The President of the Independent Authority for Fiscal Responsibility (AIReF), Cristina Herrero, took part today in the CREO Forum organised by Cinco Días, warning of the challenges of economic growth and fiscal sustainability in the current environment. In a dialogue with journalist Jesús Sérvulo, she addressed the evolution of economic growth in a context of high uncertainty, the scope of the Structural-Fiscal Plan presented by the Government to meet the commitments with Brussels, and some of the major challenges facing public finances in the medium term, such as increased defence expenditure.
Cristina Herrero explained that AIReF has lowered its growth forecasts for 2025 and 2026 to 2.3% and 1.7%, respectively, in a complex geopolitical context, compounded by the instability and volatility resulting from the escalation of protectionism. She pointed out that, although Spain continues to stand out from its European partners, private investment is not as dynamic as expected. In this regard, she stated that, although the Recovery, Transformation and Resilience Plan (RTRP) could contribute up to 1.8% of GDP in 2025 compared with a scenario without the plan, its effect will gradually fade. For its part, productivity remains stagnant, although it needs to pick up in the long term to sustain growth given the impact that the ageing population will have on the labour market.
In this regard, she explained that AIReF’s no-policy change scenario estimates average growth of 1.3% per annum until 2070, of which 1.1% would depend on productivity, representing a change in Spain’s historical growth pattern. According to the President, this poses a major challenge that must be addressed as soon as possible because growth has become a key factor in ensuring sustainability, as recognised by the European fiscal governance framework. To illustrate the magnitude of the challenge, she recalled that AIReF estimates that, in the long term and under a no-policy change scenario, public debt will stand at 129% of GDP in 2050, a figure that could be reduced by 13 points in a scenario of higher growth or increase by 14 points in the opposite scenario.
Fiscal commitments
With regard to the Medium-Term Structural-Fiscal Plan (MTP) presented by the Government in October, Cristina Herrero pointed out that, although it formally complies with European requirements, it lacks the ambition and information necessary to become a genuine fiscal planning tool. The Progress Report presented by the Government on April 30th also lacks the necessary ambition. Furthermore, the Report already acknowledges the failure to meet the commitment made for 2025, albeit within the margin allowed by the control account.
Despite the lack of an updated government scenario for the period 2026-2028, AIReF has presented its own medium-term estimates, warning of the existence of risks of non-compliance. For this period, AIReF expects average growth in net primary expenditure excluding discretionary revenue measures of 3.9%, above the 3.2% forecast, which would lead to cumulative growth of over 20% and a cumulative deviation of 0.7 points of GDP, above the 0.6 points allowed by the margin provided for in the control account in cumulative terms. This means that no additional measures will be necessary to meet the commitments in 2026, but they will be necessary in 2027 and 2028.
Cristina Herrero also stressed the need to reform the national fiscal governance model, harnessing the transposition of the new European Directive. This includes reviewing national legislation, the regional financing system and extraordinary financing mechanisms, with the participation of all tiers of government and other bodies involved.
The impact of defence expenditure
Lastly, when asked about the increase in defence expenditure, the President acknowledged that there is budgetary room to accommodate this increase, but stressed that the increase will undoubtedly have a clear impact on the deficit and debt. She estimated that, of the nearly €6bn in non-financial expenditure planned, some €2.26bn could be executed as early as 2025, directly affecting the public accounts. The rest would be executed in subsequent years, mainly depending on the military delivery schedule.
Cristina Herrero concluded by emphasising the importance of having complete and transparent fiscal information in order to correctly evaluate the impact of this type of commitment in the medium term.
