Spain refers the Stability Programme and the National Reform Plan to the European Commission

May 1, 2020. The Government’s Delegated Commission for Economic Affairs yesterday updated the 2020-2021 Stability Programme and the 2020 National Reform Programme for referral to the European Commission. The shipment is made in compliance with the obligation of all Member States to submit each year in April to the European Commission their National Reform Programmes and their Stability Programmes, within the framework of the European Semester for the coordination of economic policies.

Following the new Community guidelines, the information submitted includes the macroeconomic and fiscal perspectives for 2020 and 2021 and the set of actions carried out to contain the pandemic and counteract the effects of COVID-19 on the economy.

2020-2021 Stability Program

The Stability Program includes the macroeconomic scenario for 2020 and 2021 supported by the latest economic and health information available and consistent with the epidemiological scenario that serves as the basis for the plan of de-escalation and reactivation of the economy.

The Spanish economy has been recording positive growth rates in recent years, higher in recent quarters than the euro zone average. The emergence of COVID-19 and its impact on the economy have caused the growth cycle initiated in 2014 to be abruptly slowed down.

The Stability Program includes the new scenario derived from the measures established in the state of alarm aimed at reducing mobility to stop the expansion of the pandemic, as well as the actions approved to mitigate the impact of COVID-19 on families, workers, self-employed and companies.

The new macroeconomic picture, endorsed by the Independent Authority of Fiscal Responsibility, has a very high impact in the short term and a gradual return to normality. Thus, a special incidence of the effects of COVID-19 on the economy is expected in the first two quarters of 2020 and the beginning of the recovery of activity in the second half of this year. As a result, the Gross Domestic Product is estimated to fall by 9.2% for the year as a whole and a significant recovery in 2021, with an expected growth rate of 6.8%.

The measures for the protection of workers and the flexibility of the Temporary Employment Regulation Files adopted manage to reduce the impact on activity and employment. The unemployment rate is expected to stand at 19% in 2020, to be reduced in 2021 to around 17%.

All the initiatives to support families, workers and companies have made it possible to mitigate the social and economic effects of the pandemic, although they are making a great effort in terms of budgetary support, so that the public deficit in 2020 is expected to be 10.3% and the public debt 115.5%.

National Reform Program

The Government’s Delegate Committee for Economic Affairs also approved yesterday the referral to the European Commission of the National Reform Programme (PNR).

The document has been prepared in an extraordinary context determined by the COVID-19 crisis and, following the guidelines of the European Commission, its content has been reoriented to incorporate the measures adopted to face the socio-economic challenges arising from the pandemic.

The Spanish Government has adopted successive packages of measures that constitute a decisive response to the spread of the virus in three areas: health, economic and social. The economic and social measures adopted aim to weave a safety net that protects citizens and preserves economic activity and employment.

At the economic level, measures have been taken to protect the productive fabric, paying special attention to SMEs and the self-employed. At the social level, measures have been put in place to support the incomes of families and workers, cushioning the impact of the crisis on the most vulnerable groups and also supporting the maintenance of incomes and internal demand.

Furthermore, within this exceptional framework, important structural reforms have also been addressed, the positive impact of which will be extended in the future once the health crisis has been brought under control. Among the measures adopted are, among others, the establishment of an agile system of Temporary Employment Regulation Files in order to improve the functioning of the Spanish labour market and the efficiency of companies; the implementation of an efficient information management system in the health field, the promotion of teleworking; the promotion of digitization in the educational field, in companies, particularly in SMEs, in justice and in the Public Employment Service; the development of an effective management system of Social Security benefits through professional mutuals and the development of applications based on artificial intelligence for the management of mobility.

Fiscal consolidation

The Government’s commitment to the sustainability of public accounts is evidenced by the fiscal consolidation data prior to the COVID-19 pandemic. In particular, Spain closed 2019 with a deficit of 2.8%, which means complying for the second consecutive year with the EU Stability Pact after in 2018 abandoning the Excessive Deficit Procedure for the first time since the beginning of the 2008 crisis.

The consolidation effort stands out in the case of the Central Administration and Social Security, which together managed to reduce their deficit by 3.2% in 2019 in a context of double budget extension in which no new income could be approved and important social measures were adopted such as the revaluation of pensions by 1.6%; the increase of minimum and non-contributory pensions by 3%; the increase of widow’s pensions by 7%; the increase of the SMI by 22.3%; the recovery of the allowance of people over 52 years old; the increase of paternity leave from 5 to 8 weeks; or the refund of the maternity income tax.

In addition, despite the approval of these measures with an extended budget, the State achieved a primary surplus of 8,486 million euros in 2019.

The data in the first quarter of 2020 showed that the positive trend was maintained with a reduction of the deficit of 13.9% by the central administration, despite the fact that in March the first effects of the pandemic were noted.

Income and expense forecasts

In this sense, it is evident that the crisis caused by COVID-19 also impacts on public accounts as a result of a significant increase in spending generated by the social, health, labor and economic measures adopted to mitigate the impact of the crisis.