IMF urges Spain to accelerate fiscal consolidation amid strong growth
The International Monetary Fund (IMF) has urged Spain to accelerate fiscal consolidation efforts, despite the economy's strong performance. In its 2026 Article IV Mission statement, the IMF staff highlighted the need to rebuild fiscal space ahead of rising aging-related spending pressures.
Robust growth, persistent inflation
Spain's economy continues to outperform euro area peers, with growth projected to remain solid at 2.1 percent in 2026 and 1.8 percent in 2027, following 2.8 percent in 2025.
This expansion is driven by strong domestic demand, underpinned by continued net migration inflows, steady real wage gains, and increased private consumption.
Investment has also picked up, supported by favorable financial conditions and Next Generation EU funds.
Headline inflation has hovered between 2.5 and 3.0 percent since mid-2025, with core inflation remaining sticky.
Downside risks include a prolonged Middle East conflict, an escalation of other geopolitical tensions, and domestic political fragmentation, which could weigh on investment, consumption, and growth.
Urgent call for fiscal discipline
Despite improving public finances, with the general government deficit expected to fall to 2.5 percent of GDP in 2025, the IMF staff projects that annual net expenditure growth will continue to exceed targets, requiring additional consolidation efforts.
Measures of almost 1.5 percent of GDP are needed to achieve Spain's medium-term fiscal structural plan (MTFSP) deficit path.
The IMF recommends accelerating discretionary consolidation to rebuild fiscal space more rapidly, especially given the strong cyclical position.
This includes addressing the low efficiency of indirect taxation, potentially by harmonizing VAT rates, and implementing employment-friendly pension reforms.
The subnational fiscal rule also requires overhauling to ensure regional debt sustainability and avoid pro-cyclical spending, aligning with the EU fiscal framework.
Growth opportunity, policy challenge
Spain's robust economic performance offers a crucial window for structural reforms and fiscal strengthening, particularly in addressing long-term vulnerabilities.
However, the political will to implement unpopular consolidation measures and housing supply reforms remains a significant hurdle.
Without decisive action, the country risks exacerbating long-term pressures from aging-related spending and housing affordability issues, potentially undermining future prosperity.