A much higher than expected deficit that forces the adoption of structural reforms. S&P Global raises the hole in the Social Security accounts to 1.8% this year from the 0.5% estimated by the Government. The US firm includes in its calculation the 15,500 million euros in transfers from the State to the body for the so-called “improper expenses” (non-contributory benefits of an assistance nature, certain employment incentives, support measures for families…) and that , according to the New York firm, must be taken into account if the country intends to reduce its deficit and stick to the objectives that it has self-imposed while Brussels keeps fiscal rules suspended until 2024.
During the presentation of economic prospects for this year, the rating agency emphasized that these injections by governments are a “very common” practice in other European countries, especially in those where the contributions to their systems are not sufficient. The Bank of Spain (BdE) verified this week how not even the transfer of these funds prevented the Social Security debt from reaching all-time highs in November above 100,000 million euros, adding more pressure to all administrations publications Spanish liabilities exceeded one and a half billion euros that month, the equivalent of 116% of GDP.
In the specific case of the country, S&P Global opted for a pension reform that, among other things, increases the computation period to calculate them. This is, in fact, one of the keys that the Minister of Inclusion, Social Security and Migration intends to incorporate into the second part of said reform, which he is currently negotiating with the social agents and with the rest of the forces of the parliamentary arc. The objective of José Luis Escrivá is that the period that is taken as a reference to set the amount of retirement goes from 25 to 30 years (with the possibility of eliminating the two worst years).
The measure, which was not incorporated by the Toledo Pact Commission into its recommendations, has generated the rejection of unions, businessmen and their government partners. The efforts of the department headed by Escrivá are focused, precisely now, on trying to convince the latter. The talks are very far along in the process where the most dire elements of the package would generate consensus, although not complete, and where there are enough additional elements that are being finalized, according to negotiating sources.
Stagnation in the reforms… and some step back
The pension problem does not only affect Spain. The rating agency generally sees the reforms that advanced economies have been approving on their respective systems as insufficient, since they have not decisively contained the budgetary effects of population aging. In our case, considering that there has been a “certain stagnation” in its implementation. Marko Mrsnik, Sovereign Risk analyst at the rating agency, points out that the elimination of the Sustainability Factor approved with the 2013 pension reform (which has been replaced since this month by the so-called Intergenerational Equity Mechanism) has meant “a step back”.
In the report ‘Global Aging 2023: The clock is ticking’, published this week, S&P Global calculates that spending derived from the aging of the population will skyrocket in Spain from the 19.2% of GDP that it would have reached in 2022 to 22.5 % in 2060. This increase will not only be due to the pressure exerted on the system by the retirement of the ‘baby boom’ generation, but also to the fact that more resources will have to be allocated to health and care for the elderly.
In the last few hours, our country has also received a recommendation from the International Monetary Fund to implement a “credible” fiscal consolidation plan in the medium term and to help respond to future economic “shocks”. In its report, known as ‘Article IV’, the body highlights the improvement that has occurred in public finances since the outbreak of the pandemic. It also welcomes the moderately contractionary fiscal stance foreseen in the 2023 budgets, although it stresses that in the coming years “a gradual and sustained fiscal consolidation will be necessary” that is backed by a medium-term consolidation plan.