Spain’s debt deficit to rise above forecasts

Spain’s public debt and deficit are set to rise well above previous forecasts amid the country’s financial woes, the government said yesterday as it submitted an austerity budget to parliament.

Budget Minister Cristobal Montoro told a press conference that debt is predicted to reach 85.3per cent of GDP in 2012 and 90.5 per cent in 2013.

The deficit meanwhile has been revised upwards to 9.44 per cent of GDP from a previous 8.9 per cent and is predicted to hit 7.4 per cent instead of 6.3 per cent this year.

The budget approved by Prime Minister Marian Rajoy’s right-wing cabinet last Thursday tightens austerity in the teeth of growing protests, easing the path to a widely expected sovereign bailout.

“The budget must act as a leverto overcome the crisis andrestore confidence in Spain,”Montoro said.

“It must open the way to growth and job creation in the country,” which has the largest unemployment rate in the industrialised world, at 24.6 per cent

Montoro said the deficit rise is due to state aid to Spain’s fragile banks, reeling from bad debts caused by the bursting of a property bubble in 2008.

But Montoro added that Madrid expected this aid to be repaid, and the final figure for 2012 to return to 6.3 per cent of GDP, as promised to the EU. The 2011 figure means Spain has missed its original deficit target of 6.0 per cent by an even wider margin, damaging its credibility with the markets.

The cash-strapped government estimates total funding requirements this year to reach €207.173 billion gross as it struggles to service its debt amid a massive financial crisis.

The budget slashes spending in a bid to save a total of €39 billion,cutting the resources of the different ministries by an average of8.9 per cent.

But the agriculture ministry will see a reduction of 25.4 per cent, the industry ministry 21.3 per cent and education, culture and sports by 17.2 per cent.

Unemployment benefit payouts are budgeted to fall an optimistic 6.3 per cent.

Meanwhile, new demonstrations took place near parliament yesterday, called by the Indignants, a popular movement against a political system that they say deprives ordinary Spaniards of a voice in the crisis.