World Economy

Spain to Overshoot Budget Deficit Target Again

Spain to Overshoot Budget Deficit Target AgainSpain to Overshoot Budget Deficit Target Again

Spain will overshoot its deficit target again this year, the caretaker government said Tuesday, as the country struggles to adhere to budget agreements reached with European Union authorities.

Spain is projected to report a 2016 budget deficit of 3.6% of gross domestic product, caretaker Finance Minister Luis de Guindos told lawmakers on Tuesday in Madrid. The European Union’s executive arm had set a target for this year of below 3%, Yahoo reported.

In 2017, Spain is expected to have a budget gap of 2.9%, De Guindos said. His deficit figures exclude funds used to bail out the country’s banks in 2012.

The cutbacks that would have been required to meet the EU’s budget targets, De Guindos said, would have had a negative impact on Spain’s economic recovery.

Lawmakers from the center-left Socialist party and the centrist Ciudadanos responded that the conservative Popular Party—which has led a caretaker government since inconclusive December elections—cut taxes last year to appeal to voters.

The lawmakers said this decision exacerbated the budget gap, which reached 5% last year. The European Commission had set a target of 4.2% for Spain.

De Guindos told lawmakers that despite the significant budget deficit, Spain was on the right economic track, with public debt declining, unemployment falling and economic growth still above the eurozone average.

 Need for Pace

However the Commission and the European Central Bank, in a joint statement published Tuesday, said Spain has to pick up the pace on tackling its budget deficit, which is among the highest in the eurozone.

“The necessary progress on fiscal consolidation has come to a halt, with part of the structural adjustment implemented in earlier years being reversed,” the statement said.

“Additional consolidation efforts to ensure a durable reduction of the general government deficit and strong reform efforts remain paramount to further rebalance the economy.”

The Commission and the ECB lauded Spain for the country’s previous efforts to stoke the economy, which grew last year by 3.2%. Unemployment has also fallen after a deep recession, but at around 20%, it is among the highest in Europe, they warned.

De Guindos said Spain’s unemployment rate will nudge slightly lower this year to 19.9% and 17.9% in 2017.

The country’s expansion will slow during the next two years, he said.

Spain’s economy will expand 2.7% this year, he said, in line with an earlier projection by the Bank of Spain. In 2017, the country is expected to grow by 2.4%.