The Bank of Spain believes that the lack of Budgets makes it difficult to reduce debt

The absence of a General State Budget, after the 2023 accounts were extended for two consecutive years, and the lack of specification of the Fiscal and Structural Plan in the medium term represent an obstacle to the reduction of the public debt that Spain has pending. The warning was issued this Thursday by the Bank of Spain in its ‘Autumn Financial Stability Report’, in which it insists that “concrete measures to control spending and/or increase income” are necessary.

Only in this way will Spain be able to face the important challenges that lie ahead in the face of the upward risks linked to the aging of the population and the spending needs derived from digital transformation, climate change and defense. The public debt to GDP ratio stood at 103% at the end of August. It had skyrocketed above 124% at the worst moment of the Covid pandemic.

The entity expects that the liabilities of all administrations will continue to be high “both from a historical perspective and in the European context.” This places the country in a situation vulnerable to possible sudden changes in financing conditions or if political instability worsens in France or the United States. According to their calculations, it will be reduced to around 100% in 2027, when the deficit will have been close to 2.5%.

The progress of the economy may be affected by the risks associated with global uncertainty, even if there were no serious financial or geopolitical crises. One way could be a decline in private consumption greater than estimated as precautionary measure by families and companies. The deterioration of confidence in some of the main trading partners, such as France or Germany, could also affect the country, which would put added pressure on the foreign sector, which has already been losing steam in recent quarters.

The slowdown of partners can have an added effect on the services sector, especially in the case of tourism. In 2023 this activity contributed 12.3% to the economy, so “disruptions in global tourism preferences or cyclical oscillations in their demand could slow down growth.” In addition, this activity would also be vulnerable to the deterioration of international economic relations and the extension of some war conflicts, the entity highlights.