The ratio of net public debt stock to national income declined to 64.5 percent end-2004 and the Treasury borrowed with a fiveyear maturity for the first time in the domestic market. Sustainability of debt will soon be taken off the agenda soon. In this framework, it will be possible for the risk premium and consequently real interest rates to go further down in the upcoming period, as public finance has been equipped with a sustainable structure  14  BIS Review 36/2005  with the continuation of tight fiscal policy and the launch of structural reforms in the areas of banking, taxes and social security. Graph 12: Budget Deficit, Primary Surplus and Domestic Debt Stock (% GNP) 80 70  Budget Deficit  Primary Surplus  60  Domestic Debt Stock  50 (%)  40 30 20 10 0 -10 -20 2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992  1991  1990  1989  1988  -30  Source: Turkish Treasury. Now, I would like to underline a specific point related to the current tight fiscal policy. As I have mentioned earlier, tight fiscal policy played an important role not only in alleviating the public debt problem, but also in the improvement of expectations. The key factor regarding the tight fiscal policy in the said period was the target of a high primary surplus.
The current economic situation Before the war, the world economy was on a path of gradual recovery, following the most acute phase of the pandemic, although the recovery was already flagging from the second half of 2021 owing to global bottlenecks and the increase in inflationary pressures. The gradual path of recovery in activity prior to the Russian invasion of Ukraine was, in any case, highly uneven across geographical areas and sectors of activity. Thus, while some economies had already regained or even surpassed their pre-crisis levels of activity, others had not. Spain, despite having one of the highest levels of vaccination in the world, was among the latter. At the end of 2021, Spain’s output was still 3.8 percentage points (pp) below its pre-pandemic levels, while in the euro area as a whole this gap had already closed. One factor that would explain the difference in progress is the sectoral composition of activity. In particular, the recovery tends to be more delayed in those countries, like Spain, in which services that are highly dependent on personal interaction, such as those linked to tourism, account for a large share of the economy. Economic developments in Spain, and in the rest of the world, have been affected by upward inflation surprises since the second half of 2021, driven in particular by energy and food, although there has also been a slight rise in underlying inflation. Between December 2020 and March 2022, the annual increase in consumer prices rose from -0.6% to 9.8%.