MINISTERIO DE ECONOMÍA Y HACIENDA Dealing with a change in the economic growth pattern, high unemployment and the need for fiscal sustainability Elena Martín Córdova Doha, November 2009 1 MINISTERIO DE ECONOMÍA Y HACIENDA General Outlook I. Special features of the Spanish crisis and the fiscal stimulus Plan. II. The impact of the crisis on the budget. III. Main challenges for the budget: The need for fiscal sustainability. Public debt. The exit strategy. 2 MINISTERIO DE ECONOMÍA Y HACIENDA I. Special features of the Spanish crisis and the fiscal stimulus Plan 3 MINISTERIO DE ECONOMÍA Y HACIENDA Special features of the Spanish crisis: property bust and non financial crisis There is a double crisis in Spain: The international global crisis- The Spanish Economy is the second most open economy in Europe. The internal housing slump- Adjustment more severe than expected. Main features of the Spanish crisis: The property bust. High unemployment. Sound banking sector: there haven´t been any bank bailouts. 4 MINISTERIO DE ECONOMÍA Y HACIENDA Spanish Plan to stimulate the economy and employment 2. Companies 1. Families Plan E Strategic items 4. Financial and budgetary measures 3. Employment 5. Economic modernization Coordinated with the European Economic Recovery Plan. More than 100 measures included. Fiscal measures amounted to 1,8% of GDP in 2008 and to 2.3 % of GDP in 2009. 5 MINISTERIO DE ECONOMÍA Y HACIENDA Spain had a good fiscal position at the beginning of the crisis Public debt in the EU 2008 Growing surpluses 2005-2007 As a percentage of GDP As a percentage of GDP 120,0 2,5 2,0 1,5 1,0 0,5 0,0 -0,5 2,0 2,2 105,7 100,0 80,0 1,0 65,6 68,7 67,1 60,0 50,1 39,8 40,0 20,0 2003 2005 2006 2007 0,0 ITALY GERMANY FRANCE UNITED KINGDOM EUROZONE SPAIN 6 MINISTERIO DE ECONOMÍA Y HACIENDA Job creation measures Local Investment Fund for Local Authorities (In 2009: € 8 billion / In 2010: € 5 billion) Fund for Economic Reactivation (€ 3 billion) Tax allowances in the Corporate Income Tax to boost employment Measures to support strategic sectors, for example, the automobile industry. 7 MINISTERIO DE ECONOMÍA Y HACIENDA Financial Measures Main goals: to underpin the financial sector and to prevent a financial institutions crisis to inject liquidity into the financial system • Budget fund to buy assets: €30-50 billion • Public guarantee of €100 billion • Deposit guarantee fund has been raised to €100,000 per client and per bank • Fund for Ordered Bank Restructuring (€9 billion) 8 MINISTERIO DE ECONOMÍA Y HACIENDA II. The impact of the crisis on the budget 9 MINISTERIO DE ECONOMÍA Y HACIENDA The economic downturn has affected public finances Saldos presupuestarios en varios países de la UE 2005-2009 Porcentaje del PIB Budget deficits forecasted for 2009 (%GDP) Crecimiento en varios países de la UE 2004-2010 Economic Tasa de variación growth in EU countries (%GDP) 4 4,5 2 3,5 ITALIA 2,5 1,5 0,5 -1,5 -2 FRANCIA -4 REINO UNIDO -6 ZONA EURO -2,5 0 ALEMANIA -0,5 Alemania Reino Unido Francia -8 Italia -10 -3,5 ESPAÑA -4,5 -12 -5,5 -14 2004 2005 2006 2007 2008 2009 (F) 2010 (F) Fuente: Comisión Europea, FMI, Proyecto PGE 2010 Source: European Commission and Spanish Draft Budget 2010 España 2005 2006 2007 2008 2009 (p) Fuente: European Commission,Commission Economic Forecast, and spring 2009. Para España 2009,Budget proyecto PGE 2010. Source: European Spanish Draft 2010 10 MINISTERIO DE ECONOMÍA Y HACIENDA The functioning of automatic stabilizers during the crisis During 2008: There was a significant difference between the budget passed and the execution. Quick reaction of automatic stabilizers. Expected surplus Deficit in budget execution In 2009: Free functioning of automatic stabilizers An increase in unemployment benefits A fall in tax revenues (emphasized by previous fiscal allowances) Budget for 2010: The recovery may start but the consequences of the crisis in the labour market will continue. 11 MINISTERIO DE ECONOMÍA Y HACIENDA Strong impact on the labour market TASA DE PARO Unemployment rate Media anual 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 UE EU 2.0 Zona EuroEuro zone España Spain EEUU United States 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008(E) 2009(P) 12 MINISTERIO DE ECONOMÍA Y HACIENDA Fiscal revenues Evolución de los ingresos del Estado En millones de euros Fiscal revenues trend (Million Euros) 170.000 160.000 150.000 140.000 130.000 120.000 110.000 100.000 90.000 80.000 70.000 60.000 50.000 2002 2003 2004 2005 2006 2007 2008 2009 (p) 2010 (p) 13 MINISTERIO DE ECONOMÍA Y HACIENDA III. Main challenges for the budget 14 MINISTERIO DE ECONOMÍA Y HACIENDA Challenges for the budget: the need for fiscal sustainability (I) Real GDP Public budget balance (% GDP) 2010 -0,3 2011 1,8 2012 2,7 -8,4 -8,1 -5,2 -5,2 -3 -3,0 Spending limit for 2010: Homogeneous non-financial spending (Million Euros) 3,9% 192.736 2009 185.249 2010 15 MINISTERIO DE ECONOMÍA Y HACIENDA Challenges for the budget: the need for fiscal sustainability (II) Is there any fiscal space? Local From the side of public spending: Austerity measures. Fund 2% UnemploymentDesempleo 9% benefits 9% From the revenue side: increase taxes, fiscal benefits, strong fight against fiscal corruption Otros gastos Other spending 2% 2% Fondo local 3% Ministries Gastos Spending ministerios 30% 30% Interests and other Intereses y otros gastos no nof discretionary discrecionales spending 27% 27% Financiación AATT Transfers to 29% subcentral Governments 29% 16 MINISTERIO DE ECONOMÍA Y HACIENDA Public debt Direct impact on the budget (interests burden). Deuda pública 1996-2010 Public debt 1996-2010 (%GDP) Porcentaje del PIB 80 According to the EU, new medium-term plans are neccesary to reduce the public debt < 60% GDP. Zona Euro 60 40 % intereses/presupuesto no financiero Estado España 20 Public finances sustainability needs to incorporate longterm perspective. 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (f) CCAA 17 17 MINISTERIO DE ECONOMÍA Y HACIENDA Exit strategy: A change in the economic growth model The exit strategy should take into account what cause the current crisis: An economy excessively dependent on one sector. Shift to a sustainable economic pattern based on: R+D, infrastructures and education. Changes in the legal framework: Sustainable economy draft law Draft law to make the service sector more dynamic The withdrawal of the fiscal stimulus measures will be gradually not to hamper economic growth 18 MINISTERIO DE ECONOMÍA Y HACIENDA Final remarks Is this a cyclical crisis or… … a crisis of the economic model? New role for the budget New role for the State 19 MINISTERIO DE ECONOMÍA Y HACIENDA Thank you so much 20