It should also be emphasised that the Spanish economy is in the midst of a process of macroeconomic adjustment and, as noted above, its growth prospects depend on the external sector, which tends to yield only moderate increases in tax revenue in the short and medium term, particularly if this is accompanied, as in the Spanish case, by an adjustment in the real estate sector. On the expenditure side, the draft Budget proposes highly significant reductions concentrated in capital expenditure and also in current transfers and goods and services purchases. In the case of transfers to government-owned corporations, it is important for the planned reduction to be accompanied by adjustments of similar size in the effective expenditure of these entities, so as to achieve a lasting reduction of the imbalances. Here, too, the Budget projections are generally not free from risk. First, because it is often difficult to restrain the high inertia of certain items, frequently resulting in the past in overshooting with respect to the initially budgeted figure, particularly in the case of goods and services purchases. Nor can we rule out further unfavourable changes in those items, such as unemployment or pension benefits, whose size depends on external factors, such as the unemployment rate, population or inflation. This is related to the fact that the risk of deviating from the budget is higher in social contributions.
The external financing needs, within the current scenario, are expected to be covered by further inflows of foreign direct investments and by the public borrowing for infrastructure purposes. The current forecast points to a rather stable external debt to GDP ratio. No major pressures are foreseen in the following two years on foreign reserves, and they are to be maintained at the adequate level. Risks surrounding this baseline macroeconomic scenario should not be neglected. For us, as a small an open economy, they mostly come from the external environment and our main trading and financial partners. Although with the latest monetary easing of the ECB the downside risks to the euro zone growth are less pronounced, and in general the global growth risks are more balanced, they are still present and if being materialized, could impact the economy. Additional source of risks are the sharp and sudden swings in the primary commodities prices, which for country like ours, can change the envisaged economic profile to a large extent. A new, additional source of risks is the current domestic political context, which can harm the economy, if not being tackled swiftly. Of course, the risks are challenging and are to be closely monitored. This is even more pronounced, given that the policies’ space at the current juncture is to a great extent exhausted. Hence, the continuation of the structural reforms remains paramount and a challenge, as it can further increase the resilience of the economy, mitigate the risks and reduce the policy burden.