- AIReF raises its growth forecasts for 2026 and 2027 to 2.5% and 2.1%, keeps the public deficit forecast at 2.6% of GDP in 2026 and estimates that public debt will fall to 99.3% of GDP
- It revises growth in primary expenditure net of revenue measures upwards, from the 5.8% forecast in May to 6.4%, compared with the 3.5% committed to in the Medium-Term Plan (MTP)
- This higher expenditure growth exhausts the margin provided by the European fiscal framework and means that compliance in 2026 will depend on the escape clause
- Extending the clause to certain energy measures, in addition to defence expenditure, could prevent non-compliance with the European fiscal framework in 2026 if the European Commission accepts the maximum amount envisaged, up to the limit of 0.3% of GDP, for the measures notified by Spain
- AIReF sees a risk of non-compliance with the national expenditure rule in Central Government, most Autonomous Regions and certain Local Governments and estimates that compliance would require additional measures in 2026 amounting to 0.6% of GDP
- It again notes that the differences between the European and national fiscal frameworks hinder fiscal planning and supervision and recommends drawing up a medium-term fiscal strategy to ensure coordinated compliance by the General Government as a whole
- It considers that the timely submission of the 2027 Draft General State Budget and the Draft Budgetary Plan would strengthen institutional quality, transparency and fiscal supervision
The Independent Authority for Fiscal Responsibility (AIReF) today published the Report on the budgetary execution, public debt and expenditure rule of the General Government in 2026, a key report in the fiscal supervision cycle in which it updates its macroeconomic and fiscal forecasts and analyses the risk of non-compliance with the fiscal rules. The report revises the forecast for growth in expenditure net of revenue measures upwards, from 5.8% in May to 6.4%, well above the 3.5% committed to in the Medium-Term Plan (MTP). This level of expenditure is well above the path committed to in the MTP, complicating compliance with the fiscal commitments over the coming years.
The report also highlights once again the differences between the national and European fiscal frameworks. Compliance with the European framework in 2026 will depend partly on the application of the escape clause and on the European Commission’s assessment of the energy measures notified by Spain, which could shift adjustment needs to 2027 and 2028. By contrast, the national expenditure rule would require additional measures as early as 2026. These differences affect both the timing and scale of the measures needed to ensure sustainability and once again point to the need for a medium-term fiscal strategy that ensures coherent and coordinated compliance with the fiscal rules and promotes greater alignment between the national and European fiscal frameworks.
In the report, AIReF updates its economic and fiscal forecasts on the basis of the latest available national accounts and budgetary execution data and the new measures adopted by the various levels of government. The report is published together with the supplementary report on Local Governments and the reports on the Economic-Financial Plans (EFPs) of the Autonomous Regions required to submit them after breaching the national expenditure rule in 2025.
Macroeconomic scenario
AIReF endorsed the Government’s macroeconomic forecasts for 2026-2029 included in the 2026 Report on the Situation of the Spanish Economy, after receiving a request for the first time to report on this scenario. In doing so, the Government has effectively implemented a repeated recommendation by AIReF and is helping to improve budgetary practices.
AIReF updates its macroeconomic scenario for 2026 and 2027 with an upward revision of GDP growth in both years, to 2.5% in 2026 and 2.1% in 2027. The new scenario keeps domestic demand as the main driver of growth in 2026 and 2027, against a backdrop of strong inflows of foreign population and an investment boost from European funds. Recent short-term developments and the improved outlook for energy prices contribute to the upward revision of growth, adding one tenth of a point in both 2026 and 2027.
However, the institution keeps the balance of risks tilted to the downside, due among other factors to the uncertainty stemming from the conflict in the Middle East, energy price developments, the end of the Recovery Plan and the persistence of an inflation differential and productivity growth below that of Spain’s main European partners.
Fiscal scenario
AIReF maintains its deficit forecast for the General Government as a whole at 2.6% of GDP in 2026, or 1.8% of GDP excluding the measures relating to the DANA storm, the series of storms and the crisis in the Middle East. The cost of extending the measures is almost fully offset by the improved revenue forecast and changes in the macroeconomic scenario. By subsector, AIReF raises its deficit forecast for Central Government to 2.5% of GDP in 2026, while improving the balance of the territorial administrations to equilibrium in the Autonomous Regions (ARs ) and a surplus of 0.2% of GDP in Local Governments (LGs ). The forecast for the Social Security Funds remains unchanged at a deficit of 0.2% of GDP.
AIReF’s debt projections point to a reduction of 1.3 percentage points in 2026, bringing the debt ratio down to 99.3% of GDP. The forecast improves by six tenths due to the upward revision of nominal growth and stands in line with the Government’s target, which envisages a debt ratio of 99.1% of GDP.
Higher expenditure growth
AIReF revises its forecast for growth in expenditure net of revenue measures in 2026 upwards to 6.4%, 1.7 points above the figure projected by the Government in the report published in May, reducing the margin for meeting the fiscal commitments assumed in the MTP. Specifically, this represents an annual deviation of 1.1% of GDP from the annual commitment. In cumulative terms, growth in net expenditure stands at 16.5%, compared with the 13% committed to, placing the cumulative control account at 1.2% of GDP.
However, applying the escape clause to accommodate the increase in defence expenditure, and extending it to certain energy measures to mitigate the effects of the crisis in the Middle East, provide additional flexibility. In the case of the measures to mitigate the effects of the energy crisis, however, the effective scope of this flexibility has yet to be defined and will depend on the European Commission’s assessment of the measures notified by Spain. If the Commission were to accept the maximum amount envisaged for these measures, equivalent to 0.3% of GDP, the cumulative control account would fall to -0.6% of GDP, exactly at the limit permitted by European legislation and thereby avoiding non-compliance.
Non-compliance with the national expenditure rule
For the national rule, and following the breaches in 2024 and 2025, AIReF continues to warn of the risk of non-compliance in 2026 in Central Government, most Autonomous Regions and some large Local Governments. Along these lines, the EFPs of the Autonomous Regions analysed generally do not set out sufficient measures to contain the growth of eligible expenditure and comply with the expenditure rule in 2026 and 2027. Once again, Central Government has not complied with the obligation set out in the Organic Law on Budgetary Stability and Financial Sustainability to present an EFP.
Under AIReF’s revenue scenario, compliance with the national expenditure rule in 2026 by Central Government, the Autonomous Regions and Local Governments would require additional measures of six tenths of GDP, bringing the deficit to 1.9% of GDP in 2026. In terms of the European expenditure rule, this would imply net expenditure growth of 4.7%, bringing the cumulative control account to around zero after applying the national escape clause.
Inconsistencies between the rules
The report once again highlights the differences in the application of the two fiscal frameworks. While compliance with the national fiscal framework would require additional measures, they would not be needed in 2026 under the European fiscal framework. However, the European fiscal framework would also require measures in 2027 and 2028. In any event, adopting measures in 2026 would make it easier to comply with European legislation in subsequent years thanks to its medium-term perspective. This shows the need for a medium-term fiscal strategy that ensures coherent and coordinated compliance with the fiscal rules and promotes greater alignment between the national and European fiscal frameworks.
AIReF also notes that the budgetary stability and debt targets for 2027-2029 are being processed and that the Government has once again committed to submitting the 2027 Draft General State Budget. AIReF points out that completing the constitutional procedure for submitting the budget on time and in due form would in itself represent a substantial improvement over previous years in terms of institutional quality, transparency and commitment to the sustainability of public finances.
Recommendations
Against this backdrop, AIReF recommends that the Ministry of Finance draw up a medium-term fiscal strategy to ensure coordinated compliance with the national and European fiscal frameworks by the General Government as a whole.
It also considers that the timely submission of the 2027 Draft General State Budget and the Draft Budgetary Plan would substantially improve institutional quality, strengthen transparency and facilitate fiscal supervision and accountability.
AIReF also recommends that Central Government present the EFP provided for in the Organic Law on Budgetary Stability and Financial Sustainability after breaching the national expenditure rule in 2025.