The IMF considers the labor reform good and fears for the future of pensions

Without enthusiasm, but probably with some relief. The Board of Directors of the International Monetary Fund (IMF) made public its approval with the
labor reform approved in Spain
which highlights the veneer of legitimacy provided by the agreement with the social partners and in which he appreciates an interest in addressing the structural imbalances in the labor market and "in balancing greater protection for workers and preserving flexibility for Business".

Gone are the warnings to the Government about the possible pernicious effects of repealing the labor reform of the PP and the disagreements, more virtual than institutional, due to the firm defense that the body has made of the positive consequences on employment and

GDP of the reviled reform of 2012.

The IMF approves the labor reform launched by the Government, but it cannot be said that it expects a significant impact from it on the labor market. Its follow-up report on Spain within the framework of the so-called 'Article IV', which also includes its forecasts on the economic evolution of the country until the year 2027, concludes that the change in labor regulations will be inoperative in reducing the extremely high unemployment rate in the economy, which will remain anchored above 13% for at least the next five years. The omen implies that Spain will not fall below the three million unemployed throughout the forecast period.

Nor will it be a great incentive for job creation. According to the IMF, employment will grow above 2% in 2021 and 2022, but will then moderate to an average growth of 0.5%, which, if fulfilled, would mean the creation of two million jobs in the next five years.

The economic forecasts of the IMF is that Spain will grow by 5.8% this year
below the 7% that the Government still foresees
-, 3.8% in 2023, 2.3% in 2024, to then fall below 2% in the 2025-2027 period.

pensions are worrying

The future of the pension system generates more concern for Fund officials. With the first phase of the reform already on the table, the IMF Board draws the Government's attention in its report on "the importance of ensuring the
sustainability of the pension system
», an affirmation that implies the judgment that what has been done so far will not be enough.

The new head of the IMF mission for Spain, Dora Iakova, already warned in December that the first phase of the pension reform for the sake of social acceptability and the adequacy of the system had not dispelled doubts about its sustainability in the future and that in the absence of new measures to contain spending on pensions, it would increase by 3.5 points of GDP in the coming years. Iakova took advantage of the moment to slip some of the measures that the IMF has already been recommending to Spain in the past, such as delaying the retirement age.

The body appreciates that the Spanish authorities have put on the table the necessary public spending measures to minimize the impact of the pandemic, but now it wants to know if the Government is going to show the same diligence when it comes to returning the public accounts to a sustainable path and therefore demands from the Government a "credible" path of deficit reduction to "support investor confidence", in a context in which, according to the agency, pockets of uncertainty persist. His forecasts point to the public deficit will fall from 7.8% to 5.3% this year, but it will not drop below 4% by 2027 unless some kind of additional measure is adopted.

The central scenario of the Fund for Spain is based on the premise that the Ómicron variant will only have a moderate impact on economic activity, while the recovery will be supported by the boost in investment by European funds, as well as by the normalization of international tourism flows. On the risk side, the IMF sees it as likely that inflation in Spain will remain high throughout the year.

In this context, it recommends that fiscal policy continue to support economic agents in the short term, but with an increasing focus on the vulnerable, underlining that, as the recovery takes hold, public debt should be gradually reduced to rebuild the fiscal space in the face of future 'shocks'. The IMF estimates that public debt will remain around 115% of GDP without measures.

More transparency

The IMF does not avoid another of the fashionable topics in Spain: the management of European funds linked to the European Recovery and Resilience Mechanism. The organization values ​​"the comprehensive structural reform and the investment agenda of the authorities", which in its opinion provide an exceptional opportunity to support the recovery while promoting a transition to a more productive economyinclusive, ecological and digitized.

However, the officials of the Fund, who during their stay in Spain held meetings with business organizations and different relevant economic actors in Spain, seem to be aware of the problems and difficulties that the Government is having when it comes to deploying European funds and in its report highlights the importance of "establishing a framework to ensure transparent and efficient use of investment funds."

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