IMF Chief Lagarde says Spain Needs Longer for Fiscal Consolidation

Spain needs more time for fiscal consolidation and should be allowed to relax its austerity programme in view of the weakness of its economy, said the International Monetary Fund’s (IMF) managing director, Christine Lagarde. 

“We believe, considering the situation of the country and the efforts that had been undertaken, the 25% unemployment rate at the moment, [that] it’s clearly needed to do fiscal consolidation but we don’t see the need to do upfront, heavy duty fiscal consolidation as was initially planned,” she announced at a news conference in Washington. 

“Spain needs more time and needs to be able to adjust into its fiscal consolidation efforts after it has done already.”

The European Union (EU) is considering whether to grant the Spanish government an extension of the period needed to reduce its budget deficit. It missed its target in 2012, when the reduction to 7% of gross domestic product (GDP) fell short of the 6.3% target. This year the country is aiming for a figure of 4.5%. 

Later this month, Spanish authorities will submit to the European Commission (EC) a revised programme of reforms planned for the next three years and updated economic forecasts. The EU executive will use these in deciding whether Spain can take one or two extra years, to 2015 or 2016, to reduce its fiscal gap to below the EU’s targeted ceiling of 3% of GDP. 

Spanish Debt Sale

Separately, Spain has completed the sale of €4.7bn in medium and long-term debt at a triple-bond auction, exceeding its target and reducing the yield on the benchmark 10-year bond to its lowest for three years. 

The Treasury aimed to sell €3.5bn to €4.5bn via the auction of the three bonds. In the event, the benchmark 10-year bond to January 2023 sold €1.3bn at an average yield of 4.612% compared to 4.898% at the previous offering four weeks ago. The paper was 2.6 times subscribed compared to 1.9 times in March.

It sold €1.4bn euros of a three-year bond due July 2016 at an average yield of 2.792%, against 3.019% when it last sold at a primary auction two weeks ago. The bid-to-cover ratio was 2.8, up from 1.9 earlier this month. 

The Spanish Treasury saw yields on the January 2018 bond, of which it placed €2bn and which was 2.5 times subscribed, fall to 3.257%, from 3.557% mid-March when it was 3.6 times subscribed. It continues a successful bond sale trend evident since the start of 2013.




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