2  BIS central bankers’ speeches  Taking the budget deficit observed in 2015, of 5% of GDP, the Spanish general government sector has reduced the scale of this imbalance by more than 6 pp, from its peak in 2009. However, on the latest European Commission estimates, the structural budget deficit, i.e. the non-cyclically adjusted deficit, was over 2.5% of GDP, while the public debt/GDP ratio was 99.2% in 2015, having stabilised relative to a year earlier but more than 60 pp of GDP above its 2007 level. Such a high volume of public debt evidently entails considerable refinancing requirements on the capital markets. That heightens the vulnerability of our economy, as was patently clear during the euro area sovereign debt crisis from 2010. Every year, our general government sector must obtain funds equivalent to more than 20% of our GDP, involving major dependence on the markets and on expectations about our economic and political situation. But the problems posed by such a high level of public debt, even under expectations of its gradual reduction, are not confined to the consequent dependence on the capital markets. A high level of public debt, even in the current environment of low or very low interest rates, involves debt service with considerable interest payments.
The reforms since 2011 to the public pension system (the progressive raising of the retirement age; the definition of a sustainability factor linking the initial pension to changes in life expectancy; the introduction of a new pension indexation system; and the segregation from the system of specific non- contributory pensions that should be financed through general taxes and not through social security contributions) have been in the right direction as far as the sustainability of the system is concerned. Apart from these reforms, there are insurance and saving mechanisms that can help supplement the unfunded pension system. But, as I said earlier, a key factor for the public pension system is the buoyancy of employment. It is in this nexus between employment, pensions and public finances where, I believe, the “hard core” of the difficulties facing our economy in the years ahead is concentrated. 3. The reduction in private debt and in the net external debit position  The third challenge facing the Spanish economy is high private debt and the heavy dependency on external financing. The Spanish economy’s net external debit position stood at around 93% of GDP at end2015, far above the level in other euro area or developed countries in a debit position, not to mention core Monetary Union economies such as Germany, Belgium and the Netherlands, which run an external credit position.