The president of the Independent Authority for Fiscal Responsibility (Airef), Cristina Herrero, again insisted today on the urgency that The Government completes a “credible and realistic” fiscal strategy in the medium term to achieve a reduction in the deficit level and to accompany the Recovery Plan. All this despite the current absence of fiscal rules and the fact that the Executive has already replied that it does not see it necessary to draw up a roadmap because it considers that the fiscal situation will be fixed as the evolution of economic growth improves. “The lack of fiscal rules does not imply a lack of fiscal supervision,” Herrero warned. during the presentation of the Report on the expected Compliance with the Objectives of Budgetary Stability, Public Debt and Spending Rule of Public Administrations.
In the document presented, Airef does not modify its GDP growth forecasts – 6.6% for this year – because it has “mixed signals” and contradictory and considers the information as “incomplete” at the present time. Although the growth picture remains unchanged, the Fiscal Authority alert of the existence of downside risks: “The information available, of a very partial nature, suggests the existence of downside risks in the momentum associated with the PRTR (Recovery Plan) in 2021, which Airef estimated at 1.5 percentage points” and which would become next to one percentage point. However, this reduction in the growth expected for 2021 would be offset, at least partially, by the recent “positive surprises in growth and employment,” as predicted by the agency.
Another risk that the economic scenario will worsen mentioned by the body led by Herrero has to do with with the increase in infections “that has been observed in recent days both in Spain and in the main countries of influx of foreign tourists”. Thus, the Airef warns that the fifth wave of the pandemic may put at risk the recovery of international tourism in the summer months, “a key factor to sustain the intensity of the recovery” expected for the second half of the year.
Despite leaving the expected evolution of GDP unchanged, the watchdog does review in one tenth the deficit scenario for Public Administrations in 2021, up to 7.9%, for incorporating variations in the evolution of expenses and income. The new forecast remains, however, below the estimates of the Executive, which foresees that the indicator will close at 8.4% in the current year. This increase is due to impact of the reduction in taxation on electricity and a lower expected absorption of European funds by the autonomous communities. In front are other factors that have acted in the opposite direction, such as, for example, the positive evolution of collection in the first months of the year. In detail, Airef predicts an improvement in the deficit of the Social Security Funds by just under two tenths, to 1.6% of GDP; while for the Autonomous Communities, the forecast reaches 0.5% of GDP, more than one tenth higher than the previous report
The Airef also warned of the position of “great vulnerability” due to the significant increase in public debt, which stood at 125.2% of GDP at the end of the first quarter. Despite this, the situation will redirect somewhat in the short term since Airef calculates a slight reduction in the debt ratio at the end of 2021 to 25.5% due to the strong expected growth of GDP. Specifically, the agency highlights that at the end of the year public debt will be around 112.4% of GDP, a level that continues to be of high risk for all Public Administrations.
Likewise, the body led by Herrero warns that in 2021 no community will comply with the reference limit of 13%, although the Canary Islands, Madrid and the Basque Country will be the autonomies that would be closer to the legal reference.