{ "title": "Spain: IMF Staff Concluding Statement of the 2020 Article IV Mission", "publication": "IMF News, September 30, 2020", "sourceUrl": "https://www.imf.org/en/news/articles/2020/09/29/mcs092920-spain-imf-staff-concluding-statement-of-the-2020-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2020/09/29/mcs092920-spain-imf-staff-concluding-statement-of-the-2020-article-iv-mission", "overlayPath": "/en/news/articles/2020/09/29/mcs092920-spain-imf-staff-concluding-statement-of-the-2020-article-iv-mission/index.md", "summary": "Spain’s people and economy have been severely hit by the global pandemic; the impact of the COVID-19 pandemic has been particularly grave for Spain, with the sharpest GDP drop among major advanced economies in the first half of the year.", "publishDate": "2020-09-30", "sections": [ { "heading": "Pandemic impact and immediate findings", "content": "- Spain’s people and economy have been severely hit by the global pandemic; the impact of the COVID-19 pandemic has been particularly grave for Spain, with the sharpest GDP drop among major advanced economies in the first half of the year.\n- Structural features increasing vulnerability: large service sector dominated by SMEs, importance of tourism, widespread use of temporary contracts.\n- Policy responses so far: swift income and liquidity support by the government and loosened monetary policy by the ECB provided important lifelines.\n- Preserving people’s health is the top priority; preparedness of the healthcare system and vaccine purchase/distribution are critical." }, { "heading": "Near-term outlook and projections", "content": "- The uncertainty about the outlook is unprecedented; the path of the pandemic and policy actions will shape the economic outlook.\n- Staff projections:\n - Annual loss of real output in 2020 of 12.8 percent.\n - Real GDP growth in 2021 of 7.2 percent, helped by the utilization of the EU Recovery and Resilience Facility and its confidence effects.\n- Risks are tilted strongly to the downside, including failure to control outbreaks, slower vaccine progress, a no-deal Brexit, and escalation of trade tensions.\n- Output will take several years to reach its pre-pandemic level." }, { "heading": "Near-term policy recommendations (containment, support, and financial stability)", "content": "- Fiscal support should remain in place until the recovery is firmly underway; continuation of income and liquidity measures in a targeted and flexible manner is key.\n- Continue and calibrate:\n - Short-time work schemes (ERTE), particularly for hardest hit sectors.\n - Public loan guarantees and various forms of income support to prevent “cliff effects” (bankruptcies, income loss, loan defaults) when measures expire.\n- Be ready to temporarily upgrade support should the outlook deteriorate sharply; EU facilities and ECB monetary policy are critically supportive by keeping borrowing costs low.\n- Corporate sector vulnerabilities:\n - Enhance private debt resolution frameworks promptly.\n - Consider public equity support for viable firms facing pandemic-related strains; create transparent exit strategies and monitor fiscal risk.\n - Strengthen supervision and continue bank relief measures to prevent real-financial doom loops." }, { "heading": "Social protection, labor market, and measures to limit scarring", "content": "- Over time, unemployment benefits should gradually become the predominant safety net to facilitate job reallocation and avoid propping up unviable firms.\n- Unemployment benefits and social assistance may need temporary upgrades (eligibility, benefits, duration) to support those impacted by long-lasting changes.\n- Support measures for firms:\n - State-investment fund under SEPI is a welcome tool for temporary equity support to systemic companies.\n - Consider similar recapitalization options for viable smaller firms and temporary injections that create public claims (e.g., in form of future tax liabilities).\n- Strengthen private debt restructuring and insolvency frameworks:\n - Improve out-of-court restructuring and incentives to encourage debt restructuring, including for SMEs.\n - Swift and adequate transposition of the EU Directive on restructuring and insolvency, facilitating procedures involving public creditors." }, { "heading": "Use of EU Recovery and Resilience Facility and structural transformation", "content": "- The European Recovery and Resilience Facility can provide important demand stimulus, support job creation, limit scarring, and catalyze greener and more digital activities.\n- Efficient coordination, implementation, oversight, and a clear governance structure for EU-funded plans are critical given the unprecedented size of the funds.\n- Recommended investment priorities to create jobs and foster decarbonization:\n - Retrofitting buildings.\n - Creating charging stations for electric vehicles.\n - Upgrading water infrastructure and waste management.\n- Public support for firms should be conditioned on binding sustainability commitments to avoid locking in future emissions.\n- Use EU funds to facilitate labor reforms, expand vocational training (including in SMEs), digitalize the economy, and ease transition costs from reforms (e.g., introducing a separation fund while making open-ended contracts more attractive).\n- Improve firms’ ability to innovate by modifying size-related regulations that hinder growth, improving competition, and fostering private-public innovation collaborations." }, { "heading": "Equity, poverty, and social measures", "content": "- Socio-economic disparities were high pre-COVID-19 and are set to widen; poverty is likely to increase.\n- Those with precarious employment (many young, low-skilled, in hardest-hit sectors) have been most impacted.\n- The Minimum Vital Income scheme introduced by the government is a welcome step.\n- Further measures to enhance mobility and affordability:\n - Expand social rental housing and assistance programs for renting and relocation.\n - Simplify building and zoning regulations.\n- Policies to enhance gender equality should focus on boosting family and childcare support and promoting flexible working arrangements." }, { "heading": "Public debt outlook and medium-term fiscal strategy", "content": "- The pandemic is expected to push the public debt ratio up by nearly 30 percentage points to over 120 percent of GDP in the coming years.\n- A gradual fiscal adjustment to put public debt on a firm downward path should start once the economy is on a sustainable growth path with falling unemployment; under current projections that would be at the earliest in 2022.\n- Recommendation: advanced announcement of a gradual adjustment plan contingent on the state of the economy to signal markets and promote transparency.\n- The adjustment plan should include sustainable structural measures, especially on the revenue side, to rebuild fiscal buffers while supporting inclusion and innovation.\n- A sustainable pension reform package is needed to balance pension sustainability and social acceptability.\n- Renewed political commitment to structural reforms is important to support growth prospects that facilitate debt reduction." }, { "heading": "Banking sector resilience and financial stability", "content": "- Banks entered the crisis with stronger balance sheets than a decade ago due to significant deleveraging; bank credit to the private sector has been robust.\n- Lending supported by public loan guarantees and bank capital relief/conservation measures.\n- Risks and concerns:\n - Credit risk has deteriorated; loan defaults expected to increase, especially in the non-financial corporate segment as borrower-support measures expire.\n - Banks’ lending capacity could face constraints; profitability is set to worsen; severe scenarios could pose solvency challenges.\n - Lower initial average CET1 ratio compared with EU peers may amplify impact; geographic diversification benefits may be limited for banks with international business.\n- Recommended bank actions and supervisory measures:\n - Continue adjusting provisioning decisions on precautionary grounds and follow prudent dividend policies.\n - Timely recognition of problem assets; pursue cost rationalization and invest in technology.\n - Dispose of legacy assets where manageable; consolidation (e.g., recent merger announcement) is an adequate response to profitability challenges.\n - Supervisors should monitor and review banks’ forward-looking NPL resolution plans and ensure resilient capital positions.\n - Regulatory relief measures should facilitate the use of capital and liquidity buffers, followed by gradual rebuilding.\n- Strengthen oversight beyond banks:\n - The role of the National Financial Stability Authority (AMCESFI) is critical to monitor financial stability risks, including those from interconnectedness between banks and nonbank financial institutions.\n- Enhance crisis management frameworks at European and national levels by addressing shortcomings in resolution and liquidation regimes; completing the banking union with a common deposit insurance scheme would strengthen resilience.\n\nIMF Staff Concluding Statement, Spain: 2020 Article IV Mission; September 30, 2020.\n\n---\n\n\n References\n\n- Spain and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/09/29/mcs092920-spain-imf-staff-concluding-statement-of-the-2020-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2020/09/29/mcs092920-spain-imf-staff-concluding-statement-of-the-2020-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2020/09/29/mcs092920-spain-imf-staff-concluding-statement-of-the-2020-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2020/09/29/mcs092920-spain-imf-staff-concluding-statement-of-the-2020-article-iv-mission/bundle-manifest.json)", "Published: September 30, 2020", "Spain’s people and economy have been severely hit by the global pandemic; the impact of the COVID-19 pandemic has been particularly grave for Spain, with the sharpest GDP drop among major advanced economies in the first half of the year.", "Structural features increasing vulnerability: large service sector dominated by SMEs, importance of tourism, widespread use of temporary contracts.", "Policy responses so far: swift income and liquidity support by the government and loosened monetary policy by the ECB provided important lifelines.", "Preserving people’s health is the top priority; preparedness of the healthcare system and vaccine purchase/distribution are critical.", "The uncertainty about the outlook is unprecedented; the path of the pandemic and policy actions will shape the economic outlook.", "Staff projections:", "Risks are tilted strongly to the downside, including failure to control outbreaks, slower vaccine progress, a no-deal Brexit, and escalation of trade tensions.", "Output will take several years to reach its pre-pandemic level.", "Fiscal support should remain in place until the recovery is firmly underway; continuation of income and liquidity measures in a targeted and flexible manner is key.", "Continue and calibrate:", "Be ready to temporarily upgrade support should the outlook deteriorate sharply; EU facilities and ECB monetary policy are critically supportive by keeping borrowing costs low.", "Corporate sector vulnerabilities:", "Over time, unemployment benefits should gradually become the predominant safety net to facilitate job reallocation and avoid propping up unviable firms.", "Unemployment benefits and social assistance may need temporary upgrades (eligibility, benefits, duration) to support those impacted by long-lasting changes.", "Support measures for firms:", "Strengthen private debt restructuring and insolvency frameworks:", "The European Recovery and Resilience Facility can provide important demand stimulus, support job creation, limit scarring, and catalyze greener and more digital activities.", "Efficient coordination, implementation, oversight, and a clear governance structure for EU-funded plans are critical given the unprecedented size of the funds.", "Recommended investment priorities to create jobs and foster decarbonization:", "Public support for firms should be conditioned on binding sustainability commitments to avoid locking in future emissions.", "Use EU funds to facilitate labor reforms, expand vocational training (including in SMEs), digitalize the economy, and ease transition costs from reforms (e.g., introducing a separation fund while making open-ended contracts more attractive).", "Improve firms’ ability to innovate by modifying size-related regulations that hinder growth, improving competition, and fostering private-public innovation collaborations.", "Socio-economic disparities were high pre-COVID-19 and are set to widen; poverty is likely to increase.", "Those with precarious employment (many young, low-skilled, in hardest-hit sectors) have been most impacted.", "The Minimum Vital Income scheme introduced by the government is a welcome step.", "Further measures to enhance mobility and affordability:", "Policies to enhance gender equality should focus on boosting family and childcare support and promoting flexible working arrangements.", "The pandemic is expected to push the public debt ratio up by nearly 30 percentage points to over 120 percent of GDP in the coming years.", "A gradual fiscal adjustment to put public debt on a firm downward path should start once the economy is on a sustainable growth path with falling unemployment; under current projections that would be at the earliest in 2022.", "Recommendation: advanced announcement of a gradual adjustment plan contingent on the state of the economy to signal markets and promote transparency.", "The adjustment plan should include sustainable structural measures, especially on the revenue side, to rebuild fiscal buffers while supporting inclusion and innovation.", "A sustainable pension reform package is needed to balance pension sustainability and social acceptability.", "Renewed political commitment to structural reforms is important to support growth prospects that facilitate debt reduction.", "Banks entered the crisis with stronger balance sheets than a decade ago due to significant deleveraging; bank credit to the private sector has been robust.", "Lending supported by public loan guarantees and bank capital relief/conservation measures.", "Risks and concerns:", "Recommended bank actions and supervisory measures:", "Strengthen oversight beyond banks:", "Enhance crisis management frameworks at European and national levels by addressing shortcomings in resolution and liquidation regimes; completing the banking union with a common deposit insurance scheme would strengthen resilience.", "[Spain and the IMF](http://www.imf.org/external/country/ESP/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[Article IV](https://www.imf.org/external/pubs/ft/aa/index.htm)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2020/09/29/mcs092920-spain-imf-staff-concluding-statement-of-the-2020-article-iv-mission/index.md", "json": "/en/news/articles/2020/09/29/mcs092920-spain-imf-staff-concluding-statement-of-the-2020-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2020/09/29/mcs092920-spain-imf-staff-concluding-statement-of-the-2020-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-25T23:50:51.470Z" }