The IMF believes that Spain will be the second largest economy in the EU with the least deficit and debt in 2024, but it will fail to comply with fiscal rules

The unprecedented pandemic and subsequent inflation crisis have severely impacted the financial situation of governments worldwide. The sharp increase in public spending to address these shocks has resulted in soaring deficits and a significant accumulation of debt that has yet to return to pre-2019 levels. Spain, for instance, is projected to exceed the limits imposed by European fiscal rules in terms of both deficit and debt this year. However, among the large euro economies, Spain is positioned as the second-best starting point for recovery in 2024 and 2025, as highlighted by the latest fiscal projections published by the IMF.

According to the IMF fiscal monitor, Spain’s deficit is expected to reach 3.1% of GDP in 2024 and gradually decrease to 3% in 2025. As for public debt, it is projected to stand at 106.3% of GDP this year and decline to 104.9% the following year. Nevertheless, without fiscal adjustments, the debt and deficit will stabilize at high levels in the medium term.

Similar challenges plague most advanced economies. France and Italy, among the major euro economies, have worse short and medium-term expectations than Spain. France is predicted to have a public deficit of 4.9% in 2024 and the following year, nearly two percentage points higher than Spain’s forecast. Italy’s deficit is estimated to reach 4.6% of GDP in 2024 and then decrease to 3.2% in 2025.

Germany stands as an exception in the European top 4, known for its fiscal discipline. Although Germany faces stagnation this year, the IMF projects a deficit of 2.1% that will gradually reduce to 0.5% by the end of the decade.

Among major Western economies outside Europe, examples of significant fiscal imbalances can be found. The United Kingdom is projected to have a deficit of 4.6% in 2024, with no expectation of falling below 3.4% in the medium term. In the United States, the fiscal imbalance is forecasted to remain above 6% throughout the decade without adjustments.

In terms of debt, the IMF projects that Spain’s national liabilities will reach 106.3% of GDP in 2024. Although lower than France (111.6%) and Italy (139.2%), this figure exceeds the average for the euro zone (88.7%) and Germany (63.7%). Major global powers like the United States (123.3%), the United Kingdom (104.3%), and Canada (104.7%) also face high levels of debt. The same is true for China (88.6%) and India (82.5%).

A debt equivalent to world GDP

Given this scenario, the IMF emphasizes the need for budget adjustments in most economies globally. However, this may prove challenging as many countries are experiencing or will soon hold elections, typically accompanied by increased public spending. Spain, for instance, is urged by the IMF to implement a fiscal adjustment plan between 2024 and 2028, amounting to a total of 44 billion euros or approximately 9 billion annually.

On a global scale, the IMF warns that if no action is taken, global public debt will continue to grow, approaching 100% of global GDP by the end of the decade. In 2019, global liabilities reached 84.2% of GDP, but the pandemic-induced public spending escalated the ratio to 99.4% in 2020. Although it has since decreased to 93.8%, IMF projections indicate a rise in the coming months.