Spain | Unpleasant Arithmetic

Spain, Nadia CalviñoSpanish Minister of Economy Nadia Calviño

Miguel Cardoso (BBVA Research) | Using simple calculations based on the figures published in the 2021–2024 Updated Stability Program (SP), it is clear that, with the assumptions contained in the SP, we will need a very ambitious roadmap to change certain long-term trends in public accounts.

Key points

The SP estimates that the primary structural deficit in public accounts will stand at approximately 3% of GDP for the next few years. This imbalance will persist after circumstantial factors are no longer present.

The financial burden, for its part, is currently approximately 2% of GDP. This means that, with a debt level of 120% of GDP, the government is paying an implied interest rate of 1.7%: a historic low.

The Spanish government estimates that the Spanish economy will be able to achieve nominal growth of approximately 3.5% without generating imbalances.

If the aim is to stabilize public debt at near-current levels, and assuming that both the primary structural deficit and economic growth remain constant, the interest rate would need to remain at approximately 1%. Although this is the current situation, it is temporary.

Both the intervention of the European Central Bank and the receipt of funds tied to the NGEU, as well as the reforms that are conditions precedent to Spain’s ability to benefit from the transfers, represent a unique opportunity for the Spanish economy to ensure the sustainability of public accounts.

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