{
  "title": "Spain: Staff Concluding Statement of the 2016 Article IV Mission",
  "publication": "IMF News, December 13, 2016",
  "sourceUrl": "https://www.imf.org/en/news/articles/2016/12/13/ms121316-spain-staff-concluding-statement-of-article-iv-mission",
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  "summary": "Recovery described as \"impressive\" with strong job creation; private consumption, exports, and investment are the main drivers.",
  "publishDate": "2016-12-13",
  "sections": [
    {
      "heading": "Economic outlook and risks",
      "content": "- Recovery described as \"impressive\" with strong job creation; private consumption, exports, and investment are the main drivers.\n- Tailwinds supporting growth: European Central Bank’s accommodative monetary policy, fiscal relaxation.\n- Real GDP and employment growth remain well above the euro area average despite prolonged domestic political uncertainty.\n- Current account is projected to record its fourth consecutive annual surplus.\n- Private sector balance sheets—including those in the banking system—have continued to strengthen; access to credit has improved; real estate prices have edged up.\n- Remaining vulnerabilities and structural weaknesses:\n  - Unemployment is \"still very high,\" especially long-term and youth joblessness.\n  - Widespread use of temporary contracts for new jobs.\n  - Elevated public debt, lingering private sector debt overhang, and a large negative net international investment position.\n- Growth trajectory and projections:\n  - Spain expanded at a vigorous 3.2 percent rate in 2015 with \"the same growth rate expected for 2016.\"\n  - Real GDP growth is projected to moderate to 2.3 percent next year.\n  - Over the medium term, prospects are expected to slow further due to feeble productivity growth and high structural unemployment."
    },
    {
      "heading": "Fiscal policy: Resuming growth-friendly and inclusive consolidation",
      "content": "- Assessment:\n  - Headline fiscal deficits have continued to narrow, but for the second consecutive year the deficit will likely be higher than originally planned, implying a structural loosening of the fiscal stance in 2015–16.\n  - Building on large fiscal measures adopted over 2010-13, adjustment can be more measured but should be steady and underpinned by well-defined policy actions.\n- Recommendation:\n  - An annual fiscal adjustment of the structural primary balance of about 0.5 percent of GDP is recommended to balance preserving the recovery and ensuring long-term sustainability of public finances.\n  - The fiscal measures adopted for 2017 are described as an important step toward reaching the deficit target and public debt reduction.\n- Revenue-side options:\n  - Gradually reduce value-added tax exemptions to bring collection more in line with other EU countries.\n  - Scope to raise excise duties and environmental levies—especially given low energy prices.\n  - Tackle inefficiencies and special treatments in the tax system.\n  - Shift from direct to indirect taxation in combination with earlier reductions in corporate and personal income tax rates.\n- Expenditure-side options:\n  - Conduct thorough expenditure reviews—particularly in health and education—to gauge efficiency gains.\n  - Properly shield vulnerable groups and enhance efficiency of programs that directly support employment and growth, such as active labor market policies (ALMP) and public research and development spending.\n- Regional finances:\n  - Regional financing framework remains a risk to fiscal targets.\n  - Recommended reforms: improve regions’ incentives to comply with fiscal targets, more automatic and stricter enforcement, provide regions greater power to mobilize own revenues.\n  - Consider introduction of performance-based transfers to strengthen incentives for reforms (e.g., Market Unity Law implementation and ALMP)."
    },
    {
      "heading": "Labor market: Tackling long-term unemployment and labor market rigidities",
      "content": "- Recent performance:\n  - Employment growing at more than 3 percent annually.\n  - Almost 1.1 million jobs created over the past two years, supported by wage moderation and labor market reforms.\n  - Unemployment has come down about 8 percentage points from its peak but remains very high at around 19 percent.\n  - Almost 60 percent of the unemployed have been jobless for more than a year; a large share are low-skilled and previously occupied in construction.\n- Key problems:\n  - Temporary contracts still make up the largest share of new jobs, exacerbating labor market duality and inhibiting human capital investment and productivity.\n  - Active labor market programs (ALMP) have had limited impact for long-term unemployed and low-skilled youth.\n- Policy priorities:\n  - Promote job creation for the long-term unemployed and low-skilled youth as an immediate priority.\n  - Urgent improvements to ALMPs, particularly through better coordination with regional governments.\n  - Consolidate the range of hiring subsidies into better-targeted subsidy schemes.\n  - Make permanent contracts more attractive for employers; provide greater legal and administrative certainty over dismissals; allow firms more control and flexibility over working conditions."
    },
    {
      "heading": "Structural reforms: Boosting firm productivity and growth",
      "content": "- Core challenge: weak productivity tied to a corporate landscape dominated by small firms that are less productive, innovative, and export-oriented than European peers.\n- Impact of prior reforms:\n  - Earlier labor and product market reforms are estimated to boost productivity growth by about 0.5 percentage point annually over the next five years.\n  - Despite this, productivity growth would need to be raised to sustain real GDP growth above 2 percent over the medium term.\n- Recommended reforms:\n  - Adjust public policies to foster good regulation and competition (expedite implementation of the Market Unity Law; advance liberalization of professional services).\n  - Support innovation by enhancing private R&D investment and increasing efficiency of public R&D spending.\n  - Revisit regulations that have created a \"small business trap.\"\n  - Improve access to non-bank (typically equity) financing for frontier innovation.\n- Timing note: These reforms tend to have particularly high payoff when implemented during a cyclical recovery."
    },
    {
      "heading": "Financial sector: Continuing to strengthen the capacity to support growth",
      "content": "- Current position:\n  - Banking system stronger due to better asset quality, stronger capital and funding positions, and reduced debt overhangs.\n  - Banks have progressed at different speeds; overall NPLs and foreclosed assets remain sizeable though much lower than in some EU countries.\n  - Banks face challenges from low profitability and new regulatory initiatives.\n- Policy recommendations:\n  - Sustain a job-rich economic recovery to strengthen domestic demand and private sector balance sheets.\n  - Ensure adequate provisioning and further improve efficiency—possibly through mergers.\n  - Boost non-interest income and further increase high-quality capital to enhance resilience and support sufficient credit provision as demand picks up."
    },
    {
      "heading": "Toward a comprehensive medium-term strategy",
      "content": "- Summary assessment:\n  - Reforms undertaken during the crisis have increased resilience and enabled a strong recovery.\n  - Remaining challenges are mostly structural and call for a comprehensive medium-term strategy.\n- Priority areas with potentially high payoff and broad-based political support:\n  - Enhance active labor market policies (ALMP) to lower long-term and youth unemployment.\n  - Reform regional public finances to safeguard public finances.\n  - Strengthen innovation and education policies to lift productivity.\n- Additional measures:\n  - Go further with labor and product market reforms to complement the medium-term strategy.\n\nSource: Spain: Staff Concluding Statement of the 2016 Article IV Mission (December 13, 2016).\n\n---\n\n\n References\n\n- Spain and the IMF\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2016/12/13/ms121316-spain-staff-concluding-statement-of-article-iv-mission"
    }
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    "Published: December 13, 2016",
    "Recovery described as \"impressive\" with strong job creation; private consumption, exports, and investment are the main drivers.",
    "Tailwinds supporting growth: European Central Bank’s accommodative monetary policy, fiscal relaxation.",
    "Real GDP and employment growth remain well above the euro area average despite prolonged domestic political uncertainty.",
    "Current account is projected to record its fourth consecutive annual surplus.",
    "Private sector balance sheets—including those in the banking system—have continued to strengthen; access to credit has improved; real estate prices have edged up.",
    "Remaining vulnerabilities and structural weaknesses:",
    "Growth trajectory and projections:",
    "Assessment:",
    "Recommendation:",
    "Revenue-side options:",
    "Expenditure-side options:",
    "Regional finances:",
    "Recent performance:",
    "Key problems:",
    "Policy priorities:",
    "Core challenge: weak productivity tied to a corporate landscape dominated by small firms that are less productive, innovative, and export-oriented than European peers.",
    "Impact of prior reforms:",
    "Recommended reforms:",
    "Timing note: These reforms tend to have particularly high payoff when implemented during a cyclical recovery.",
    "Current position:",
    "Policy recommendations:",
    "Summary assessment:",
    "Priority areas with potentially high payoff and broad-based political support:",
    "Additional measures:",
    "[Spain and the IMF](http://www.imf.org/external/country/ESP/index.htm)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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