MADRID — The International Monetary Fund urged Spain to enact speedy and far-reaching economic reforms, saying its recovery from financial crisis was weak so far, according to a report released Monday.
The Spanish government said it agreed with the findings, which were based on a periodic week-long appraisal by the IMF called Article IV Consultation.
“The IMF’s situation analysis coincides with that made by the government,” the Finance Ministry said, adding that the Cabinet had passed measures last week that were broadly in line with the fund’s recommendations.
The IMF said Spain should urgently and radically reform its labor market while consolidating the banking sector “to cement the soundness and efficiency of the system.” “The challenges are severe: a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private-sector and external indebtedness,” the report said.
It praised Spain for taking some “bold” measures that enhanced the country’s credibility, “such as cutting public-sector wages.” Last week, the government reduced civil servants’ salaries by an average of 5 percent in a bid to save $18.81 billion over two years and help bring the annual deficit back in line with the EU limit of 3 percent of gross domestic product by 2013. Last year’s deficit was 11.2 percent of GDP.
The report also said Spain’s banking sector was sound, albeit “under pressure” and in need of consolidation.
Once banks accept funds from the Bank of Spain, they can be forced to merge with other more stable banks if their solvency continues to be in jeopardy.
