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25 May 2010

IMF: Spain’s economy needs far-reaching and comprehensive reforms


Ambitious fiscal consolidation is underway, the IMF says, but needs to be complemented with structural reforms such as a bold pension reform. Also, the consolidation and reform of the banking system needs to be accelerated.

Spain’s economy needs far-reaching and comprehensive reforms.
The challenges are severe:
·         a dysfunctional labor market,
·         the deflating property bubble,
·         a large fiscal deficit,
·         heavy private sector and external indebtedness,
·         anemic productivity growth,
·         weak competitiveness,
·         and a banking sector with pockets of weakness.
 
Policy should focus on fostering the smooth rebalancing of the economy. This calls for urgent and decisive action on:
      making the labor market more flexible to promote employment and its reallocation across sectors;
      fiscal consolidation to put public finances on a sustainable footing; and
      banking sector consolidation and reform to cement the soundness and efficiency of the system.
Such broad reforms in many sectors simultaneously would produce synergies. For example, labor market reform coupled with further liberalization of product and service markets would boost investment and employment and reduce prices, making fiscal consolidation easier and strengthening banks. Such reforms would also support Spain’s long-term convergence with higher-income peers. These reforms should be implemented pro-actively to boost financial market sentiment and underpin credibility.
 
 


© International Monetary Fund


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