IMF urges Spain to make far-reaching, comprehensive reforms

08:16, May 25, 2010      

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The International Monetary Fund (IMF) said on Monday that the challenges in Spain are severe and the European nation's economy must make far-reaching and comprehensive reforms.

According to the IMF, the Spanish economy may stagnate as the weakness in private demand and fiscal consolidation interact, " especially if reforms to boost competitiveness and growth are timid."

"Financial market conditions may also deteriorate further, raising borrowing costs for both the government and the private sector," said the Washington-based agency in a report after consultations with the Spanish government.

Noting that policy should focus on fostering the smooth rebalancing of the economy, the IMF urged Spain to take "urgent and decisive action" on labor market and fiscal and banking sector consolidation.

"Such broad reforms in many sectors simultaneously would produce synergies," said the IMF in the report.

The agency also said it "fully supports" the Spanish government 's ambitious fiscal consolidation to reach the three percent of GDP deficit target by 2013.

"To achieve the implied 10 percent of GDP improvement in the primary balance from 2009 to 2013, the government has taken a wide range of measures, including the fiscal package approved by the Cabinet last week," said the IMF. "It significantly strengthens and front loads the envisaged adjustment and enhances credibility by taking concrete and bold measures, such as cutting public sector wages."

It also noted that risks to achieving the targets come from both the implementation of the measures and the underlying projections of a fairly rapid recovery.

"Any slippage in attaining fiscal targets will make it difficult to put government debt on a firm downward path in a reasonable timeframe and undermine credibility."



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