Spain | Fiscal watch 3Q21

Summary

Positive development on tax collection and a lower impact of the pandemic introduce biases in the deficit forecasts, which are revised to 7.7% of GDP in 2021 and 5.5% in 2022. The approval of the Recovery Plan and the suspension of fiscal rules anticipate that fiscal policy will remain expansionary.

Key points

• Key points:
• Public deficit, excluding local corporations, in Apr-21 stood at 1.8% of GDP, an improvement on that observed one year before, mainly due to the different timing of the pandemic.
• The good performance of tax collection in the first part of the year, which already exceeds revenues in the same period of 2019, anticipates more buoyant revenues.
• A lower intensity of the last waves of the pandemic and the end of the restrictions have reduced the impact of COVID-19 on public accounts, with lower public consumption and social benefits.
• The economic recovery and the persistence of historically low interest rates will support a reduction in the government debt-to-GDP ratio to 115.2% of GDP in 2022.
• The EC's approval of the Recovery Plan confirms that the first disbursements will come in the second half of the year. However, the administrative complexity in the development and management of the programmes linked to the Plan generates uncertainty regarding the achievement of milestones and targets.

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