Overall, lending capacity recovered, to 1.9% of GDP in 2021, although the net debtor position vis-à-vis the rest of the world remains high (70% of GDP at end-2021). As regards the labour market, the recovery in employment was particularly vigorous. Thus, in March 2022 effective social security registrations stood 2.1% above their pre-pandemic  1  Thus, the level in 2022 Q1 was still 9.7% off the 2019 Q4 level. 2  In December 2020, tourist arrivals and expenditure were down to 15.1% and 13.9%, respectively, of their December 2019 levels. However, by March 2022 those figures had climbed to 71.4% and 84%, respectively. In April, the number of overnight hotel stays by foreign tourists reached 89.4% of their pre-pandemic levels. 3  Only exporters with sales abroad exceeding € are considered, given the particularities of firms whose exports fall below this threshold. In any event, the latter account for a negligible share of total exports. 2  level, albeit with notable cross-sector differences.4 In the public sector, employment was around 10 pp higher than the pre-pandemic level, while in the private sector the difference stands at approximately 1.5 pp.5 Nevertheless, total hours worked performed somewhat less favourably, leading to a 4 pp gap at end-2021, although this gap narrowed significantly in 2022 Q1, to 0.5 pp. One discernible characteristic since the crisis began has been employment, measured in numbers of persons, performing markedly better than GDP.6 Various explanations for this have been offered, none of which are easily verifiable. These include the pandemic restrictions (e.g.
Should there be a greater fiscal adjustment, for example if the structural primary balance improves by 0.5 pp of potential output each year until reaching equilibrium – a path more consistent with the Stability and Growth Pact rules –, public debt could fall to 82% of GDP by 2040. Were this adjustment also accompanied by an ambitious package of structural reforms, the government debt ratio could be around 79% of GDP by 2040. In short, in order to bolster the sustainability of public finances, a multi-annual fiscal consolidation plan will have to be implemented once the pandemic is over and the adverse economic effects of the war in Ukraine have diminished. Although the necessary fiscal adjustment should be carried out gradually, the definition and early communication of this plan – in which all tiers of general government should participate – would be desirable, as this would help boost confidence and certainty about Spanish economic policies. Such confidence is particularly important amid the current context of monetary policy normalisation and the consequent tightening of financial conditions. As part of this plan, government expenditure policies must be subject to an exhaustive review to increase expenditure efficiency and to optimise the distribution between items in order to promote more robust and equitable economic growth. For instance, the weight of education and public investment expenditure in Spain is below the EU average,18 despite the broad consensus regarding the importance of these items to drive economic growth and mitigate inequality.