SPAIN’S CENTRAL government posted the largest first-half budget deficit in at least nine years after raising spending and cutting taxes to haul the economy out of the worst recession in 60 years.
The central government had a deficit of €38.6 billion in the first half of the year, or 3.64 per cent of gross domestic product, compared with a deficit of €4.6 billion, or 0.42 per cent of GDP, in the same period a year earlier, Madrid’s finance ministry said in a statement.
It was the largest deficit for the first six months since the series started in 2000. The overall public-sector budget results include the central government figure combined with the balances of the social security system and regional and local administrations.
For the year, finance minister Elena Salgado expects the overall budget to show a deficit of 9.5 per cent. With the unemployment rate approaching 20 per cent, Spain’s government has created what it says is the largest package of stimulus measures and tax cuts in Europe, worth 2.3 per cent of GDP.
Spain’s overall deficit will be the second largest in the euro region after Ireland this year, according to the Organisation for Economic Cooperation and Development.
The European Commission has given Spain until 2012 to bring the deficit back within the 3 per cent limit set out in European Union rules.
Jose Luis Rodriguez Zapatero, the prime minister, has vowed to comply even as he plans more stimulus measures in 2010.
The social security system had a surplus of €11.8 billion in the first six months of the year, down from €16.7 billion a year ago, the Labour Ministry said in a separate report. The ministry expects to end the year with a surplus, it said in a statement.
In January, Spain lost its AAA credit rating at Standard & Poor’s. The extra interest investors charge to hold Spanish debt instead of German equivalents is 57 basis points, almost double what it was a year ago. – (Bloomberg)
