- AIReF reports on the Annual Progress Report, the document in which countries account for their compliance with the commitments set out in the Medium-Term Fiscal-Structural Plan (MTP), the main national planning document following the European reform
- It considers that the report formally meets European requirements, but lacks ambition as a medium-term guidance tool
- AIReF forecasts that primary expenditure net of revenue measures will grow by 5% per year between 2025 and 2028, compared with the 3.4% committed to in the MTP
- It estimates that, even after applying the defence spending escape clause, additional measures amounting to 0.6% of GDP in 2027 and 0.3% in 2028 would be needed to keep the control account within the limits and meet the commitments
- It sees a risk of non-compliance with the national expenditure rule in Central Government and in almost all Autonomous Regions in 2026, 2027 and 2028
- AIReF has lowered its growth forecast for 2026 to 2.2% and improved its medium-term forecasts due to higher migration flows. It estimates that GDP will gradually slow to 1.7% in 2030.
- It forecasts a public deficit of 2.6% of GDP in 2026, which will moderate in 2027 before starting to rise again in 2028 due to ageing and interest expenditure, reaching 2.4% of GDP in 2030.
- Public debt would continue to fall, reaching around 95% of GDP in 2030, although it would return to an upward path from the middle of the next decade due to ageing.
The Independent Authority for Fiscal Responsibility (AIReF) today published its report on the Annual Progress Report of the Medium-Term Fiscal-Structural Plan (MTP), in which it updates its macroeconomic and fiscal forecasts to 2030 and analyses Spain’s compliance with the fiscal commitments undertaken under the new European fiscal framework. AIReF also includes scenarios to analyse the effect of strictly meeting the agreed targets and the impact on the deficit and debt of activating the defence escape clause. The report is supplemented by individual reports for the Autonomous Regions, which also include a medium-term fiscal scenario under unchanged policies.
Under the new European fiscal framework, the Annual Progress Report replaces the Stability Programme Update and is the document through which Member States report annually to the European Commission on their compliance with fiscal commitments, the macroeconomic and fiscal scenario and the measures adopted. In this framework, the single operational benchmark for fiscal surveillance is the path of primary expenditure net of revenue measures committed to in the Fiscal Plan.
AIReF considers that the Annual Progress Report submitted by the Government formally complies with the requirements set by the European Commission, as it includes macroeconomic and budgetary information for past years and updated forecasts for 2026. However, it warns that it lacks ambition as a medium-term guidance tool. Specifically, it points to the partial update of the macroeconomic scenario and notes that the absence of macroeconomic and fiscal forecasts for the full horizon of the Plan limits the ability to identify ex ante the risks of deviation from the commitments undertaken.
In particular, AIReF notes that the Government keeps the real variables of the macroeconomic scenario unchanged and only partially updates certain nominal components. This creates internal consistency tensions in the scenario, especially in a context marked by geopolitical uncertainty, the energy crisis and trade protectionism. In addition, the Annual Progress Report includes fiscal measures adopted in response to the war in Iran, but does not reflect their impact on macroeconomic variables.
Macroeconomic scenario
In its macroeconomic scenario, AIReF has revised its real GDP growth forecast for 2026 slightly downwards to 2.2%, compared with the 2.3% estimated in April. This rate matches the Government’s November 2025 estimate, but the main discrepancy lies in nominal GDP growth, which the Government places at 5.3% in 2026, compared with 4.8% forecast by AIReF. This difference feeds through to the deficit and debt ratios, since a higher nominal GDP forecast generates a larger denominator effect.
Over the medium term, AIReF has revised upwards its economic growth forecasts for 2027 and 2028, to 2% and 1.9%, respectively, owing to higher migration flows. It then estimates that real GDP growth would slow to 1.7% in 2030. AIReF warns that this scenario is subject to significant downside risks, mainly associated with ongoing armed conflicts.
Compliance with the European expenditure path
AIReF forecasts that primary expenditure net of revenue measures will grow by an average of 5% per year between 2025 and 2028, compared with the 3.4% committed to in the MTP in the absence of additional measures. AIReF estimates, under unchanged policies, that net expenditure growth rates will exceed the Plan’s annual commitments by more than two percentage points in 2026 and 2027, and by more than one point in 2028. As a result, the cumulative control account would exceed the limit from 2026 and reach 2.1% of GDP in 2028.
Activation of the national escape clause to accommodate the increase in defence spending reduces these deviations. In 2026, after its application, the cumulative control account would stand exactly at the 0.6% of GDP limit. However, in 2027 and 2028 it would again exceed the limits, reaching 1.5% of GDP in 2028. Therefore, even with the escape clause and the flexibility provided for in the European fiscal framework, AIReF estimates that additional measures amounting to 0.6% of GDP in 2027 and 0.3% of GDP in 2028 would be needed.
Fiscal forecasts
AIReF forecasts that the GG deficit will rise to 2.6% of GDP in 2026, due to the temporary measures adopted. In 2027, it would fall to 2.2% of GDP and would then begin to rise again, driven by expenditure associated with ageing, defence and interest, reaching 2.4% of GDP in 2030. Implementing the measures needed to bring the cumulative control account within the permitted limits would entail a further reduction in the deficit, to 1.4% of GDP in 2030.
By subsector, most of the GG deficit would remain concentrated in Central Government throughout the forecast horizon. The Social Security Funds would stabilise their deficit at 0.1% of GDP, although it would start to rise again in 2030, reaching 0.2%. The Autonomous Regions would be close to balance, albeit with differing individual situations. Local Corporations would maintain a surplus of around 0.3% of GDP.
National fiscal framework
Under the national fiscal framework, the budgetary stability and debt targets have still not been approved, so the expenditure rule is the only operative rule. AIReF sees a risk of non-compliance with the national expenditure rule in Central Government and in almost all Autonomous Regions in 2026, 2027 and 2028.
AIReF notes that compliance with the national expenditure rule would require measures as early as 2026 amounting to 0.5% of GDP, with a further 0.6% in 2027 and another 0.3% in 2028. In terms of the European rule, these adjustments would ensure compliance by reducing the cumulative control account to 0.1% of GDP in 2028 after application of the escape clause. In this scenario, the public deficit would stand at 1.1% of GDP in 2030.
In this context, AIReF notes that compliance with both the national and European fiscal frameworks requires the adoption of measures that would help improve the sustainability of public finances. However, while national regulations require action as early as 2026, the European framework would allow the measures to be delayed until 2027. In addition, unlike the national framework, the European fiscal framework does not allocate responsibility for implementation across subsectors.
Debt sustainability
AIReF forecasts that the public debt ratio will remain on a downward path over the medium term, albeit at a more moderate pace. This trend will be supported by economic growth and the generation of primary surpluses. AIReF projects a reduction of just over five points over the next five years, bringing the ratio to around 95% of GDP in 2030. However, over the long term, pressures from the increase in ageing-related expenditure would mean that, under an unchanged-policies scenario, the debt ratio would return to an upward path from the middle of the next decade and again stand at around 100% of GDP in 2041.
AIReF’s simulations show that, if expenditure evolved in line with the MTP targets, the debt path would have a more favourable profile. By contrast, if implementation were merely kept within the limit of the control account expanded by the escape clause, debt developments would be less favourable than under exact fulfilment of the Plan’s initial targets. In any event, AIReF stresses that a more favourable path should not be interpreted as scope to expand spending capacity or to push implementation of the Plan up to the permitted limits.
Recommendations
In this context, AIReF recommends that the Ministry of Finance develop a realistic and credible medium-term fiscal strategy that ensures coordinated compliance with the national and European fiscal frameworks by all GG subsectors. According to AIReF, this should include the approval of budgetary stability and debt targets ahead of the start of the budgetary processes for 2027.
It also reiterates its recommendation to expand the content of the Annual Progress Report to include a complete medium-term fiscal scenario, allowing risks to compliance with the commitments set out in the MTP to be properly identified. Similarly, it reiterates its recommendation to request endorsement of the macroeconomic framework in the Progress Report or, alternatively, to open a prior technical dialogue with AIReF.
