024 to -44.8 percent of GDP in 2025 due to negative valuation effects. - External position in 2025 preliminarily assessed to be moderately stronger than implied by medium-term fundamentals and desirable policies (final assessment in 2026 External Sector Report). --- ### Outlook: baseline projections and sensitivities - Baseline GDP projections: about 2.1 percent in 2026 and 1.8 percent in 2027. - Medium-term potential growth projected around 1.7 percent, reflecting a sharp slowdown in labor force growth including moderation of net migration partly offset by pickup in productivity. - Under staff’s baseline (spot and future energy prices of mid-March 2026, implying a temporary shock): - Headline inflation projected to reach 3.0 percent by end-2026 and fall to 2.2 percent in 2027. - Core inflation projected at 2.6 percent by end-2026 and 2.3 percent by end-2027. - Domestic demand expected to remain strong in the short term; private consumption supported by immigration, strong labor market, and normalization of high saving rate. - Investment supported by consumer demand, final year of NGEU funding, and intangible investment growth. - An additional 10 percent increase in oil prices beyond staff’s baseline, sustained for a year, would: - Damp growth by some 0.1 to 0.15 percentage points. - Raise inflation by around 0.3 percentage points. ### Current account and external projections - Higher oil prices expected to raise the value of oil imports by about 0.4 percentage points of GDP between 2025 and 2026. - Current account surplus projected to decline from 2.9 percent of GDP in 2025 to 1.9 percent in 2027 and 1.5 percent by 2031. ### Downside and upside risks - Balance of risks predominantly on the downside. - Main downside risk: a lengthy war in the Middle East. - Under the IMF April 2026 WEO severe scenario (higher-for-longer oil and gas prices, stronger second-round inflation effects, much tighter financial conditions), deviations from baseline are estimated as: - Real GDP growth: -0.6 (2026), -0.7 (2027) percentage points. - Headline inflation: +1.1 (2026), +2.5 (2027) percentage points. - Overall fiscal balance: -0.3 (2026), -0.3 (2027) percentage points of GDP. - Government debt: +0.9 (2026), +1.6 (2027) percentage points of GDP. - Policy recommendation under severe scenario: avoid broad-based discretionary fiscal stimulus; allow automatic stabilizers to operate around the structural tightening path proposed by staff; replace current energy support package with temporary non-price distortive support measures narrowly targeted to vulnerable households and firms. - Other downside external risks: sharp asset price correction; intensification of geopolitical tensions; escalating trade barriers disrupting value chains. - Domestic political fragmentation risk: may undermine ability to deliver fiscal consolidation commitments and implement measures to reassure markets, amplified by a third consecutive budget rollover and derailment of legislative plans. - Upside scenarios: stronger-than-expected tourism diversification and reduced seasonality; households cutting saving rates faster; higher-than-projected net migration (if immigration stabilized around 2025 level, potential growth by 2030 could be about 0.1 percentage point higher); accelerated adoption of AI could raise labor productivity by some 0.1 to 0.2 percentage points per year (IMF staff estimate). *Source: IMF staff — "1. Real Sector and Inflation" (Spain country report chapter).* ### 13. The authorities broadly agreed with staff’s projections and characterization of risks, ### 13. The authorities broadly agreed with staff’s projections and characterization of risks, ### Authorities' assessment and risk characterization - Authorities broadly agreed with staff’s projections and characterization of risks, while highlighting the presence of domestic upside risks. - Shared staff’s estimates of the qualitative impacts of higher oil prices and the dampening impact of renewables on the passthrough from gas prices to electricity prices. - Bank of Spain (BdE) sees risks of larger second-round effects on wages through collective bargaining should the conflict persist. - Authorities agreed on external downside risks but stressed potential upsides to the macroeconomic scenario and noted that the domestic political situation is complicating the adoption of fiscal policy measures. - Authorities stressed that immigration could remain significantly stronger than projected given the attractiveness of Spain’s economy and integration policies. - BdE concurred with staff’s external sector assessment but noted the current account norm may need reassessment given a structural shift in global demand towards services (e.g. tourism) that benefits Spain. ### Policy priorities and overarching recommendations - Pre-empt future risks and strengthen sustainability of the ongoing expansion. - Rebuild fiscal space at a faster pace while addressing: - unfunded aging-related liabilities; - potential moral hazard in regional financing. - Further strengthen the macroprudential toolkit: - introduce borrower-based measures (BBMs) for mortgage lending to households, at least initially as supervisory guidance and shift to mandatory limits if lending standards ease materially and house prices fail to slow down. - Boost housing supply to address affordability, facilitate internal labor mobility, and support continued immigration. - Renew efforts to activate the non-employed to extend the employment and output expansion. - Strengthen productivity growth through enhancing the innovation ecosystem. ### Fiscal projections, key fiscal numbers, and spending commitments - Government projections (pre-dating the war in the Middle East) foresee deficits of: - 2.1 percent of GDP this year, - 1.8 percent in 2027, - 1.6 percent in 2028. - MTFSP envisions further reduction in the deficit to 0.8 percent of GDP by 2031 (without a clear set of measures). - Spain committed to maintaining defense spending at 2.1 percent of GDP under the NATO definition beyond 2025. - Authorities announced energy measures amounting to 0.3 percent of GDP to counter the rise in energy prices, currently planned to expire at the end of June. - Staff baseline (current-policies-only) deficit projections: - deficit will fall to 2.3 percent of GDP for 2026 and 2027; - absent additional measures, stabilize at 2.1 percent by 2030. - Revenue drivers and adjustments in staff baseline: - higher effective PIT rates due to non-indexation of income brackets (approximately 0.1 percent of GDP per year); - higher social security contributions from phasing-in of 2021-2023 pension reforms (approximately 0.7 percent of GDP overall over 2025-2031); - revenue gains from planned large-scale regularization of undocumented migrants; - temporary tax on banks (about 0.1 percent until 2027). - In 2026 the temporary tax cuts to counter high energy prices will lower tax collection by approximately 0.2 percent of GDP. - Energy support measures will add 0.1 percent of GDP in subsidies and transfers in 2026. - A rise in public sector salaries of 4.5-5 percent—based on a multi-year wage contract—is expected to permanently add approximately 0.2 percent of GDP to expenditure from 2027 onwards. - Defense spending commitment increase (from 2024 value of 1.4 percent to 2.1 percent of GDP) expected to have a gradual and only partial impact on the deficit, with about half of the spending rise offset by lower non-defense capital spending. - Public sector transfers to the social security administration have more than doubled since 2019, reaching approximately 3 percent of GDP in 2025. ### Debt outlook, risks, and fiscal space assessment - Projected public debt-to-GDP ratio of 90.7 percent by 2031 under staff baseline. - Gross financing needs projected at 13.8 percent of GDP by 2031. - Staff assess overall sovereign stress risk as moderate (Annex III) but note sensitivity of baseline debt trajectory to shocks and significant long-run risks unless measures are taken. - AIReF and 2024 EU Ageing Report project increases in public pensions, health, and long-term care spending of 4.5 to 5.1 percent of GDP between 2025 and 2050. - Long-term debt risk assessed as high; addressing it requires significantly larger additional fiscal adjustment in Spain compared to the average euro area country. ### Staff recommended consolidation and numerical adjustment path - Staff recommend completing consolidation by 2030 rather than 2031, implying a yearly adjustment of 0.5 percentage points in 2026-2030. - The MTFSP’s net primary expenditure growth path implies a cumulative improvement in the CAPB of 2.5 percentage points of GDP by 2031 relative to its 2025 value. - Because the CAPB is projected to rise by only 1 percentage point between 2025 and 2031 under staff’s baseline, additional measures amounting to 1.5 percent of GDP are needed to achieve the recommended consolidation. - Any future positive revenue surprises should be fully saved to rebuild fiscal buffers. - Most temporary energy crisis measures should be discontinued upon planned expiration, unless severe energy price deterioration warrants a targeted extension. ### Fiscal projection series (overall balance and debt) — staff baseline, recommended, and MTFSP 2024 - Overall Balance (Percent of GDP) by year: - Staff Baseline: 2025 -2.4; 2026 -2.3; 2027 -2.3; 2028 -2.2; 2029 -2.2; 2030 -2.1; 2031 -2.1; 2025-2031: 0.3 - Recommended: 2025 -2.4; 2026 -2.0; 2027 -1.7; 2028 -1.4; 2029 -1.0; 2030 -0.6; 2031 -0.4; 2025-2031: 2.0 - MTFSP 2024: 2025 -2.5; 2026 -2.1; 2027 -1.8; 2028 -1.6; 2029 -1.5; 2030 -1.2; 2031 -0.8; 2025-2031: 1.7 - Debt (Percent of GDP) by year: - Staff Baseline: 2025 100.7; 2026 98.6; 2027 96.6; 2028 94.6; 2029 93.4; 2030 92.1; 2031 90.7; 2025-2031: -9.9 - Recommended: 2025 100.7; 2026 98.3; 2027 95.9; 2028 93.1; 2029 90.9; 2030 88.1; 2031 85.0; 2025-2031: -15.7 - MTFSP 2024: 2025 101.4; 2026 100.1; 2027 98.4; 2028 96.6; 2029 94.8; 2030 92.8; 2031 90.6; 2025-2031: -10.8 ### Revenue-side recommendation: raising indirect taxes with targeted compensation - Remove reduced VAT rates from the normal VAT for a wide range of products (e.g. hotels and restaurants, vacation rentals, health, and education and fuel taxation) and equalize the diesel excise tax to that of gasoline could deliver about 2 percent of GDP in new revenues. - Combine revenue measures phased over three years with compensating transfers to lower-income households of 0.4 percent of GDP to offset regressive impacts. - Model simulations indicate such a package phased over three years could achieve staff’s recommended consolidation for 2026-28 and entail a modest GDP growth cost of about 0.1 percentage point for two years. ### Expenditure-side and structural reforms - Gradual moderation of public expenditures via: - pension reform (e.g., lengthening years of contributory history used in benefit calculation); - broader spending efficiency gains (social spending has grown by about 1.5 percentage points of GDP since COVID-19). - Public debate and transparent communication needed on central government transfers to the social security administration and the safeguard clause design. - The safeguard clause should be reconsidered to base corrective action on a clear sustainability criterion rooted in the projected gap between the system’s direct revenues and expenditures. - Strengthen the Ministry of Finance’s Spending Review Monitoring Unit to set quantitative savings targets and broaden AIReF’s scope and autonomy to support fiscal consolidation. ### Subnational fiscal framework recommendations - Overhaul the subnational fiscal rule to minimize moral hazard, especially for autonomous communities. - Align national definition of net primary spending growth with the EU rule and consider a rule centered on expenditure growth to ensure debt sustainability for individual regions. - Options include region-specific spending growth limits or a common limit with tighter requirements for high-debt regions (e.g., above 13 percent of GDP). - Ensure central government transfers are not cut during downturns to reduce procyclicality. - Establish a clear corrective arm, enforced by the Ministry of Finance, and introduce a spending growth target for the Social Security Administration to align domestic fiscal targets with the EU framework. *Source: IMF staff report excerpt (chapter 13).* ### 22. Returning to market-based debt issuance as the primary means of financing for ### 1espea2026001 - 22. Returning to market-based debt issuance as the primary means of financing for ### Returning to market-based debt issuance and regional financing - Since 2012, central government-sponsored financing instruments supported autonomous communities whose access to debt markets was impaired after the GFC, but discounted financing contributed to several communities not reducing total debt levels and not returning to public markets. - Draft law proposals and recommended design features: - Require preparation of multi-year debt strategies by regions receiving concessional financing in 2026; these strategies would benefit from being made public. - Streamline central government-sponsored financing instruments. - Discontinue the Facilidad Financiera and repurpose the Fondo de Liquidez Autonómico into a true last-resort lender with: - stricter eligibility requirements, - tight monitoring by the Ministry of Finance, - interest rates that strongly discourage borrowing outside of emergency situations. - Contemplate partial acquisition of regions’ outstanding debt by the central government as a one-off action to increase fiscal space by lowering interest expenditure, conditional on participating regions committing to credible consolidation plans, ideally within a revamped subnational fiscal rule. ### Regional revenue reform and fiscal space implications - Proposed reform of the “common regime” would expand autonomous communities’ funding envelope by approximately 1.1 percent of GDP. - Trade-offs and implementation guidance: - The funding increase would imply a commensurate reduction in the central government’s resources, limiting its fiscal space. - Reform should be phased in gradually to allow the central government time to offset revenue loss through increased taxes or expenditure cuts and to allow regions to spend extra resources efficiently on high-priority areas. ### Near-term fiscal policy and conditional shock responses - Fiscal stance guidance: - Fiscal consolidation should stay the course even if energy prices remain moderately higher than staff’s baseline; requires offsetting the adverse impact on the 2026 deficit of recent energy support measures. - In the event of a major adverse shock (e.g., larger and more persistent rise in energy prices combined with a sharp global financial market correction as contemplated in the April 2026 WEO’s severe scenario), the government could introduce a revised support package that: - is narrowly targeted to vulnerable households and firms, - lets higher energy prices fully pass through to users. - If reassessment of debt sustainability prospects for other euro area economies sharply raises long-term bond yields with spillovers to Spain, new consolidation measures should be prioritized, focusing on entitlement (e.g., pensions) reforms that improve medium-term fiscal prospects without weighing on short-term aggregate demand. ### Authorities’ views on fiscal targets and reforms - Authorities’ positions: - Reiterate strong commitment to fiscal targets set out in the MTFSP, viewing most of the rise in revenues as structural rather than cyclical. - Believe NATO defense expenditure target and recent energy crisis response can be accommodated while achieving the MTFSP deficit path. - Do not see a need for faster fiscal adjustment in the current global context. - Support temporary response to energy price shock, to be re-assessed as prices evolve per March 2026 decrees. - Expect AIReF’s upcoming pensions review to be even more favorable than the March 2025 review. - Confident proposed reforms would strengthen the overall framework for autonomous communities; do not consider revising national fiscal rules strictly necessary for EU compatibility and favor retaining some flexibility and simplicity in distributing fiscal effort between central and regional governments. ### Banking system resilience and macroprudential buffer - Systemic risk and buffers: - Systemic risks remain low, broadly unchanged from the 2025 Article IV. - Phasing-in of the one-percent countercyclical capital buffer (CCyB) at intermediate levels of cyclical systemic risk is strengthening banking resilience. - Phasing-in schedule: two 0.5 steps in October 2025 and October 2026. - Early evidence: phasing-in is strengthening resilience and preserving capacity to support credit without material tightening in lending conditions; no indication of drawdown of voluntary capital buffers; CET1 ratios have increased for most systemically important banks; new private lending has remained strong. ### External financial risks and non-bank financial institutions (NBFIs) - Size and interconnectedness: - Spain’s nonbank financial sector accounts for around 26 percent of total financial sector assets and about 88 percent of Spain’s GDP. - The sector is about half the size of the euro area’s nonbank sector. - Investment fund holdings account for just about 5 percent of households’ total assets. - Share of non-residents in Spanish government debt holdings is around 47 percent, compared to 42 in 2022. - Risks and mitigants: - A sharp global equity or broader market correction—particularly triggered by a US equity sell-off—could spill over to euro area markets via investment funds’ sizable equity exposures. - Heightened geopolitical tensions could prompt portfolio reallocations by price-sensitive investors and amplify increases in Spanish sovereign yields and valuation losses for the domestic financial sector. - Mitigants include strong bank profitability and capital generation, the ECB’s backstop framework (Transmission Protection Instrument), and currently contained sovereign risk premia in Spain. ### Housing market pressures and borrower-based measures (BBMs) - House price dynamics and risks: - Rapid house price growth is likely to persist for a while, driven largely by immigration-driven demand and inelastic supply in high-pressure areas. - Price boom has not led to major misalignment to date, though a mild gap has opened vis-à-vis equilibrium metrics. - Housing affordability has deteriorated, most strikingly in areas where price and/or rent growth outpaced income gains. - Financial stability risks remain limited: household and bank balance sheets are healthy, lending standards remain prudent, and the share of fixed-rate mortgages has increased. - Tentative signs of easing lending standards include a recent pickup in the share of new residential mortgages with high loan-to-value ratios. - BBM recommendations and empirical evidence: - Staff recommend implementing mortgage-related BBMs in the coming year in Spain, which is one of the few remaining euro area countries without active BBMs. - Effective BBM design: - Center on collateral-based limits (e.g., LTV or loan-to-price (LTP) ratios) with clear communication that they are ceilings, not targets. - Reinforce collateral limits with income-based measures such as DSTI. - If supervisory guidance is initially adopted, convert to mandatory limits if lending standards ease materially—e.g., sustained increases in high-LTV or LTP lending—or house price growth fails to moderate. - Introduce BBMs early in the credit cycle for maximal effectiveness and minimal effects on credit growth. - Postpone activation in a severe scenario involving significant tightening of financial conditions to avoid amplifying the slowdown; likewise pause CCyB implementation if lending conditions tighten materially. - Empirical findings from Spanish loan-level data (European DataWarehouse, 2004–2021): - Loans with LTV > 80 have a 1.1 pp higher probability of default than loans with LTV ≤ 80. - Loans with both high LTV (>80) and high DSTI (>40) have a 1.7 pp higher probability of default than lower-risk loans. - Stress-test and loss mitigation evidence: - Combinations of borrower-based measures (e.g., LTV 80%; LTI=5; DSTI=30%; speed limits) reduce portfolio losses under a three-year stress scenario aligned with the European Banking Authority’s 2025 bank stress test assumptions; effects vary by measure and calibration. ### Ongoing supervisory and resolution reforms (FSAP recommendations) - Progress and outstanding items: - BdE and CNMV are hiring specialized staff (e.g., in cybersecurity) to address staffing constraints. - Progress underway to strengthen BdE’s independence by removing the Ministry of Economy’s appeal powers over BdE’s supervisory decisions and sanctions. - Remaining actions include further integrating preventive and executive bank resolution functions and enhancing the statutory resolution framework to strengthen FROB’s powers. - No actions taken to grant CNMV greater autonomy over its hiring process. - BdE has largely completed national-level preparations to address liquidity needs in resolution for less significant institutions; progress for significant institutions has been limited. - Until the Eurosystem agrees on a common approach, BdE should establish an approach to addressing liquidity needs in resolution for all banks. ### Labor market and structural reform priorities - Labor market status and reform needs: - The 2021 reform durably reduced temporary employment share and improved job stability, albeit modestly; duration of permanent contracts fell and the employment share of fixed discontinuous contracts rose. - Structural unemployment likely fell in the past decade, as suggested by a leftward shift in the Beveridge curve and absence of real wage acceleration despite a sharp continuous fall in unemployment. - About 10 percent unemployment persists—still one of the highest in the euro area—and signs of labor market tightness raise doubts that a further material decline is possible without major new reforms. - Recent policy focus areas: - Working week reduction in the private sector failed to pass parliament in September 2025; government will move forward with a reduction to 35 hours of the working week in the public sector. - Adjusting severance pay to individual worker circumstances (would not help create stable jobs for disadvantaged workers). - Implementing the 2023 Employment Law (welcome first step with significant room for further progress). - Raising the minimum wage level to maintain its purchasing power. *Source: 1espea2026001 - 22. Returning to market-based debt issuance as the primary means of financing for* ### 33. The key priorities are to expand recent reforms of employment protection legislation, ### 1espea2026001 - 33. The key priorities are to expand recent reforms of employment protection legislation, ### Labor market reforms and activation - Expand recent reforms of employment protection legislation, active labor market policies (ALMPs) and benefit systems, and improve minimum wage setting. - Raise social security contributions for employers who lay off and recruit workers more frequently (experience rating) to discourage excessive layoffs and improve job stability. - Rigorously evaluate the implications of the rise in fixed discontinuous contracts in sectors such as contracting and sub-contracting; this requires more granular and timely data on time use during inactivity periods. - If job stability has not improved in these sectors, consider extending the new, more stable construction sector contract to them. - Strengthen activation of the unemployed by introducing output-based performance measures that reward (penalize) regional public employment services offices that manage (fail) to improve job placement. - Evaluate the 2024 social assistance (subsidio por desempleo) reform; if its impact on return to work is assessed as positive but modest, amplify it by: - expanding beyond 6 months the period over which labor earnings can be combined with continued benefit receipt, and/or - considering progressive benefit tapering off for those aged 52 and above. - Strengthen the advisory commission for the analysis of the minimum wage by granting independence and more resources for evaluation, bringing in high-profile academics, and considering equally employment and in-work poverty objectives in its recommendations. ### Minimum wage, in-work support, and indexation - Given evidence that large minimum wage hikes of recent years weakened permanent job opportunities for lower-income workers, the minimum wage should not be raised above the government’s target of 60 percent of the net average wage. - To dampen potential low-skilled job losses in the event of an adverse shock, avoid de facto indexation on consumer prices. - Prioritize introducing an in-work tax credit, which would be better targeted to low-income households and would support both purchasing power and employment. - Reference: See Hijzen and others (2025).18 ### Housing supply and rent policy - Boosting housing supply is a growth priority to avoid prolonging the housing price boom and its adverse effects on labor mobility, immigration, and growth. - Staff analysis finds that rapid house price growth during 2018–23 significantly reduced internal mobility with a small adverse impact on GDP.19 - While many recent government initiatives are welcome, their quantitative impact on supply is expected to be limited and slow to materialize. - More decisive progress requires: - accelerating urban development plans, - further simplifying and speeding up construction permitting procedures (including disseminating best practices such as streamlined licensing and the use of AI), - reducing legal uncertainty around projects by reviving the Land Law reform. - Strengthen efforts to expand social housing—through initiatives such as the creation of a new public housing company (Casa 47) and the involvement of Instituto de Crédito Oficial (ICO)—with a focus on rental housing in areas with acute supply shortages. - Early evidence from rent regulation in Catalonia suggests adverse impacts on rental supply, limited rent declines, and unintended composition effects, including withdrawal of higher-end properties from the market. - In 2025, “stressed areas” have been declared in other regions (including parts of the Basque Country, Galicia, and Navarra), enabling broader implementation of rent regulations. - Unless a thorough evaluation disproves early evidence that rent controls have significantly reduced rental housing supply, rent controls should be discontinued after their initial three-year term. - The Housing Law governing the declaration of “stressed areas” should be amended to make it conditional on regions implementing concrete and measurable actions to boost supply, including freeing up new land. - Reference: See Nguyen and others (2026).19 ### R&D, innovation, and financing - Spain’s R&D tax credit is generous but overly complex, contributing to low take-up and weaker innovation activity, particularly among young firms. - Streamline required ex ante certification and ex post verification of R&D expenditures—minimizing risks of misclassification while reducing burden and uncertainty. - Expedite cash refunds for loss-making startups. - Staff analysis finds that size-dependent regulatory thresholds, financing constraints, and regional regulatory red tape significantly reduce innovation and its impact on firm growth. - Illustrative simulations suggest that addressing these constraints, doubling the take-up rate of the R&D tax credit and targeting it better to younger firms could: - lower Spain’s innovation gap vis-à-vis euro area peers, and - might raise the economy’s long-term total factor productivity (TFP) growth rate by a quarter of a percentage point. ### NGEU implementation and related investment - Authorities intend to obtain the full amount of NGEU grants—€ 80 billion, 69 percent of which had been disbursed by March 2026—but only a fraction of the loans. - Out of the total € 83.2 billion in available loans, they plan to take up € 22.7 billion, 70 percent of which have already been disbursed. - The streamlining of milestones and targets—54 percent of which had been fulfilled by March 2026—in Spain’s amended Recovery and Resilience Plan (RRP) will help secure full disbursement of grants, but implementation needs to be accelerated. - The government plans to inject € 10.5 billion of loans and € 2.8 billion of grants to the ICO and to operate a fund aimed at raising productivity, developing capital markets, and increasing housing supply.21 - A detailed assessment of the economic impacts of NGEU funds is needed, including more systematic information on beneficiaries linkable to firm-level data. ### Macro outlook, inflation, and labor market - Spain’s economy remains robust and outperforms the euro area, with solid domestic demand offsetting a weak external environment. - Key recent dynamics: - Slowing tourism and subdued exports (due in part to U.S. tariffs and a stronger euro). - Rising investment supported by the housing shortfall and increased public investment from NGEU funds. - Resilient consumption driven by steady employment and wage gains. - Strong immigration has offset declines in the native workforce. - Falling unemployment, which is now stabilizing at around 10 percent. - Some pick-up in productivity. - Inflation: - Headline inflation hovered around 2.5–3 percent before the war in the Middle East due to persistent core and services inflation. - Growth projections (staff baseline, which assumes a temporary shock embedded in spot and future oil and gas prices of mid-March 2026 from the war in the Middle East): - real GDP is expected to expand by 2.1 percent in 2026 and 1.8 percent in 2027. - Beyond 2027, growth is projected to settle around its potential rate of about 1.7 percent. - The energy shock will keep inflation at 3 percent by end-2026 under staff’s baseline, before a decline to 2.2 percent by end-2027. - Risks: - Predominantly downside for growth and upside for inflation, including from a prolonged conflict, tighter financial conditions, trade disruptions, and domestic political fragmentation. - On the upside, tourism, household dissaving, immigration, and AI-related investment and productivity gains could be larger than envisaged. - Policy response in a large adverse shock: - Allow automatic stabilizers to operate if sovereign funding costs remain low. - Avoid broad-based discretionary fiscal stimulus. - Discontinue the current energy support package and replace it with narrower measures targeted to vulnerable households and firms, while letting higher energy prices fully pass through to users. ### Fiscal policy and medium-term consolidation - Under current policies, staff project more limited consolidation than the 2.5 percent of GDP in cumulative terms over 2025-2031 envisaged by the authorities, with the deficit stabilizing above 2 percent of GDP amid continued spending pressures from pensions, wages, defense, and debt service. - Staff recommend decisive additional consolidation—amounting to a further 1.5 percent of GDP—centered on growth-friendly measures such as harmonizing VAT rates while protecting vulnerable households, alongside gradual expenditure restraint, pension reform and the discontinuation of energy support as planned. - Authorities remain confident in achieving their targets with smaller discretionary action, but risks of under-delivering are elevated due to political fragmentation and reliance on continued strong revenue performance. - Recommended institutional actions: - Produce a fully-fledged medium-term fiscal strategy, - Reinforce the role of the independent fiscal council, - Reform subnational fiscal rules and financing arrangements. ### Financial stability and macroprudential policy - Overall systemic financial risks remain low, but fast-rising house prices and early signs of easing bank lending standards warrant that mortgage-related borrower-based measures (BBMs) be introduced, at least in the form of supervisory guidance. - If house price growth fails to moderate materially and lending standards weaken further, BBMs should become binding; early implementation would be more effective and minimize impacts on credit growth. - Further progress on FSAP recommendations (strengthening resolution liquidity frameworks for SIs and enhancing the autonomy of the securities regulator) would support financial system resilience. - In a severe scenario, the introduction of BBMs should be postponed and the ongoing phasing-in of the CCyB be paused. ### Medium-term reforms to raise living standards and productivity - To increase living standards faster and reduce unemployment to low single digits: - Strengthen active labor market policies through job-placement rewards for regional public employment services. - Introduce further changes to social assistance to boost job take-up among the unemployed aged 52 and above. - To boost productivity and exploitation of agglomeration effects: - Accelerate rollout of the “Regime 20” initiative to cut administrative barriers across regions and consider adoption of open-market laws by autonomous communities. - Deepen EU single market integration and complete EU-level initiatives such as the Savings and Investment Union. - Address financing constraints and red tape that limit young high-growth firms, including through the European Competitiveness Laboratory initiative launched in October 2025. - Reduce skills mismatch through fundamental tertiary education reform. - Streamline size-dependent tax and labor regulations and redesign the R&D tax credit to boost young firms’ innovation. - Authorities’ projections and initiatives: - Authorities project that all planned NGEU investments will be executed by August 2026, including through creation of the fund España Crece—a new public fund financed by a share of the initial NGEU loan component and managed by the National Promotion Bank–ICO. - Authorities reaffirm commitment to Regime 20, Competitiveness Lab, and key EU-level reforms (EU 28th Regime, the Savings and Investment Union, and energy market integration). *Source: IMF staff chapter content from 1espea2026001.* ### 46. It is recommended that the next Article IV consultation take place on the standard 12- ### 46. It is recommended that the next Article IV consultation take place on the standard 12- ### Real sector and inflation - Spain’s economy has outperformed euro area peers since 2022 and is projected to continue doing so in the near future. - There is some improvement in the supply side, including a pickup in productivity growth. - Investment has increased, particularly in intellectual property; investment in transport equipment has remained weak. - Policy uncertainty has increased again after the war in the Middle East began. - The war in the Middle East derailed Spain’s disinflation process, which has been slower than in its euro area peers. - High-frequency activity indicators point to continued solid growth in the near term. - Sources cited: Bank of Spain, Eurostat, Haver Analytics, INE, WEO, policy uncertainty index, IMF staff calculations. ### Labor market - Employment rate continues to increase while the overall participation rate remains stable. - Employment growth has been broad‑based across sectors and has consisted predominantly of permanent contract creations. - The sustained rise in employment has been associated with a tighter labor market, contributing to sustained labor compensation gains even after inflation fell from energy crisis highs. - Despite progress, Spain’s unemployment rate remains the highest in the euro area, calling for reforms. - Sources cited: Bank of Spain, Eurostat, Haver Analytics, INE, WEO, IMF staff calculations. ### External sector - The average US import tariff rate increased from 1.9% to 10.5%, slightly more than for the EU as a whole. - Goods exports fell after the US tariff hikes, with exports to the US and the EU both contributing to the decline. - Tourist arrivals and spending recently reached record highs, but their growth has declined. - In 2025, the financial account surplus was largely driven by the Bank of Spain’s balance sheet, partly offset by net non-portfolio flows. - The NIIP deteriorated in 2025 as negative valuation effects offset the current account surplus. - The ULC-based REER has remained broadly stable in recent years after a large post-GFC depreciation. - Sources cited: Bank of Spain, Eurostat, Haver Analytics, INE, WEO, WTO-IMF tariff tracker, UN Comtrade, IMF staff calculations. - Notes: Tariff rates weighted by export values; zero tariffs assumed for service exports; Arab countries list provided in source; portfolio & other investment exclude Bank of Spain (shown separately). ### Credit developments and financial cycle - Households have continued to deleverage, with the debt-to-GDP ratio falling further below the euro area average. - Non-financial corporations have deleveraged further, including relative to the euro area average. - Bank lending to the private sector has rebounded strongly as benchmark interest rates declined following the ECB’s monetary policy easing cycle. - Lending standards have remained broadly unchanged, with credit demand recovering across the board, particularly in housing. - Sources cited: Bank of Spain, Haver Analytics, WEO, IMF staff calculations. - Notes: Household debt based on total net borrowing; corporate debt based on net accounts payable. ### Households and non-financial corporations - Households’ debt-service-to-income (DSTI) ratios edged down in 2025 due to lower interest rates, including among lower-income households. - Households at risk (DSTI > 40 percent) are mainly concentrated in the lowest income quintile. - A broader indicator ("DSTI + Housing Exp.") confirms risk concentration in the lowest income quintile. - Corporate profitability recovered strongly since the pandemic, though it has leveled off more recently. - Corporate leverage declined further to a historically low level in 2025 amid moderate borrowing growth. - Liquidity ratios remained stable for both large and small corporates. - Sources cited: INE, Bank of Spain Central Balance Sheet Data Office, Bank of Spain, Haver Analytics, WEO, IMF staff calculations. - Notes: Income quintiles defined lowest to highest; "DSTI + Housing Exp." definition provided. ### Real estate developments - House prices have risen steadily but remain below pre-GFC levels in real terms. - Appreciation has become more broad-based with regional variation. - Price-to-rent ratios have risen close to pre-GFC levels; price-to-income ratios remain well below pre-GFC levels. - Loan-to-value (LTV) ratios have remained stable, but the share of newly issued high-LTV loans has picked up. - Supply shortages remain a key source of upward price pressure; the housing stock shortfall continues to widen, albeit at a slower pace. - Commercial real estate markets have continued to recover across property segments, with prices returning to pre-COVID-19 levels. - Sources cited: Bank of Spain, Haver Analytics, WEO, IMF staff calculations. - Note: Supply shortage defined as four-quarter rolling sum of difference between changes in interpolated housing stock and household numbers. ### Banking sector performance - Asset quality improved with further declines in nonperforming loans, as well as Stage 2 and Stage 3 loans. - Banking sector profitability remained solid, edging down only slightly as interest rates declined. - After a drop in 2022, the NPL coverage ratio has been slightly increasing. - Bank capitalization remains below peers on a risk-weighted basis, but the leverage ratio is comparable. - Spanish banks retain strong liquidity ratios, though these have fallen since the end of ECB quantitative easing. - Sources cited: Bank of Spain, Haver Analytics, WEO, EBA, IMF staff calculations. ### Public finances - Public debt has been declining steadily as a share of GDP, with both private and public (Bank of Spain‑ECB) holdings shrinking. - The contribution of real growth to debt reduction has remained sizable, while that of other factors has waned. - After remaining stable over 2024-2025, financing costs rose almost 50 basis points in March 2026, but the spread relative to the German Bund did not widen. - The cumulative improvement in the fiscal balance since the pandemic has been one of the largest in the euro area, driven by a persistent rise in revenues—particularly personal income taxes and social security contributions. - There is room to mobilize further VAT revenues, which are comparatively low due to exemptions and reduced rates. - Sources cited: Eurostat, Haver Analytics, Bank of Spain, IMF staff calculations. ### Selected social indicators - Income inequality has declined compared to pre-COVID-19 levels, broadly in line with euro area peers. - Risk of in-work poverty has fallen for young and temporary workers, but remains above the euro area average. - Share of young people neither working nor studying has declined to historical lows but is still among the highest in the euro area. - Spain continues to have one of the highest shares of early leavers from education and training. - Gender gaps have declined further but remain material in political empowerment and economic participation and opportunity. - Spain’s projected rise in the old-age dependency ratio in the coming decades is the largest among euro area peers. - Sources cited: Eurostat, Haver Analytics, Bank of Spain, IMF staff calculations. - Notes: Some comparator data years specified for Austria, Luxembourg, Malta, Slovakia, and Luxembourg. ### Main economic indicators (selected figures from Table 1) - Real GDP growth: 2023 = 2.5, 2024 = 3.5, 2025 = 2.8, 2026 = 2.1, 2027 = 1.8, 2028 = 1.8, 2029 = 1.7, 2030 = 1.7, 2031 = 1.7 (percent change). - Headline inflation (average): 2023 = 3.4, 2024 = 2.9, 2025 = 2.7, 2026 = 3.0, 2027 = 2.3, 2028 = 2.5, 2029 = 2.0, 2030 = 2.0, 2031 = 2.0 (percent). - Unemployment rate: 2023 = 12.2, 2024 = 11.3, 2025 = 10.5, 2026 = 9.8, 2027 = 9.8, 2028 = 9.9, 2029 = 10.0, 2030 = 10.0, 2031 = 10.0 (percent of total labor force). - General government balance (percent of GDP): 2023 = -3.3, 2024 = -3.2, 2025 = -2.4, 2026 = -2.3, 2027 = -2.3, 2028 = -2.2, 2029 = -2.2, 2030 = -2.1, 2031 = -2.1. - General government gross debt (Maastricht): 2023 = 105.1, 2024 = 101.6, 2025 = 100.7, 2026 = 98.6, 2027 = 96.6, 2028 = 94.6, 2029 = 93.4, 2030 = 92.1, 2031 = 90.7 (percent of GDP). - Net international investment position: 2023 = -49.3, 2024 = -41.0, 2025 = -44.8, 2026 = -39.1, 2027 = -35.2, 2028 = -31.6, 2029 = -28.6, 2030 = -25.8, 2031 = -23.1 (percent of GDP). - Nominal GDP (Billions of euros): 2023 = 1,497.8; 2024 = 1,594.3; 2025 = 1,687.2; 2026 = 1,774.3; 2027 = 1,860.1; 2028 = 1,949.1; 2029 = 2,027.7; 2030 = 2,110.6; 2031 = 2,196.5. - Sources: IMF, World Economic Outlook; data provided by the authorities; IMF staff estimates. ### General government operations (selected figures from Tables 2a and 2b) - Revenue (Billions of euros): 2023 = 630.2, 2024 = 673.7, 2025 = 724.6, 2026 = 777.3, 2027 = 816.3, 2028 = 849.0, 2029 = 889.0, 2030 = 929.3, 2031 = 970.4. - Taxes (Billions of euros): 2023 = 354.9, 2024 = 380.7, 2025 = 416.2, 2026 = 441.7, 2027 = 465.6, 2028 = 489.2, 2029 = 513.7, 2030 = 537.9, 2031 = 562.4. - VAT (Billions of euros): 2023 = 96.0, 2024 = 102.5, 2025 = 114.4, 2026 = 120.9, 2027 = 126.7, 2028 = 133.7, 2029 = 139.2, 2030 = 145.4, 2031 = 151.8. - Social contributions (Billions of euros): 2023 = 197.0, 2024 = 210.3, 2025 = 223.6, 2026 = 240.1, 2027 = 256.3, 2028 = 271.2, 2029 = 283.2, 2030 = 295.4, 2031 = 308.2. - Expenditure (Billions of euros): 2023 = 680.2, 2024 = 725.0, 2025 = 764.9, 2026 = 817.7, 2027 = 858.6, 2028 = 891.5, 2029 = 933.5, 2030 = 974.6, 2031 = 1,015.6. - Compensation of employees (Billions of euros): 2023 = 163.9, 2024 = 172.7, 2025 = 181.5, 2026 = 189.3, 2027 = 202.4, 2028 = 211.9, 2029 = 221.3, 2030 = 230.3, 2031 = 239.7. - Interest (Billions of euros): 2023 = 35.6, 2024 = 38.8, 2025 = 40.3, 2026 = 45.1, 2027 = 48.6, 2028 = 52.3, 2029 = 55.4, 2030 = 59.1, 2031 = 61.6. - Gross fixed capital investment (Billions of euros): 2023 = 44.1, 2024 = 43.3, 2025 = 49.6, 2026 = 58.8, 2027 = 70.4, 2028 = 66.0, 2029 = 70.6, 2030 = 74.3, 2031 = 78.4. - Revenue (percent of GDP): 2023 = 42.1, 2024 = 42.3, 2025 = 42.9, 2026 = 43.8, 2027 = 43.9, 2028 = 43.6, 2029 = 43.8, 2030 = 44.0, 2031 = 44.2. - Expenditure (percent of GDP): 2023 = 45.4, 2024 = 45.5, 2025 = 45.3, 2026 = 46.1, 2027 = 46.2, 2028 = 45.7, 2029 = 46.0, 2030 = 46.2, 2031 = 46.2. - Gross operating balance (percent of GDP): 2023 = -3.3, 2024 = -3.2, 2025 = -2.5, 2026 = -2.3, 2027 = -2.3, 2028 = -2.2, 2029 = -2.2, 2030 = -2.1, 2031 = -2.1. - Net lending / borrowing (percent of GDP): 2023 = -3.3, 2024 = -3.2, 2025 = -2.4, 2026 = -2.3, 2027 = -2.3, 2028 = -2.2, 2029 = -2.2, 2030 = -2.1, 2031 = -2.1. - Memorandum: Nominal GDP (Billions of euros) shown as 1,497.7 (2023); see Main Economic Indicators for full series. - Notes: Tables compiled on accrual basis consistent with ESA10; projections incorporate EU Recovery and Resilience Facility allocations as described in source. *Source: IMF staff report text, tables, and figures as provided in the content unit.* ### 2027. Such funds are reflected as receipts in other revenue, and as expenditures in good and services and public invest ### 1espea2026001 - 2027. Such funds are reflected as receipts in other revenue, and as expenditures in good and services and public invest ### Depository institutions: Financial Soundness Indicators - Capital adequacy (Consolidated basis) - Regulatory capital to risk-weighted assets: 17.0 (2020), 17.4 (2021), 16.7 (2022), 17.1 (2023), 17.5 (2024), 18.2 (2025) - Regulatory tier-1 capital to risk-weighted assets: 14.9 (2020), 15.2 (2021), 14.6 (2022), 14.8 (2023), 15.1 (2024), 15.6 (2025) - Tier 1 Capital to total assets: 5.9 (2020), 5.8 (2021), 5.5 (2022), 5.7 (2023), 5.8 (2024), 5.7 (2025) - Asset quality (Consolidated basis) - Nonperforming loans (in billions of euro): 74 (2020), 88 (2021), 80 (2022), 82 (2023), 79 (2024), 73 (2025) - Nonperforming loans to total loans: 2.9 (2020), 2.9 (2021), 3.1 (2022), 3.1 (2023), 2.9 (2024), 2.6 (2025) - Specific provisions to nonperforming loans: 72.9 (2020), 63.6 (2021), 43.2 (2022), 43.3 (2023), 44.4 (2024), 46.8 (2025) - Asset quality (Domestic operations) - Nonperforming loans (in billions of euro): 52 (2020), 49 (2021), 40 (2022), 39 (2023), 36.6 (2024), 31.0 (2025) - Nonperforming loans to total loans: 4.4 (2020), 4.2 (2021), 3.5 (2022), 3.4 (2023), 3.2 (2024), 2.6 (2025) - Specific provisions to nonperforming loans: 46.4 (2020), 45.9 (2021), 45.3 (2022), 46.6 (2023), 48.9 (2024), 53.0 (2025) - Sectoral exposures and nonperformance rates - Exposure to businesses - Construction (in billions of euro): 108 (2020), 107 (2021), 99 (2022), 93 (2023), 93.8 (2024), 95.0 (2025) - o/w: Nonperforming (in percent): 6.0 (2020), 5.1 (2021), 4.9 (2022), 4.3 (2023), 3.8 (2024), 3.0 (2025) - Exposure to businesses - Other (in billions of euro): 446 (2020), 443 (2021), 443 (2022), 422 (2023), 423.7 (2024), 437.4 (2025) - o/w: Nonperforming (in percent): 4.8 (2020), 4.7 (2021), 4.1 (2022), 4.1 (2023), 3.9 (2024), 3.3 (2025) - Exposure to households - Home purchase (in billions of euro): 478 (2020), 483 (2021), 483 (2022), 469 (2023), 472 (2024), 490 (2025) - o/w: Nonperforming (in percent): 2.9 (2020), 2.7 (2021), 2.1 (2022), 2.3 (2023), 2.2 (2024), 1.6 (2025) - Exposure to households - Other (in billions of euro): 143 (2020), 140 (2021), 141 (2022), 143 (2023), 142 (2024), 151 (2025) - o/w: Nonperforming (in percent): 7.2 (2020), 7.0 (2021), 5.0 (2022), 4.7 (2023), 4.4 (2024), 3.8 (2025) - Profitability and funding - Return on assets (Consolidated basis): 0.0 (2020), 0.9 (2021), 0.9 (2022), 1.1 (2023), 1.3 (2024), 1.3 (2025) - Return on equity (Consolidated basis): -3.2 (2020), 10.1 (2021), 9.8 (2022), 12.1 (2023), 13.9 (2024), 14.1 (2025) - Loans to deposits 1/: 88.7 (2020), 84.9 (2021), 83.2 (2022), 80.9 (2023), 77.3 (2024), 78.5 (2025) - Corporate and household sector leverage and liquidity - Corporate sector debt (in percent of GDP): 152.5 (2020), 146.2 (2021), 132.0 (2022), 123.1 (2023), 119.5 (2024), 115.5 (2025) - Household sector debt (in percent of GDP): 66 (2020), 61 (2021), 56 (2022), 50 (2023), 47.8 (2024), 46.9 (2025) - Liquid assets to short-term liabilities: 394.4 (2020), 410.7 (2021), 372.0 (2022), 411.7 (2023), 431.7 (2024), 415.4 (2025) - Real estate market indicators - House price (percentage change, end-period): 1.5 (2020), 6.4 (2021), 5.5 (2022), 4.2 (2023), 11.3 (2024), 12.7 (2025) - Housing completion (2007=100): 14 (2020), 15 (2021), 14 (2022), 14 (2023), 15.6 (2024), 14.2 (2025) - Property sales (2007=100): 52 (2020), 70 (2021), 76 (2022), 70 (2023), 75.5 (2024), 84.1 (2025) ### Balance of Payments: levels and ratios (Billions of euro; Percent of GDP) - Current account (Billions of euro): 40.9 (2023), 50.7 (2024), 49.4 (2025), 39.0 (2026), 35.6 (2027), 34.5 (2028), 32.8 (2029), 32.6 (2030), 32.0 (2031) - Trade balance of goods and services (Billions of euro): 57.5 (2023), 66.3 (2024), 64.5 (2025), 46.6 (2026), 45.8 (2027), 45.2 (2028), 42.6 (2029), 42.2 (2030), 41.0 (2031) - Exports of goods and services (Billions of euro): 566.4 (2023), 590.8 (2024), 618.1 (2025), 647.8 (2026), 676.5 (2027), 709.4 (2028), 741.5 (2029), 775.0 (2030), 809.0 (2031) - Exports of goods: 386.5 (2023), 387.7 (2024), 392.8 (2025), 406.0 (2026), 420.8 (2027), 438.3 (2028), 455.1 (2029), 471.5 (2030), 487.4 (2031) - Exports of services: 180.0 (2023), 203.1 (2024), 225.3 (2025), 241.8 (2026), 255.7 (2027), 271.1 (2028), 286.4 (2029), 303.5 (2030), 321.6 (2031) - Imports of goods and services (Billions of euro): 509.0 (2023), 524.4 (2024), 553.6 (2025), 601.2 (2026), 630.7 (2027), 664.2 (2028), 698.8 (2029), 732.8 (2030), 768.0 (2031) - Imports of goods: 421.5 (2023), 421.5 (2024), 441.8 (2025), 482.0 (2026), 504.1 (2027), 530.7 (2028), 558.7 (2029), 585.9 (2030), 614.6 (2031) - Imports of services: 87.5 (2023), 102.9 (2024), 111.8 (2025), 119.2 (2026), 126.6 (2027), 133.5 (2028), 140.2 (2029), 146.9 (2030), 153.4 (2031) - Primary income (Billions of euro): -4.9 (2023), -4.0 (2024), -1.1 (2025), 4.5 (2026), 6.4 (2027), 5.8 (2028), 7.0 (2029), 7.0 (2030), 7.5 (2031) - Secondary income (Billions of euro): -11.6 (2023), -11.6 (2024), -14.0 (2025), -12.0 (2026), -16.6 (2027), -16.5 (2028), -16.9 (2029), -16.7 (2030), -16.5 (2031) - General government (Billions of euro): -3.6 (2023), -4.5 (2024), -6.1 (2025), -6.0 (2026), -13.0 (2027), -13.9 (2028), -14.6 (2029), -15.4 (2030), -16.2 (2031) - Other sectors (Billions of euro): -8.0 (2023), -7.2 (2024), -7.9 (2025), -5.1 (2026), -2.6 (2027), -1.5 (2028), -1.0 (2029), 0.0 (2030), 1.1 (2031) - Capital account (Billions of euro): 16.9 (2023), 18.1 (2024), 17.2 (2025), 22.5 (2026), 3.8 (2027), 3.6 (2028), 3.5 (2029), 3.3 (2030), 3.2 (2031) - Financial account (Billions of euro): 54.3 (2023), 83.9 (2024), 68.1 (2025), 61.5 (2026), 39.3 (2027), 38.1 (2028), 36.3 (2029), 35.9 (2030), 35.2 (2031) - Direct investment (Billions of euro): 3.5 (2023), 26.7 (2024), 16.0 (2025), 16.4 (2026), 16.8 (2027), 17.3 (2028), 17.9 (2029), 18.5 (2030), 18.0 (2031) - Change in reserve assets (Billions of euro): 6.0 (2023), 1.3 (2024), 0.9 (2025), 0.0 (2026), 0.0 (2027), 0.0 (2028), 0.0 (2029), 0.0 (2030), 0.0 (2031) - Current account (Percent of GDP): 2.7 (2023), 3.2 (2024), 2.9 (2025), 2.2 (2026), 1.9 (2027), 1.8 (2028), 1.6 (2029), 1.5 (2030), 1.5 (2031) - Trade balance of goods and services (Percent of GDP): 3.8 (2023), 4.2 (2024), 3.8 (2025), 2.6 (2026), 2.5 (2027), 2.3 (2028), 2.1 (2029), 2.0 (2030), 1.9 (2031) - Exports of goods and services (Percent of GDP): 37.8 (2023), 37.1 (2024), 36.6 (2025), 36.5 (2026), 36.4 (2027), 36.4 (2028), 36.6 (2029), 36.7 (2030), 36.8 (2031) - Net international investment position (Percent of GDP): -49.3 (2023), -41.0 (2024), -44.8 (2025), -39.1 (2026), -35.2 (2027), -31.6 (2028), -28.6 (2029), -25.8 (2030), -23.1 (2031) - Notes relevant to projections: - Projected grants under the EU Recovery and Resilience Facility (2021-26) are reflected in the Secondary Income and the Capital Account. - Projected loans under the EU Recovery and Resilience Facility (2024-2028) are reflected in Other Investment in the Financial Account and the NIIP, and their corresponding interest payments in the Primary Income. ### External Debt (Billions of euro; Percent of GDP) - Gross External Debt (Billions of euro): 2265.2 (2020), 2363.0 (2021), 2370.4 (2022), 2483.6 (2023), 2574.3 (2024), 2625.1 (2025Q1), 2696.7 (2025Q2), 2696.0 (2025Q3), 2768.2 (2025Q4) - Short-term (Billions of euro): 869.9 (2020), 936.7 (2021), 1015.6 (2022), 978.4 (2023), 963.4 (2024), 979.4 (2025Q1), 978.8 (2025Q2), 964.2 (2025Q3), 1027.7 (2025Q4) - Long-term (Billions of euro): 1395.3 (2020), 1426.3 (2021), 1354.9 (2022), 1505.2 (2023), 1610.9 (2024), 1645.6 (2025Q1), 1718.0 (2025Q2), 1731.8 (2025Q3), 1740.5 (2025Q4) - By sector (Billions of euro): General government: 681.9 (2020) … 808.4 (2025Q4); Bank of Spain: 598.3 (2020) … 569.7 (2025Q4); Other resident sectors: 281.0 (2020) … 306.6 (2025Q4) - Debt securities (Billions of euro): 918.5 (2020), 930.5 (2021), 813.4 (2022), 919.9 (2023), 1004.1 (2024), 1032.3 (2025Q1), 1091.5 (2025Q2), 1092.3 (2025Q3), 1107.7 (2025Q4) - Deposits (Billions of euro): 827.3 (2020), 858.7 (2021), 952.5 (2022), 955.9 (2023), 964.2 (2024), 983.2 (2025Q1), 986.4 (2025Q2), 974.1 (2025Q3), 1045.5 (2025Q4) - Net External Debt 2/ (Billions of euro): 984.0 (2020), 949.8 (2021), 829.2 (2022), 790.5 (2023), 744.6 (2024), 732.0 (2025Q1), 746.5 (2025Q2), 740.2 (2025Q3), 735.6 (2025Q4) - Corresponding Percent of GDP (Gross External Debt): 200.6 (2020), 191.3 (2021), 172.3 (2022), 165.8 (2023), 161.5 (2024), 155.6 (2025Q1), 159.8 (2025Q2), 159.8 (2025Q3), 164.1 (2025Q4) - Net external debt defined as gross external debt minus external assets in debt instruments. ### External Sector Assessment — Overall and Policy Implications - Overall Assessment (preliminary): The external position in 2025 is assessed on a preliminary basis to be moderately stronger than the level implied by medium-term fundamentals and desirable policies. - NIIP and trajectory - NIIP decreased in 2025 to -44.8 percent of GDP from -41 percent in 2024. - Gross liabilities increased to 254.3 percent of GDP by end-2025; nearly 64 percent of gross liabilities correspond to external debt. - TARGET2 liabilities amounted to 24.5 percent of GDP by December 2025. - Projected medium-term improvement in NIIP supported by sustained CA surpluses and temporary positive impact of NGEU disbursements on the capital account until 2026. - Mitigating factors: average maturity of outstanding sovereign debt is almost eight years; limited share of debt denominated in foreign currency is 11.0 percent of total external debt. - 2025 (% GDP) snapshot: NIIP: -44.8; Gross Assets: 209.5; Debt Assets: 99.7; Gross Liab.: 254.3; Debt Liab.: 64.3 - Current Account (CA) - Background: CA surplus declined from 3.2 percent of GDP in 2024 to 2.9 percent of GDP in 2025 due to stronger domestic consumption and investment weakening the saving-investment balance. - Near-term drivers: higher energy prices will raise the energy import bill and further reduce the CA surplus. - Medium-term projection: CA surplus projected to shrink gradually as tourism inflows slow and non-energy imports grow with domestic-demand-led dynamics. - Assessment: 2025 cyclically-adjusted CA balance is 3.4 percent of GDP; IMF staff CA norm estimated between 0.9 and 2.7 percent of GDP with a midpoint of 1.8 percent of GDP. - CA gap: range 0.7 to 2.5 percent of GDP, midpoint 1.6 percent of GDP. - Identified policy gaps: overall estimated contribution of identified policy gaps is -0.4 percent of GDP (high health spending: -0.3 percent of GDP; credit growth relative to rest of world: -0.1 percent of GDP). - 2025 (% GDP) indicators: CA: 2.9; Cycl. Adj. CA: 3.4; EBA Norm: 1.8; EBA Gap: 1.6; Staff Adj.: 0.0; Staff Gap: 1.6 - Real Exchange Rate (REER) - Background: In 2025, CPI- and ULC-based REER appreciated vis-à-vis their 2024 averages by 1.8 and 3.2 percent, respectively. - As of February 2026, the CPI-based REER was 1.9 percent above the 2025 average. - Assessment: IMF staff CA gap implies a REER gap of –5.7 percent in 2025 (elasticity 0.28). The EBA REER index and level models suggest overvaluation of 6.3 percent and 20.2 percent for 2025, driven by large unexplained residuals. - Staff assessment: REER moderately undervalued with a midpoint of 5.9 percent and a range of uncertainty of ±3.6 percent. - Capital and Financial Accounts; Resilience - Capital account surplus remained high due to NGEU-related flows. - Financial account surplus declined to 4.0 percent of GDP in 2025 from 5.3 percent of GDP in 2024, largely driven by the BdE’s balance sheet, partly offset by ‘Other Investment’ outflows. - Assessment: Large external financing needs leave Spain vulnerable to sustained market volatility and tighter global financial conditions. - FX intervention and reserves - Background and assessment: The euro is a global reserve currency; euro area economies typically hold low reserves relative to standard metrics, and the currency is free floating. - Potential policy responses (to support NIIP and CA) - Sustained fiscal consolidation efforts to rebuild fiscal space and raise public saving, thereby increasing the CA and improving the NIIP. - Recognize that growth-enhancing structural reforms (which would boost investment) could offset CA gains; recommended reforms include: - Further efforts to complete the single Spanish market for goods and services. - Facilitate firms’ access to financing through domestic initiatives to boost access to equity and progress towards the EU Savings and Investment Union. - Support innovation by young firms by redesigning the R&D tax credit and streamlining red tape. *Sources: Ministry of Finance; Eurostat; Bank of Spain; Haver Analytics; FSB, Global Shadow Banking Monitoring Report 2017; World Bank Quarterly External Debt Statistics; IMF, Financial Soundness Indicators database; IMF staff estimates, projections, and calculations.* ### Annex II. Risk Assessment Matrix ### Annex II. Risk Assessment Matrix ### Global Risks — Conjunctural Risks - Geopolitical tensions and intensification of conflicts - Relative Likelihood: High - Impact if Realized: Medium - Rising geopolitical tensions, and a weakening of multilateralism, raise the risk of an escalation in military conflicts, accompanied by damage to key physical and financial infrastructure, disruptions in major transit routes and supply chains, higher migration pressures, additional financial frictions and market volatility. - Spain has limited direct linkages to the conflict regions but faces indirect spillovers through higher energy and import prices, supply chain disruptions, elevated uncertainty, and tighter financial conditions, which could weigh on domestic and trading partners’ demand. On the upside, Spain might benefit from a reallocation of tourism flows away from conflict-hit regions. - Policy Response: - Provide targeted and temporary support to vulnerable households and firms to mitigate the impact of higher energy import prices. - Further reallocate public investment to competitiveness-enhancing areas, and accelerate structural reforms that facilitate labor reallocation. - In the event of a conflict escalation with severe adverse macroeconomic consequences, a pause in the implementation of the positive neutral CCyB would be appropriate to avoid pro-cyclical tightening of bank credit amid externally driven financial stress. Likewise, any introduction of housing-related BBMs should be postponed under such scenario. - Trade-Related Risks: Protectionism and Trade Disruptions - Relative Likelihood: High - Impact if Realized: Medium - Tariff and nontariff measures disrupt global supply chains, weighing on activity while increasing inflation. Trade diversion triggers broader protectionism. - External demand has been a key driver of Spain’s GDP growth since COVID-19, albeit less so over the past year. Escalating trade measures could impede global trade and capital flows and lower Spain’s growth. Mitigating factors include the large weight of tourism—which is less exposed a priori—in exports, Spain’s limited direct and indirect export exposures to the US, and the possibility for Spain to become more integrated in European value chains after a reconfiguration of trade. - Alternative Outcome: New Trade Agreements - Relative Likelihood: Low - Impact if Realized: Medium - New trade agreements, particularly the EU–Mercosur trade deal, could help promote trade flows, although Spain’s current export exposure to these markets remains limited. - Policy Response: - If adverse confidence or broader demand effects were to prevail in the short term, opening a large negative output gap, automatic stabilizers should be allowed to operate. In case of a severe adverse shock, discretionary fiscal support could be provided but should be targeted and temporary. - Further promote public investment and accelerate structural reforms in areas that could facilitate global trade, improve competitiveness and facilitate structural transformation, such as through digitalization and infrastructure, building on the progress achieved under NGEU. - Commodity Price Volatility - Relative Likelihood: High - Impact if Realized: Medium - Supply and demand imbalances—triggered by geopolitical tensions, coordinated production decisions, shifts in investor preferences, or structural changes in demand—fuel commodity price swings, amplifying external and fiscal pressures, social unrest, and macro instability. - Spain is a net energy importer, with imported products accounting for about 70 percent of total energy needs. The adverse terms-of-trade shock from a renewed spike in international energy prices would have a material impact on inflation, real national income, and the current account balance. Tighter financial conditions could trigger further deleveraging of the private sector, increase vulnerabilities, lower growth. - Policy Response: - Provide targeted and temporary support to vulnerable households and firms to mitigate the impact of higher energy import prices. - Further reallocate public investment to competitiveness-enhancing areas and accelerate structural reforms that facilitate labor reallocation. - Disorderly AI Correction - Relative Likelihood: High - Impact if Realized: Medium - An abrupt revision in expectations of strong AI-led productivity gains causes a sharp market correction, investment decline, and wealth loss, which suppress demand and tighten financial conditions globally. - Tighter financial conditions—including through wider risk premia—and weaker external demand would weigh on domestic demand—particularly investment—and exports, respectively. Mitigating factors include well-capitalized and liquid banks, healthy private sector balance sheets, and a relatively small—compared to euro area—NBFI sector with limited links to banks. - Policy Response: - A pause in the implementation of the positive neutral CCyB would be appropriate to avoid pro-cyclical tightening of bank credit amid externally driven financial stress. Likewise, any introduction of housing-related BBMs should be postponed under such scenario. - Allow automatic stabilizers to play, and if the downturn is severe, consider targeted and temporary discretionary stimulus. - Fiscal Vulnerabilities and higher Interest Rates - Relative Likelihood: High - Impact if Realized: High/Medium - Higher public debt and deficit levels put further upward pressure on long-term interest rates, sharply tightening global financial conditions, amplifying currency volatility, and reducing consumption and investment that exacerbate adverse debt dynamics. Disruptions are amplified by the increased role of price-sensitive investors and leveraged NBFIs in sovereign debt markets, limited market absorption capacity when NBFIs offload debt securities, higher roll-over needs on shorter sovereign debt maturities, and strong sovereign-financial nexus. Concurrently, capital outflows from emerging and developing economies elicit a sharp increase in short-term rates. - Higher risk premia on Spanish sovereign bonds would increase the cost of financing the fiscal deficit, further reducing the already limited fiscal space and deteriorating the long-term sustainability of public finances. This would be mitigated by Spanish public debt’s long maturity and denomination in euros. - Policy Response: - Bolster the national medium-term fiscal structural plan by adopting concrete discretionary fiscal measures and reforms that strengthen the pace and credibility of Spain’s envisaged medium-term fiscal consolidation path. - Policy Uncertainty - Relative Likelihood: High - Impact if Realized: Medium - Elevated and wide-ranging policy uncertainty weighs on sentiment and holds back consumption and investment. Political interference in independent economic institutions erodes public confidence and trust and raises the risk of policy mistakes. - External demand has been a key driver of Spain’s GDP growth since the GFC, albeit less so over the past year. Escalating trade measures could impede global trade and capital flows and lower Spain’s growth. Mitigating factors include the large weight of tourism—which is less exposed a priori—in exports, Spain’s limited direct and indirect export exposures to the US, and the possibility for Spain to become more integrated into the European value chains after a reconfiguration of trade. - Policy Response: - If adverse confidence or broader demand effects were to prevail in the short term, opening a large negative output gap, automatic stabilizers should be allowed to operate. In case of severe adverse shock, discretionary fiscal support could be provided but should be targeted and temporary. - Further promote public investment and accelerate structural reforms in areas that could facilitate global trade, improve competitiveness and facilitate structural transformation, such as through digitalization and infrastructure, building on the progress achieved under NGEU. ### Structural Risks - Cyberthreats - Relative Likelihood: High - Impact if Realized: High/Medium - Cyberattacks on physical or digital infrastructure, technical failures, or misuse of AI technologies could trigger financial and economic instability. - Spain has accelerated digital transformation in recent years. Widespread use of digital infrastructure makes the financial system as well as the real economy potentially more vulnerable to cyber-attacks. - Policy Response: - Increase public sector resources devoted to cyberthreats. - Supervisors to conduct more onsite examinations and increase thematic reviews related to cyber risks. - In the event of a systemic event hitting the financial sector, the Bank of Spain should provide emergency liquidity assistance. - Climate Change - Relative Likelihood: Medium - Impact if Realized: Medium/Low - Extreme climate events and rising temperatures could cause loss of life, damage to infrastructure, food insecurity, supply disruptions, and heighten economic and financial instability. - The occurrence of climate-related events (e.g., floods, droughts, heatwaves, wildfires) disrupts economic activity and amplifies inflationary pressures. The overall impact would depend on the size of the shock and the extent of damage. Although water stress is on the rise in Spain and the 2025 wildfires were devastating, these and other recent climate events have had a relatively small impact on overall economic activity. - Policy Response: - Provide targeted fiscal policy support to households and firms affected by extreme events. - Promote public investment and accelerate structural reforms in areas that could improve efficiency, resilience of productive activities, and reallocation of resources away from activities that are structurally more vulnerable to damages from recurring climate events. - AI Acceleration - Relative Likelihood: Medium - Impact if Realized: Medium - Rapid AI adoption significantly improves productivity, boosts growth, and revives business dynamism. Realizing these gains requires complementary policies to manage energy constraints, scale critical inputs, and support labor market transitions. - Recent announcements of multiyear data hub investment projects by multiple companies in Spain could be the harbinger of further new investments and larger gains from AI in the future. At the same time, an acceleration of AI deployment could disrupt the labor market by inducing fast shifts in skills demanded by employers and large labor reallocation needs. Given already high levels of labor market mismatch in Spain (including in workers’ fields of study) and labor market institutions that do not facilitate workers’ mobility (such as tight job protection for regular workers and still insufficiently effective active labor market policies), this could raise Spain’s high structural unemployment. - Policy Response: - For workers currently in the labor market, support transitions to growing sectors by scaling up and enhancing training programs to acquire new skills and improving the job placement performance of regional public employment services. - Make educational curricula more attuned and responsive to evolving labor market demands. Promote excellence in higher education by strengthening university autonomy in the recruitment, promotion and remuneration of professors, bolstering research collaboration with businesses. ### Domestic Risks - Prolonged political fragmentation - Relative Likelihood: Medium - Impact if Realized: High - Failure to overcome difficulties in building political majorities in a highly fragmented parliament undermines the credibility of the government’s fiscal commitments, including in the event of an adverse external event that would tighten financial conditions and warrant a contractionary fiscal response. - Potential inaction, as well as uncertainty about medium-term fiscal commitments, could weaken confidence, investment, and employment, adversely impacting public debt dynamics and triggering adverse market reactions. - Policy Response: - Chart a politically acceptable path towards credible, sustained and growth-friendly discretionary fiscal consolidation. - Reform the regional financing framework to reduce fiscal risks. - Align the national fiscal rule to the EU fiscal framework to increase fiscal policy predictability. - Implementation of EU-funded projects - Relative Likelihood: Medium - Impact if Realized: High - The size, composition and implementation timing of remaining EU-funded spending to support investments and structural reforms could end up resulting in less economic stimulus than projected. - Investment under the EU-funded projects is an important driver of near-term economic growth, with expected disbursements of around 1.2 percent of GDP in 2026. - Policy Response: - Redouble efforts to ensure efficient coordination (including with Spanish regions), implementation, and oversight of the amended Recovery, Transformation and Resilience Plan. - Continued house price boom - Relative Likelihood: Low - Impact if Realized: Medium - A combination of accelerating house prices and loosening of lending standards could create financial stability risks by increasing household indebtedness and the likelihood of defaults in the event of a market correction. - A sharp correction in house prices could trigger a rise in loan defaults, particularly among more vulnerable or highly-indebted households. The resulting losses on their loan portfolios could lead banks to tighten credit conditions. A mitigating factor, which would contain bank losses in the first place, is the household sector’s currently moderate indebtedness. - Policy Response: - Boost housing supply to dampen house price growth. - To mitigate the macro-financial risks from a continued house price boom introduce mortgage-related BBMs (e.g. LTV or LTP), at least in the form of supervisory guidance, turning them into binding limits if lending standards loosen further and house price growth fails to moderate significantly. Postpone this introduction in the event of a sharp downturn associated with a tightening of credit conditions. ### Annex III — Sovereign Risk and Debt Sustainability (Highlights from Annex III) - Public sector gross debt: 100.7 percent of GDP (current level). - Baseline projection: - Debt is projected to fall to 98.6 percent of GDP in 2026 and to 90.7 percent of GDP by 2031. - The projected debt trajectory is susceptible to moderate risk in the medium term. - Key background points: - Public debt definition: EDP debt in the hands of the General Government (Central Government, Regional Governments, Local Governments, Social Security Funds), recorded at nominal value. - Public debt rose to 119.3 percent from 97.7 percent in 2019 due to COVID-19 fiscal response. - Over 2023-2025, the debt ratio continued to decline, albeit at a slower pace due to fiscal packages introduced in 2022 and phased out until end-2024. - Financing conditions and market developments: - Interest payments on public debt were 2.3 percent of GDP in 2019; the 10-year bond yield averaged 0.7 percent in 2019. - Spain’s 10-year bond yield averaged 0.36 percent over 2020-2021; peaked at 3.95 percent in October 2023. - Average yield was 3.3 percent in late 2025; increased to 3.5 percent at the end of March 2026 following the war in the Middle East. - The spread over the German bund declined from an average of 100bps in 2023 to less than 50 bps by the end of March 2026. - Debt structure: - Average residual maturity: 7.9 years. - Share of total debt held by the Bank of Spain: peaked at 28.5 percent in mid-2022, fell to 20.9 percent by late 2025. - Share held by non-residents rose from 41.6 to 48.6 percent over the same period; share held by other residents remained stable at 30 percent. - Baseline scenario assumptions and fiscal details: - No additional fiscal measures beyond those already approved or clearly identified. - Gradual rise in PIT revenues of 0.6 percentage points of GDP over 2025-2031 due to non-indexation of central government PIT brackets and gradual updating of some autonomous communities’ brackets. - Phasing-in of higher social security contributions following the 2021-2023 reforms. - Temporary measures to counter the energy price shock worsen the fiscal balance in 2026 by 0.3 percent of GDP. - Public sector wage bill projected to grow permanently by 0.2 percent of GDP in 2027, following a 4.5-5 percent rise in wages of civil servants as planned under a multi-year sectoral agreement signed in February 2026. - Spain’s commitment to reach 2 percent of defense-related spending starting from 2025 implies a permanent increase in spending equal to 0.7 percent of GDP under the NATO definition; the fiscal impact in national account terms is expected to be milder and gradual, reaching full magnitude towards the end of the forecast horizon. - EU Recovery and Resilience Fund: grants amounting to €80 billion (about 4.8 percent of 2025 GDP) assumed disbursed in full over 2021–27 (including €25 billion over 2026-27) and are fiscally neutral. - Approximately €22 billion of loans (26 percent of the total available amount) assumed drawn over 2025–28, of which approximately €6 billion used for spending and the remaining sum dedicated to credit guarantee and lending programs; loan component raises debt-to-GDP by approximately 1.2 percentage points by 2028, which then shrinks gradually. - Interest expenditure projected to grow from 2.4 to 2.8 percent of GDP over the projection horizon. - Gross financing needs projected to decline from 15.1 percent of GDP to 13.8 percent by 2031. - Over 2026-2031, contributions to the Social Security Reserve Fund are assumed to amount to € 4.6 billion per year. - Overall assessment: - Additional fiscal consolidation will be needed to rebuild buffers. - In the long run, population aging will exert mounting fiscal pressures which, if not addressed early on, would set debt on a sustained upward trajectory. *Source: Annex II. Risk Assessment Matrix and Annex III. Sovereign Risk Debt Sustainability Analysis (selected excerpts).* ### 7. Overall Assessment. Staff assess the overall risk of debt distress as moderate, with higher ### 7. Overall Assessment ### Overall findings - Staff assess the overall risk of debt distress as moderate, with higher risks in the medium-to-long term. - Despite a steady and significant debt reduction since 2020, debt and gross financing needs remain high, making debt dynamics and rollover risk sensitive to a potential tightening of credit conditions, lower GDP growth, and/or a weakening of the fiscal position. - In the long term, aging-related expenditures will exert major fiscal pressures, entailing high debt distress risk. - Mitigating factors include the high share of debt held by the ECB—although decreasing—and domestic investors, as well as the maturity profile tilted towards longer durations. *Commentary synthesized from text:* The significant share of debt held by domestic investors and the European Central Bank—although the latter is decreasing—as well as its long average maturity are strong mitigating factors. In the medium term, the projected fiscal path leads to moderate debt reduction but the debt-to-GDP ratio remains high at 90 percent, implying a high sensitivity of the debt trajectory to lower growth, tighter financial conditions, and/or a weakening of the fiscal position. In the long run, population ageing constitutes a high risk for debt dynamics. If unaddressed, increasing pensions and health costs will set debt on an upward trajectory starting in the mid-2030s. ### Realism of baseline assumptions - Past forecast errors for public debt, the interest rate-growth rate differential (r-g), and other macroeconomic variables do not show systematic bias in past projections. - The projected 3-year reduction in debt and the improvement in the cyclically adjusted primary balance are high but not unrealistic compared to historical experience: - The 3-year debt reduction is at the 75th percentile of the respective historical distribution among peer countries. - The 3-year improvement in the cyclically adjusted primary balance is at the 65th percentile of the respective historical distribution among peer countries. - The realism analysis notes that in the last five years, large deficits from the responses to the pandemic and the energy crisis were the main upward driver of debt but will contribute to debt reduction over the forecast horizon. - Real growth is expected to continue to drive debt reduction in the medium term. ### Medium-term risk (horizon to 2031) - Fan chart exercise: - Points to high distress risk at the 2031 horizon due to a still high debt level and a high probability of non-stabilization under the baseline fiscal path. - Debt fanchart module: Debt fanchart index (DFI) = 2.2 → Risk signal: High. - Probability of debt non-stabilization (percent) = 32.0. - Terminal debt-to-GDP x = 36.6. - Gross financing needs (GFN) exercise: - Signals moderate medium-term risk. - Average baseline GFN (percent of GDP) = 14.3. - GFN financeability index (GFI) = 9.6 → Risk signal: Moderate. - Initial banks' claims on the general government (pct bank assets) = 10.1. - Change in banks' claims in stress (pct bank assets) = 4.4. - Medium-term index and summary: - Final assessment: Medium-term risks are assessed as moderate, but the fanchart shows high risk due to sensitivity of debt dynamics. - Final assessment probabilities: Prob. of missed crisis, 2026-2031, if stress not predicted = 18.2 pct.; Prob. of false alarms, 2026-2031, if stress predicted = 21.6 pct. - Commentary: Under the baseline, debt is projected to decline but remain high at 90 percent of GDP in 2031. Debt dynamics are thus very sensitive to exogenous shocks, a rise in bond yields, or a worsening of the fiscal balance. ### Long-term risk (aging and fiscal pressures) - Main source of long-term risk: fiscal pressures related to population aging. - Key projections and estimates (between 2025 and 2050): - Estimates of the rise in expenditures as a share of GDP range from 4.5 percentage points (AIReF) to 5.1 percentage points (European Commission’s Ageing Report 2024). - Accounting for a minor offset from mechanically lower education expenditures, the net projected aging costs are: - 3.9 percentage points for AIReF. - 4.7 percentage points for the Ageing Report 2024. - Staff projection using AIReF’s cost estimates: - Unaddressed aging pressures would raise the debt-to-GDP ratio by 4 percentage points higher in 2040 and 22 percentage points higher in 2050, relative to a scenario in which they are fully addressed. - Long-term amortization and GFN signals: - The overall long-term amortization risk signal is not triggered under some extrapolations, but extrapolation based on historical averages implies a high amortization risk (influenced by the COVID-19 period). - Final long-term assessment: High risk due to significant pressures on healthcare, long-term care, and pensions outlays driven by population aging. If not addressed, these pressures will decisively set debt on an upward path. ### Baseline projections and key statistics (selected figures preserved exactly) - Public debt (percent of GDP): - Actual 2025 = 100.7 - 2026 = 98.6 - 2027 = 96.6 - 2028 = 94.6 - 2029 = 93.4 - 2030 = 92.1 - 2031 = 90.7 - 2032 = 89.5 - 2033 = 88.4 - 2034 = 87.3 - 2035 = 86.5 - Change in public debt (percent of GDP, selected years): - 2025 = -1.0 - 2026 = -2.0 - 2027 = -2.0 - 2028 = -2.0 - 2029 = -1.2 - 2030 = -1.3 - 2031 = -1.3 - Primary deficit (percent of GDP): - 2025 = 0.5 - 2026 = 0.2 - 2027 = 0.1 - 2028 = -0.1 - 2029 = -0.1 - 2030 = -0.2 - 2031 = -0.3 - Noninterest revenues and expenditures (percent of GDP): - Noninterest revenues 2025 = 42.4; 2026 = 43.4; 2027 = 43.5; 2028 = 43.1. - Noninterest expenditures 2025 = 42.9; 2026 = 43.5; 2027 = 43.5; 2028 = 43.1. - Automatic debt dynamics (percent of GDP): - 2025 = -3.2; 2026 = -2.4; 2027 = -1.9; 2028 = -1.7; 2029 = -0.9; 2030 = -0.9; 2031 = -0.8. - Real interest rate and relative inflation (percent): - 2025 = -0.4; 2026 = -0.3; 2027 = -0.2; 2028 = 0.0; 2029 = 0.6; 2030 = 0.7; 2031 = 0.7. - Gross financing needs (percent of GDP): - 2025 = 15.1 - 2026 = 15.0 - 2027 = 14.8 - 2028 = 14.4 - 2029 = 14.3 - 2030 = 14.0 - 2031 = 13.8 - Of which: debt service 2025 = 15.1; 2026 = 15.2; 2027 = 15.1; 2028 = 14.9; 2029 = 14.8; 2030 = 14.7; 2031 = 14.5. - Memo indicators: - Real GDP growth (percent): 2025 = 2.8; 2026 = 2.1; 2027 = 1.8; 2028 = 1.8; 2029 = 1.7; 2030 = 1.7; 2031 = 1.7. - Inflation (GDP deflator; percent): 2025 = 2.9; 2026 = 3.0; 2027 = 3.0; 2028 = 2.9; 2029 = 2.3; 2030 = 2.3; 2031 = 2.3. - Nominal GDP growth (percent): 2025 = 5.8; 2026 = 5.2; 2027 = 4.8; 2028 = 4.8; 2029 = 4.0; 2030 = 4.1; 2031 = 4.1. - Effective interest rate (percent): 2025 = 2.5; 2026 = 2.7; 2027 = 2.8; 2028 = 2.9; 2029 = 3.0; 2030 = 3.1; 2031 = 3.2. ### Policy implications and recommended directions (textual content preserved) - Further reforms will be needed to complement the 2021-2023 pension reforms, to either increase the revenues of the social security system or contain future outlays. - If aging-related pressures are not addressed, increasing pensions and health costs will set debt on an upward trajectory starting in the mid-2030s. *Source: IMF staff (chapters and annexes summarized from the provided content).* ### Annex IV. Data Issues ### Annex IV. Data Issues ### Data Adequacy Assessment (Table 1) - Median Rating: A - Sectoral median ratings reported: - National Accounts: B - Prices: A - Government Finance Statistics: A - External Sector Statistics: A - Monetary and Financial Statistics: A - Inter-sectoral Consistency: A - Data quality characteristics (selected): - Coverage: B (National Accounts), A (Prices), A (Government Finance Statistics), A (External Sector Statistics), A (Monetary and Financial Statistics), B (Inter-sectoral Consistency) - Consistency: A across reported sectors where answered - Frequency and Timeliness: A across reported sectors where answered - Granularity: top/bottom cell distinctions noted for Government Finance Statistics and Monetary and Financial Statistics (see staff notes) - Overall staff assessment statements included in the table: - "The data provided to the Fund are adequate for surveillance." - "The data provided to the Fund have some shortcomings but are broadly adequate for surveillance." - "Use of data and/or estimates in Article IV consultations in lieu of official statistics available to staff. N/A" - "Other data gaps ." - "Changes since the last Article IV consultation . N/A" - "Corrective actions and capacity development priorities . N/A" - Severity categories listed (for reference): adequate; some shortcomings that somewhat hamper surveillance; serious shortcomings that significantly hamper surveillance. ### Other Data Issues and Gaps - Execution of NGEU investments: - "The data on execution of NGEU investments has improved significantly and is published on a timely basis, but reporting is not done in national accounts terms." - Staff suggestions for improvements: - Reduce the sizes of expenditure-based GDP components' revisions. - Improve GDP data granularity, including publishing separately private and public investment. - Enhance consistency across different data sources (for example, trade data in the national accounts versus in BOP) at preliminary data releases. ### Rationale for Staff Assessment - Staff conclusion: "Staff assess the overall data quality for Fund's surveillance to be adequate." - Identified further improvements (verbatim): - "reducing the sizes of expenditure-based GDP components' revisions" - "improving GDP data granularity including by publishing separately private and public investment" - "enhancing the consistency across different data sources (for example, trade data in the national accounts versus in BOP) at preliminary data releases." ### Table of Common Indicators Required for Surveillance (Annex IV. Table 3, as of April 20, 2026) - Date of Latest Observation / Date Received / Frequency / Frequency of Reporting / Expected Frequency / Expected Timeliness entries are reported in the table with mixed formatting and coded frequency/timeliness indicators (examples preserved exactly as shown): - "21-Apr-26 20-Apr-26 D D D ........." - "Mar-26 Apr-26 M M M M 1W 2W" - "Dec-25 Apr-26 Q Q Q Q 1Q 1M" - "Dec-25 Mar-26 Q Q Q Q 1Q 1Q" - "Jan-26 Mar-26 M M M M 1M 90D" - "Dec-25 Apr-26 Q Q Q Q 4M 3M" - "Dec-25 Mar-26 Q Q Q Q 1Q 60D" - "Dec-25 Mar-26 Q Q Q ... 1Q 3M" - "Dec-25 Mar-26 Q Q Q Q 1Q 3M" - Notes and definitions included in the table: - Frequency and timeliness codes: (“D”) daily; (“W”) weekly or with a lag of no more than one week after the reference date; (“M”) monthly or with lag of no more than one month after the reference date; (“Q”) quarterly or with lag of no more than one quarter after the reference date; (“A”) annual.; ("SA") semiannual; ("I") irregular; ("NA") not available or not applicable; and ("NLT") not later than. - Encouraged frequency and timeliness under the e-GDDS and required frequency and timeliness under the SDDS and SDDS Plus are noted; flexibility options or transition plans under SDDS/SDDS Plus are not reflected. - Footnotes clarify scope of indicators (examples preserved verbatim): - "Includes net market value of derivative positions." - "Required only from Members with Systemically Important Financial Sectors." - "Other depository corporations include all deposit-taking corporations (except for the central bank) and money market funds." - "Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds." - "Foreign, domestic bank, and domestic nonbank financing." - "The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments." - "Including currency and maturity composition." - Data items listed (headlines preserved): Exchange Rates; International Reserve Assets and Reserve Liabilities of the Monetary Authorities; Stocks of Central Government and Central Government-Guaranteed Debt; Total Stock of General Government Debt; External Current Account Balance; Exports and Imports of Goods and Services; GDP/GNP; Gross External Debt; Sectoral Breakdown of Credit from Other Depository Corporations; Currency Breakdown (domestic vs. foreign currency) of Other Depository Corporations’ Total Assets and Credit Indicators (total and sectoral breakdowns); Interest Rates; Consumer Price Index; Revenue, Expenditure, Balance and Composition of Financing ‒ General Government; Revenue, Expenditure, Balance and Composition of Financing ‒ Central Government; Reserve/Base Money; Broad Money; Central Bank Balance Sheet; Consolidated Balance Sheet of the Banking System; Total Assets of Other Depository Corporations; Total Credit from Other Depository Corporations; Banks’ Financial Soundness Indicators; Residential Real Estate Prices; Data Provision to the Fund; Publication under the Data Standards Initiatives through the National Summary Data Page. ### Follow-up: Implementation of 2025 AIV Policy Recommendations (Annex V excerpts included) - Fiscal consolidation and fiscal framework: - Authorities overachieved on their overall deficit target of "2.5 percent of GDP" for 2025 (down from "3.2 percent of GDP" in 2024) stated in their Medium-Term Fiscal-Structural Plan (MTFSP). - Excluding one-off DANA floods expenditures, the deficit was "2.2 percent of GDP." - To deliver the cumulative increase in the structural primary balance of "3 percentage points of GDP" envisioned over 2025-2031, and to frontload over 2025-2030 as staff recommended, authorities will need to accelerate discretionary fiscal consolidation. - MTFSP gaps noted: - Does not contain projections for total revenues and expenditures nor their main components. - Does not provide detailed and quantified fiscal measures underpinning the fiscal path. - Does not break down planned consolidation by government level. - Five-year-ahead projections of revenues and expenditures were absent from the Annual Progress Report published in April 2026. - Spain did not submit to the European Commission a Draft Budgetary Plan for 2026. - Tax reform and bank tax: - "The authorities have no plan for broad VAT reform." - A planned alignment of excise taxes for diesel on gasoline was tabled to Congress in 2025 but did not secure parliamentary approval. - The redesigned tax on banks remains temporary, expiring at the end of 2026, "with the corresponding revenue collected in 2027." - Spending efficiency and spending review: - Ministry of Finance has followed through on AIReF's recommendations from past spending reviews. - Upcoming spending review topics requested from AIReF remain narrow in scope rather than covering key functional areas. - AIReF and the Spending Review Monitoring Unit do not serve a strategic role in topic selection; spending review process remains self-standing and tightly linked to medium-term fiscal planning. - Autonomous Communities financing: - Authorities’ proposal for partial absorption by the central government of autonomous communities’ debt included in an organic law proposal in September 2025. - Under the proposal, access to subsidized central government financing in 2026 will be subject to presenting multi-annual debt plans for a transition towards market-based debt issuance. - Proposed reforms include eliminating the Facilidad Financiera and enforcing narrower eligibility and stricter conditionality in central funding from the Fondo de Liquidez Autonómico. - In January 2026, authorities published a proposal reforming taxes included in the financing scheme, repartition criteria, and envelope of additional transfers. - Pensions and labor market: - Reforms passed to ease requirements for the "flexible retirement" modality, allowing more retirees to re-enter the labor force. - No substantial reforms under consideration to mitigate projected increases in pension outlays or to increase revenues. - AIReF’s next review of the pension system scheduled for "June 2026"; it is expected to consider a narrower definition of revenues and a narrow set of potential corrective measures, but will continue to rely on the same future net spending threshold and an unchanged underlying definition of sustainability. - No plans to increase AIReF’s involvement in preparatory phases of medium-term fiscal planning or to grant AIReF more autonomy in topic selection. - No plans to reform Organic Law 2/2012 (subnational fiscal rule). - Labor market measures and contracts: - No reforms since 2021 to provide additional incentives for employers to create regular contracts; Supreme Court ruled against adjusting compensation for unfair dismissals to individual circumstances in December 2025; authorities contemplating potential legislative changes to grant labor court judges discretion. - No changes to statistical reporting on fixed discontinuous contracts are under consideration. - "Process for the Stabilization and Consolidation of Temporary Employment in the Public Sector" was not completed by end-2024; incidence of temporary employment in the public sector remains high, "about 30 percent." - Public Employment Service (PES) has strengthened the link between regional offices' funding and job placement efforts; no other major reforms to activation requirements or integration of active and passive policies; ALMP budget is higher but no evidence of significant shift towards job placement activities. - Unemployment assistance (UA) reform adopted in November 2024: reduced benefit amount over time while raising its initial level; made benefit receipt temporarily compatible with work; established personalized activation itineraries; activation requirements and enforcement remain unchanged. - Proposed reduction of the working week in the private sector was rejected by Parliament in September 2025. - Minimum wage will be increased by "3.1 percent" in 2026, to maintain purchasing power and go beyond the government's goal of maintaining its level at around "60% of the average national salary"; institutional setup of the Minimum Wage Commission remains unchanged. - Firms, innovation, and housing: - ICO launched "ICO Crecimiento", a direct financing instrument targeted at SMEs with high growth potential. - Spanish government led the Competitiveness Lab initiative launched in October 2025 as a pilot framework for the Savings and Investments Union (SIU); first project "Finance Europe Label." - "Regime 20" initiative to cut regulatory barriers between regions is proceeding gradually; tax and regulatory thresholds remain unchanged; no tertiary education reform being contemplated. - NGEU funds: December 2025 European Commission addendum simplifies milestones and targets to accelerate grant disbursement; no major recent reprioritization of projects or improvement in data collection and reporting in national accounting terms. - Real estate monitoring: BdE regularly publishes and monitors commercial and residential real estate prices and banking system performance; monitoring of foreign investment in real estate improved via updates to quantitative reporting templates. - Countercyclical capital buffer (CCyB): On October 1, 2024, BdE approved activation of a "1 percent" CCyB phased in through two steps: "0.5 percentage points" effective October 1, 2025, and full "1 percent" effective October 1, 2026; two-step activation implemented as planned. - Housing supply: Land Law reform has so far failed to be adopted in Parliament; regional/municipal fast-track measures heterogeneous and have not materially reduced approval processes; progress on expanding affordable and social housing has been made via mobilization of public land and housing assets including transfer of SAREB properties and land to the new public housing vehicle. - Rent caps: Not reconsidered; extended to municipalities in the Basque Country, Navarra, and Galicia; other municipalities considering or have submitted applications (e.g., municipalities in Madrid, Canary Islands, Asturias). - Financial sector and FSAP follow-up: - Progress on 2024 FSAP recommendations implementation has varied across recommendations; some measures implemented at agency level while others require inter-agency coordination or legislative changes. "See Annex VII." - Anti-corruption / transnational aspects: - Recent legislative reforms aim to accelerate criminal proceedings and modernize criminal justice system to help tackle foreign bribery; authorities reported enhanced enforcement efforts. - Updated brochure "Combating Corruption in International Business Transactions" distributed to raise awareness. - Strengthening beneficial ownership register and scrutiny of banks and professional enablers; advance efforts to reinforce asset recovery through draft legislation under the State Anti-Corruption Plan approved in 2025. *Source: Annex IV. Data Issues (and attendant tables and Annex V implementation summaries) as provided in the content unit.* ### Annex VI. Implementation of 2024 FSAP Recommendations ### Annex VI. Implementation of 2024 FSAP Recommendations ### Systemic risk analysis and monitoring - Recommendation 1: Enhance data collection and monitoring of foreign investments in the real estate market. - Addressees: BdE, CNMV, DGSFP - Update: BdE secured access to Real Capital Analytics transaction data. DGSFP amended quantitative reporting templates, notably the real estate investment template now requires reporting the asset’s latitude and longitude. The amendment was proposed in 2024 and adopted in 2025Q1. - Recommendation 2: Create the infrastructure for a more granular cash-flow analysis (as designed by the FSAP) and report regular stress testing results. - Addressee: BdE - Update: BdE published the granular cashflow analysis in the Spring 2025 Financial Stability Report (Box 3.2). The analysis will be updated on an annual basis. ### Financial sector oversight - Recommendation 3: Ensure alignment of resources of supervisory authorities to current and expected future workload. - Addressees: Government, BdE, CNMV, DGSFP - Update: CNMV onboarded 80 specialists in 2025; plans to hire at least 30 additional staff in 2026 with IT expertise. BdE made hires in 2024-2025 to expand IT risk staff for the Directorate General Banking Supervision to support DORA and MiCAR implementation and is conducting continuous staffing assessments. DGSFP adapted its Technology and Digital Innovation Supervision Division with 32 hires in 2025; 35 planned for 2026-27 under the government’s public offer; targeted outsourcing to fill technical gaps. - Recommendation 4: Grant full autonomy to CNMV over its recruitment and retention processes and streamline related procedures. - Addressees: Government, CNMV - Update: No action. Continued absence of recruitment autonomy has contributed to high staff turnover and increasing difficulty in retaining talent at CNMV. ### Macroprudential policy - Recommendation 5: Deploy policies, including but not necessarily limited to, the introduction of a positive neutral countercyclical buffer, to ensure that banks raise capital buffers to be better positioned against downside tail risks. - Addressees: BdE, AMCESFI - Update: On October 1, 2024, BdE approved a framework for setting the CCyB and set the initial rate at 0.5 percent, effective from October 1, 2025. The buffer rate was subsequently increased to 1.0 percent in 2025Q4 (effective from October 1, 2026). - Recommendation 6: Increase the minimum frequency of AMCESFI Council meetings and raise the profile and transparency of AMCESFI by publishing meeting minutes / summaries and timely Annual Reports. - Addressee: AMCESFI - Update: Limited action. 2024 annual report was published on July 17, 2025. No progress on increasing meeting frequency or enhancing transparency. - Recommendation 7: Review the case for appointing two or three external members to AMCESFI to strengthen the diversity of perspectives and expertise. - Addressees: MINECO, AMCESFI - Update: No action. - Recommendation 8: Further develop and deepen the macroprudential framework by addressing remaining data and information gaps, as well as by strengthening reporting requirements. - Addressees: BdE, CNMV, DGSFP, AMCESFI - Update: CNMV is using commercial databases to address data gaps for foreign funds marketed in Spain and funds in which Spanish funds invest; portfolio holdings data are used to improve liquidity mismatch analysis, stress tests, and interconnectedness analysis. BdE, CNMV, and DGSFP continue efforts to close data gaps. Act No. 5/2025 introduced preventive recovery plans via new Article 66a into Act No. 20/2015, allowing DGSFP to require certain insurers to prepare plans based on risk profile and systemic relevance. DGSFP is supervising integration of sustainability risks into insurers’ governance, working with AMCESFI and Consorcio de Compensación de Seguros on stress-testing physical and transition risks, analyzing the insurance protection gap, and has developed a macroprudential IT tool to support risk monitoring. ### Supervision and regulation of banking LSIs - Recommendation 9: Enhance BdE’s independence by removing MINECO appeal powers against BdE supervisory decisions and sanctions and limiting the role of government’s representatives in the BdE Governing Council. - Addressee: MINECO - Update: An amendment to remove MINECO appeal powers is under parliamentary discussion as part of legislation on the Law for the Creation of the Independent Administrative Authority for Financial Consumer Protection. No progress since then. - Recommendation 10: Streamline the offsite monitoring system and apply proportionality in conducting SREPs while performing more frequent and targeted onsite inspections and thematic activities. - Addressee: BdE - Update: Progress toward streamlining offsite monitoring and applying proportionality to SREP. Starting in 2025 (and until 2027, as part of a 3-year cycle), a multi-year approach will adjust SREP depth and frequency by institution impact and risk. High-priority and high-risk LSIs will remain subject to annual full scope SREP. Focus on key risk areas by business model between 2025 and 2027, with more intrusive analysis planned to check implementation of findings. - Recommendation 11: Strengthen BdE onsite inspection activities on LSIs’ governance and risk management, particularly management of liquidity risk and interest rate risk in the banking book. - Addressee: BdE - Update: BdE enhanced onsite inspections with targeted inspections on governance, climate, and interest rate and liquidity risks in 2025. Four new staff were hired to support these activities; additional resources are being considered. Aim to increase targeted inspection activities in subsequent years. ### Regulation, Supervision and Oversight of FMIs - Recommendation 12: Ensure that international supervisory coordination arrangements with other supervisors reflect scope and degree of interconnectedness of BME Clearing, Iberclear and their foreign parent company. - Addressee: CNMV - Update: Since EMIR 3.0 entry into force, CNMV co-chairs with ESMA the College of Supervisors of BME Clearing. Ongoing engagement with ESMA on supervisory and emerging issues. Coordination with FINMA has intensified given SIX Group’s planned integration of BME Clearing and SIX x-clear, including frequent bilateral and trilateral meetings, FINMA participation in supervisory colleges, and joint supervisory activities. Cooperation with the Eurosystem/BdE has strengthened, including work toward a potential Memorandum of Understanding. - Recommendation 13: Ensure timely implementation of CNMV’s recommendations. - Addressee: CNMV - Update: CNMV holds regular (at least monthly) supervisory meetings with BME Clearing to monitor progress and action plans. BME Clearing has undertaken remedial measures: enhanced capital monitoring, improvements in margin and risk management, SLAs for outsourcing, and multi-segment fire drills. Iberclear has addressed risks from external links, outsourcing arrangements, and other identified issues ahead of annual reviews. ### Cyber Security Risk Supervision and Oversight - Recommendation 14: Conduct onsite examinations as part of FMI supervision; conduct more thematic reviews while maintaining short onsite visits to a sample of LSIs; develop a lighter threat intelligence based red-teaming framework based on TIBER-ES principles. - Addressees: CNMV, BdE, MINECO - Update: CNMV observed a Business Continuity Plan test exercise at the BME Group level on October 28, 2025; additional onsite supervisory activities are scheduled for 2026, some with FINMA cooperation. BdE hired one new expert in FMI and two new experts in IT to expand the cybersecurity supervision team and deepen understanding of FMIs' cyber resilience. A memorandum of understanding with CNMV is under development. Directorate General Banking Supervision began thematic reviews in 2024, including a sample of six LSIs in horizontal analysis for Spanish SIs focusing on digitalization and DORA preparedness; a new horizontal analysis is planned for 2026 including LSIs and all Spanish SIs. - Recommendation 15: Involve the BdE and CNMV in critical infrastructure related matters, such as designation and compliance assessments. - Addressee: Government - Update: No action. ### Fintech - Recommendation 16: Delegate powers to the Coordination Commission and the regulators to make changes to sandbox operation, streamline administrative processes, and provide greater flexibility to supervisory authorities to use preferred mix of tools. - Addressees: Government, BdE, CNMV, DGSFP - Update: Efforts continued to conclude the legislative proposal. Collaboration between the Ministry of Economy and supervisors (BdE, CNMV, DGSFP) has been strengthened to refine draft law and draft royal decree wording. ### Financial integrity - Recommendation 17: Complement the National Risk Assessment, ensure accuracy of data stored in centralized beneficial ownership register, and extend AML-CFT risk-based supervisory activities to professional enablers and virtual asset providers. - Addressees: SEPBLAC, Treasury, BdE, The Registrars’ AML Centre, Ministry of Justice - Update: Framework for virtual asset service providers aligned with EU MiCA and updated AML/CFT regulations. Risk-based supervisory approach for professional enablers led by SEPBLAC was already in place; supervision intensified through enhanced data collection, mandatory and risk-based inspections, and joint annual inspection plans. VASPs and real estate–related enablers identified as higher-risk sectors and prioritized accordingly. ### Crisis management and financial safety nets - Recommendation 18: Integrate preventative resolution authority functions (i.e., BdE resolution planning department) and FROB’s executive resolution functions for banks. - Addressee: MINECO - Update: No action. Technical teams are analyzing necessary measures to comply with this recommendation. - Recommendation 19: Improve the statutory resolution regime so FROB has resolution power to override shareholders rights, update the statutory insolvency creditor hierarchy, and enable liquidators to transfer deposit accounts. - Addressee: MINECO - Update: Amendments will be assessed as part of the upcoming transposition of the Crisis Management and Deposit Insurance (CMDI) package requiring a thorough revision of Law 11/2015 and Royal Decree 1012/2015 and legislation applicable to the Spanish Deposit Guarantee Scheme (FGD). No progress since then. - Recommendation 20: Establish and operationalize an approach to address liquidity needs in resolution. - Addressee: BdE - Update: For LSIs, BdE indicates current framework for addressing liquidity needs in resolution is in place. Enhanced monitoring of liquidity needs and resource planning, including regular reviews (e.g., on Monday mornings), and publication of existing framework. No further changes planned until additional Eurosystem guidance. For SIs, BdE is awaiting a common Eurosystem-wide approach; discussions ongoing and BdE is strengthening liquidity monitoring and collateral availability efforts, building on the existing Emergency Liquidity Assistance (ELA) framework. No further progress toward establishing a framework to address liquidity needs in resolution for SIs. *Annex VI. Implementation of 2024 FSAP Recommendations — content as provided in the source document.* ### 6. The authorities have also taken steps towards strengthening the oversight and ### 1espea2026001 - 6. The authorities have also taken steps towards strengthening the oversight and ### Strengthening oversight and regulation of short-term rentals - Creation of a single national registry and a digital one-stop shop for short-term rentals: these are now in place. - January 2026 initiatives envisage tightening rules on seasonal leases, including: - stricter conditions to qualify as a temporary lease; and - sanctions for fraudulent use of short-term rental contracts. - The January 2026 measures aiming to limit circumvention of rent regulation remain at the proposal stage. ### Fiscal initiatives and supply-side acceleration announced - Announced measures aim to tilt supply away from tourist rentals towards affordable housing and accelerate permitting procedures to free up supply. - Several measures announced as part of the January 2025 package—and reiterated in January 2026—remain at the proposal stage, pending legislative action. These are largely fiscal measures, including: - targeted personal income tax incentives to encourage affordable rentals; - tax reform affecting tourist rentals; and - tax treatment of SOCIMIs (Spanish REITs whose main activity is direct or indirect investment in urban real estate). - Authorities have sought to accelerate permitting procedures at both national and regional levels, although the effectiveness of these efforts remains to be seen. ### Implementation challenges and effectiveness concerns - Progress has been most tangible where initiatives could be implemented through executive instruments or existing institutional frameworks (e.g. Royal Decrees, Ministerial Orders, Council of Ministers’ Decisions). - Measures requiring legislative action or complex coordination across levels of government have advanced more slowly or failed to pass Parliament altogether (example: the Land Law Reform). - Some recent measures may provide targeted or temporary relief, but doubts remain regarding whether, and if so how quickly, supply-side initiatives can deliver the large required increase in housing units. - House price pressures and housing affordability challenges may thus persist for a while. ### Annex VII. Table 1 — Spain: Main Housing Measures Proposed 2023-2026 (selected entries) - PERTE Industrialización de la Vivienda - Description: Strategic project aimed at promoting innovation and modernization of industrialized and modular construction to build houses quicker at lower cost. The first construction is planned in Valencia. - Announcement: Apr-2025 - Status: Implementation is underway - Transfer of central-government-owned housing and residential land to the new public housing state company to expand the affordable rental housing pipeline - Description: Transfer of more than 3,300 housing units and 2 million square meters of residential land from Administración General del Estado (AGE) to the new public housing state company (operationally SEPES/Casa 47). - Announcement: Jan-2025 - Status: Implemented - Transfer of SAREB properties to the public housing state company to expand the affordable rental housing pipeline - Description: Transfer of 30,000 SAREB-owned properties to SEPES/Casa 47). - Announcement: Jul-2025 - Status: Implemented - Program for the rehabilitation of vacant dwellings for affordable rental - Description: Public program to refurbish empty (vacant) housing units and bring them to the affordable rental market. - Announcement: Jan-2025 - Status: Awaiting implementation - Land Law reform (“Ley del Suelo”) - Description: Reduce administrative frictions to freeing up land for housing development. - Announcement: Mar-2024 - Status: Pending parliamentary approval (after being rejected once) - State Housing Plan (Plan Estatal de Vivienda) - 2026-2030 - Description: The plan is intended to consolidate and expand existing housing support programs over the period 2026–2030. It is expected to prioritize affordable rental housing, rehabilitation of the existing housing stock, and targeted support for vulnerable groups, while providing the strategic and budgetary framework under which implementing entities—including SEPES/Casa 47—would operate. - Announcement: Jan-2026 - Status: Approved April 2026 ### Selected financing measures (from Annex VII. Table 1) - ICO first-home purchase guarantees (young/families) - Description: State guarantee (via ICO) covering part of the mortgage downpayment for eligible first-home buyers, subject to debt-to-income and region-specific property-price caps; loans are originated by commercial banks. - Announcement: May-2024 - Status: In force since May 2024 - Rental non-payment coverage for rent to young and vulnerable households - Description: State-backed rental non-payment guarantee covering part of landlords’ default risk for eligible youth and vulnerable households, subject to income and rent caps; implementation is carried out through public entities and participating financial institutions. - Announcement: Jan-2025 - Status: In force since January 2025 *Source: Excerpt from 1espea2026001 — Annex VII. Table 1 and related text.* ### Annex VII. Table 1. Spain: Main Housing Measures Proposed 2023-2026 (concluded) ### Annex VII. Table 1. Spain: Main Housing Measures Proposed 2023-2026 (concluded) ### Market measures including rental regulation - Housing Law framework (Ley 12/2023) - Sets a national framework establishing limits on annual rent updates for existing leases. - At the regional level, enables the designation of “stressed” housing areas, where rent constraints apply to existing rental dwellings—depending on landlord type—while newly built and first-time rental properties remain exempt. - Mar-2023 — In force - Registry for short-term rentals - Creates a single register and digital one-stop shop for short-term rentals. - Dec-2024 — In force since Dec-2024 - End of real-estate “Golden Visa” route - Removes residence authorization linked to real-estate investment. - Apr-2024 — In force since Apr-2025 - Regulation of short-term and seasonal rentals - Tightening the rules on seasonal leases, including stricter conditions to qualify as a temporary lease and sanctions for fraud in short-term rental contracts. - Jan-2026 — Pending legislative action - Restriction on residential property purchases by non-resident non-EU buyers - Proposed 100 percent tax on the value of residential property purchases by non-EU, non-resident buyers, but has faced legal challenges regarding its compatibility with Spanish and EU law. - Jan-2025 — The measure remains at the announcement stage ### Fiscal measures - Targeted tax incentive for affordable rentals - 100 percent exemption of personal income tax on rental income for landlords who do not raise rents at contract renewal. - Jan-2025 (renewed Jan-2026) — Pending legislative action - Tax reform for tourist rentals (VAT) - Proposed tax reform to subject tourist rentals to VAT by treating them as an economic activity, aligned with the new EU VAT directive; pending legislative approval. - Jan-2025 — Pending legislative action - Tax reform targeting institutional landlords - Limits access to existing tax advantages unless the SOCIMI (Spanish REITs) allocates housing to affordable rental. - Jan-2025 — Pending legislative action ### Implementation status and institutional context - Measures "In force" with dates: Mar-2023 (Housing Law framework), Dec-2024 (Registry for short-term rentals), In force since Apr-2025 (End of real-estate “Golden Visa” route). - Multiple measures remain "Pending legislative action": Regulation of short-term and seasonal rentals (Jan-2026), Targeted tax incentive for affordable rentals (Jan-2025, renewed Jan-2026), Tax reform for tourist rentals (Jan-2025), Tax reform targeting institutional landlords (Jan-2025). - One announced measure remains at the announcement stage due to legal challenges: Restriction on residential property purchases by non-resident non-EU buyers (Jan-2025). ### Notes on public entities and housing supply initiatives (as stated) - SEPES is the legal public entity with a broad mandate over land development and management. - Casa 47 is the subset of SEPES’ activities that relate to the mandate of expanding affordable and social housing. - SAREB is the state-owned asset management company created during Spain’s banking sector restructuring to manage and dispose of real estate and financial assets acquired from distressed banks. *Source: Annex VII. Table 1. Spain: Main Housing Measures Proposed 2023-2026 (concluded).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1espea2026001.pdf_