The IMF recommends to Spain to guarantee sufficient resources for Coronavirus Health

The International Monetary Fund (IMF) said Wednesday that "the economic outlook" of Spain "is extremely uncertain in the short term due to the global outbreak of coronavirus", and recommended to the Government "protect the population" with fiscal policy and providing the health sector with sufficient resources to cope with the outbreak.

This is reflected in a report published by the agency, which underlines the need to “allocate specific support to those most affected, and that these temporary measures of an extraordinary nature should be intensified as necessary to prevent and contain the virus and mitigate the economic impact".

On an economic level, the report highlights that “Spain has lived five years of strong growth above the eurozone average, job creation and current account surpluses sustained" However, it points out that, in 2019, “internal and, especially, external uncertainty, reduced confidence”, so, now adding “the temporary disruptions caused by the global outbreak of coronavirus to supply chains, trade , tourism and domestic consumption ”, estimates that Spain's economic growth will slow down in 2020“ even more ”than previously expected.

Thus, on the magnitude of the slowdown, the IMF notes that "it will depend on the scope and duration of the outbreak, which are extremely uncertain at this time." In any case, it expects that in the medium term the GDP of Spain will expand in line with a potential growth of around 1.6%, “limited by low productivity growth, since the stagnation of policies in recent years has not given him new momentum. ”

With regard to fiscal policy, the IMF notes that, beyond the needs generated by the coronavirus, the Government should finance “in a sustainable manner through new income measures or changes in the composition of expenditure” additional measures Expenditure planned for the 2020 Budgets, such as those already approved for pensions and salaries.

In general terms, it points out that Spain's fiscal policy in 2020 “can be basically neutral, with automatic stabilizers that operate freely in support of economic activity, in addition to the temporary measures adopted in response to the coronavirus”, and warns that “any delay Temporary fiscal consolidation should be accompanied by a credible commitment to future adjustment. ”

In this sense, the IMF emphasizes that “the ratio between taxes and GDP in Spain is relatively low compared to its regional counterparts, which indicates that there is potential margin for structural improvement,” so it recommends Spain “mobilize additional income and boost spending efficiency ”to reach budget balance and reduce debt. Specifically, the report proposes to strengthen “the collection of VAT, the increase in taxes on specific consumption and environmental rates, and the reduction of the inefficiencies of the tax system, while still protecting the most vulnerable”.

On the other hand, the agency considers that "unemployment, reduced by half with respect to its post-crisis peak, has almost reached its estimated structural rate and forecasts indicate that it will only marginally decline from now on." In this sense, the IMF emphasizes that “the socioeconomic disparities in Spain continue to be pronounced, reflecting to a large extent the high structural unemployment”, for which it considers that “reducing the prevalence of temporary contracts must be the cornerstone for the achievement of greater equality. " To do this, it advocates promoting active employment and education policies that are “more oriented and modernized”.

It also recommends "supporting the poorest" through "an improvement in social assistance programs, a system of tax credits for work income, and an extension of the supply of affordable rental housing."

Along the same lines, it ensures that “comprehensive policies are needed to reduce the gaps in social inclusion” and warns that inequality and the risk of poverty “remain higher than in other EU countries, especially among young people” .

Thus, to achieve "a more inclusive labor market," the IMF recommends policies for the labor market that address current duality and "the abuse of temporary contracts," promoting their conversion into undefined. To do this, it proposes to minimize employment protection gaps between temporary and indefinite contracts, "also creating a capitalization fund for layoffs borne by the employer."

In addition, it also offers greater flexibility in setting wages and working conditions, allowing companies to “shorten working hours while maintaining jobs, while public administrations, for their part, would partially compensate for the wage income lost by the employees".

Another recommendation of the IMF at the labor level is to improve the coordination of collective bargaining between the sector and company levels “through a more efficient use of the guidelines set in the higher level agreements”, and advises to analyze the labor legislation to address those aspects that have contributed to the decrease in the average number of hours worked and to the increase in labor poverty. In particular, he adds, "it is necessary to identify the factors that contribute to the reduction of the duration of temporary contracts and the potential abuse of the greater flexibility offered by part-time contracts."

In the same way, to support low-income families and address labor poverty, the IMF proposes “the introduction of a program of tax credits to work income, which constitutes a better targeted and more efficient tool than the minimum wage when addressing poverty and income inequality ”.

On the other hand, the report also highlights the need for active employment policies and educational policies to focus on improving the employability of young people, low-skilled people and long-term unemployed, as well as strengthening vocational training and highlights that "the recently adopted action plans are important steps to promote youth employment and reduce long-term unemployment."


On the other hand, the IMF considers that "the redistributive effects of social assistance programs in Spain are relatively weak, since few measures support those most in need and protection is directed towards pensioners" and, instead, proposes Increase coverage of the most disadvantaged groups through increased spending on minimum income, family and housing programs. On this last point, the agency recommends the development of policies for greater accessibility to rent, making it more affordable.

Regarding pensions, the agency considers that “the persistent deficit in the balance of contributory pensions requires a long-term commitment to contain the pressure on pension spending derived from the aging population” and notes that “the application of Sustainability factor would be an important contribution, especially given that its announcement almost a decade ago has given future pensioners some time to prepare for its impact. ”

In addition, in this area it also recommends “delaying the effective retirement age by encouraging a longer working life; increase revenues without raising the already high amount of contributions; and encourage complementary savings. ”



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