Reuters/Santiago
Spain could miss its budget deficit target this year, Bank of Spain governor Luis Maria Linde has said, just a week after the government announced it would hold pension payments flat to curb outlays.
The year-end deficit target stands at 6.3% of gross domestic product (GDP). But the country’s treasury minister hinted earlier this week that the deficit could end up topping that level.
“The objective is 6.3 but it could be (above that),” Linde told Reuters on the sidelines of a seminar in Santiago, Chile on Friday. “It’s not completely assured that it will be 6.3.”
Hit by a slump that has left one in four people out of work, Spain is battling to rebalance its economy and get its debt down, but borrowing costs remain uncomfortably high for a country facing another year without economic growth.
Some analysts fear local finances and higher social security costs could push this year’s budget deficit over the 6.3% mark. Prime Minister Mariano Rajoy has said the target would be hard to meet.
His centre-right government broke a campaign pledge by saying it will not make its usual end-of-year review to adjust pensions for 2012 inflation. Authorities said meeting the deficit target was their top priority.
Ministers had been divided on whether to touch the pensions because of the blow to Spain’s 9mn retired people, a source close to the government told Reuters.
But by doing so, Spain will please its European Union partners and the European Central Bank, which is opposed to inflation-linked reviews of pensions and wages.