- The Independent Authority for Fiscal Responsibility presents its Report on Budgetary Execution, Public Debt and the Expenditure Rule in 2025, which is key to detecting possible risks of non-compliance
- Regarding the European expenditure rule, AIReF estimates net expenditure growth in 2025 to be 4.6% above the agreed reference rate of 3.7%, but this deviation would fall within the limits established by European regulations
- Regarding the national expenditure rule, it continues to warn of the risk of non-compliance with the national expenditure rule by the Central Government (CG), almost all the Autonomous Regions (ARs) and eight of the Local Governments (LGs) analysed by AIReF
- AIReF notes fundamental differences between the two fiscal frameworks, with implications for fiscal supervision that need to be urgently resolved. In fact, compliance with the national expenditure rule by the CG and the ARs would require measures amounting to €11bn, but would lead to over-compliance with the European rule
- AIReF reiterates its recommendation to harness the transposition of the Directive on National Fiscal Frameworks to design a credible and effective medium-term budgetary framework, ensuring its coherence, consistency and effectiveness
- AIReF maintains its GDP growth forecast at 2.3% and improves the public deficit forecast for 2025 by 0.1 points, to 2.7% of GDP. It estimates that public debt will stand at 101.4% of GDP
- AIReF detects significant limitations in the information on defence expenditure and the monthly evolution of eligible expenditure. It also notes a high level of uncertainty about the impact of US tariff policy and the fiscal framework
- It recommends that the CG should present an Economic-Financial Plan due to its failure to do so in 2024, as required of the ARs
- AIReF recommends starting the budgetary procedure as soon as possible, publishing detailed information on the Security and Defence Plan and activating the preventive measures in the ARs and LGs where required
The Independent Authority for Fiscal Responsibility (AIReF) published its Report on Budgetary Execution, Public Debt and Expenditure Rules in 2025 for the different General Government (GG) sub-sectors today – a key report in the national fiscal supervision cycle, which aims to identify in advance risks to compliance with fiscal rules for the current year in order to prevent them from materialising. AIReF warns of inconsistencies between the European and national fiscal frameworks. In fact, it estimates that compliance with the national expenditure rule by the Central Government (CG) and the Autonomous Regions (ARs) would require additional measures of almost €11bn in 2025, but would lead to over-compliance with the European rule.
In the report, AIReF updates its economic and fiscal forecasts in line with the latest Spanish National Accounts and budgetary execution data available and the new measures adopted by the sub-sectors. Furthermore, given the coexistence of two different fiscal frameworks, it analyses the non-compliance observed in 2024, the Economic and Fiscal Plans (PEFs) of the non-compliant ARs and the risk of non-compliance with the European expenditure commitments made for 2025. AIReF also publishes individual reports on the ARs, with an analysis of the PEFs of those in breach and a supplementary report on the LGs.
In its analysis, AIReF detects significant information constraints on defence expenditure, ongoing litigation and the monthly evolution of eligible expenditure. In addition, it notes a high level of uncertainty about the impact of US tariff policy and the fiscal framework.
AIReF projects real GDP growth for 2025 as a whole at 2.3%, identical to the estimate in May, when it revised this forecast downwards to include the impact of trade uncertainty. The favourable performance of service exports and the influx of immigrants, which is sustaining consumer spending while boosting the labour market, are the main factors behind this forecast. The slowdown in real growth and the decline in inflation will lead to slightly higher nominal GDP growth of just over 4%, compared with recent years (above 6%).
As for the fiscal scenario, AIReF has revised its forecast for net expenditure growth in 2025 slightly upwards from 4.5% to 4.6%, 0.9 points above the commitment in the Medium-Term Structural-Fiscal Plan (MTP). This represents an annual deviation of 0.3% of GDP, at the limit of the annual control account established by European regulations. Furthermore, in cumulative terms, net expenditure growth stands at 8.3%, below the 9.2% committed to in the MTP.
Regarding the national expenditure rule, AIReF continues to warn of the risk of non-compliance by the CG in 2025, as well as by almost all the ARs and eight of the LGs analysed by AIReF. Furthermore, this risk of non-compliance is maintained once non-compliance in 2024 has been confirmed by the CG and 13 ARs. In this regard, it should be noted that while the 13 ARs have submitted their respective PEFs, the CG has not yet complied with the obligation set out in the Organic Law on Budgetary Stability and Financial Sustainability (LOEPSF) to submit it in the event of non-compliance. Furthermore, AIReF maintains that the PEFs of the ARs analysed to date do not, in general, present sufficient measures to support containing eligible expenditure growth to comply with the expenditure rule in 2025 and 2026.
AIReF has revised its deficit forecast for the GG as a whole down to 2.7% of GDP, or 2.4% of GDP excluding expenditure associated with the Isolated High Altitude Depression (DANA). This improvement in the deficit forecast is mainly due to the improvement in revenue forecasts in line with the latest tax collection data, which more than offsets the increase in expenditure growth forecasts.
Under AIReF’s macro-fiscal forecasts, the debt ratio will fall by 0.4 points in 2025 to 101.4% of GDP, a more moderate decline than in previous years. This evolution is underpinned by economic growth, albeit weaker than in previous years, which slows the pace of debt reduction.
Under AIReF’s revenue scenario, strict compliance with the European expenditure rule and 3.7% growth in net expenditure would mean an additional reduction in the deficit to 2.4% of GDP. In addition, compliance with the national expenditure rule in 2025 by the CG, the ARs and LGs would imply compliance with the European expenditure rule for the GG as a whole, with net expenditure growth of 2.9%, which would also mean a further reduction in the deficit to 2% of GDP.
This means that, according to AIReF’s forecasts, Spain would comply with the European fiscal framework, since the deviation forecast for 2025 is within the permitted limits, albeit by a narrow margin. However, compliance with the national fiscal framework and, specifically, the national expenditure rule would require the CG and the ARs to adopt measures amounting to approximately €11bn in 2025.
Recommendations
In this context of a dual fiscal framework, AIReF points out that it does not know how the application of the national and European fiscal frameworks, which currently diverge in relevant aspects, will be reconciled in 2025 and beyond. For this reason, it reiterates its recommendation on the need to harness the transposition of the Directive on National Fiscal Frameworks to design a credible and effective medium-term budgetary framework, ensuring the coherence, consistency and effectiveness of the national fiscal framework. In this regard, AIReF will further analyse this issue in an Opinion to be published in the autumn.
Furthermore, in view of compliance with the current national fiscal framework, AIReF recommends that the Ministry of Finance present the PEF in accordance with the provisions of the LOEPSF and in a similar manner to that required of the ARs that failed to comply with the expenditure rule in 2024. It also recommends that the Ministry of Finance monitor budgetary execution and establish the necessary coordination mechanisms to ensure compliance with the national and European expenditure rule by all GG sub-sectors.
In addition to the pending reform of the national fiscal framework and the failure to present a PEF for the CG, AIReF maintains that there are other factors that increase institutional uncertainty and make fiscal supervision particularly difficult. First, the CG has not presented the draft General State Budget (GSB) for either 2024 or 2025. Second, it has not submitted the Budgetary Plan for 2025 to the European institutions. Third, the MTP only included fiscal forecasts for 2024 and the Annual Progress Report for 2025 for the GG as a whole, and could not thus be considered as the medium-term budgetary plan for the purposes of Article 29 of the LOEPSF. Lastly, there is insufficient information to assess the impact of the Industrial and Technological Plan for Security and Defence on the deficit and debt in the short and medium term.
Furthermore, with a view to preparing the GSB for 2026, a delay has also been observed in the initial steps of the budgetary procedure, such as the absence of the order to prepare the GSB, the proposal for stability targets, the approval of the non-financial expenditure limit for the GSB, the publication of the Report on the Situation of the Spanish Economy containing the reference rates for the national expenditure rule, and the convening of the Fiscal and Financial Policy Council to report on the proposed targets. In a normal budget cycle, these elements would have already been in place by the date of this report.
Consequently, AIReF recommends that the Ministry of Finance initiate as soon as possible the budgetary procedures that must culminate in the presentation of the draft General State Budget and that the budgetary stability targets be established. AIReF also recommends the publication of information on the implementation of the Industrial and Technological Plan for Security and Defence.
