Spain says public debt to top 100 per cent of GDP in 2015

[MADRID] Spain's public debt ratio will top the symbolic level of 100 per cent of national output next year before it starts dropping in 2017, the government's 2015 budget proposal showed Tuesday.

The eurozone's fourth-biggest economy is set to end the year with a debt ratio equal to 97.6 per cent of the country's gross domestic product (GDP), the proposal handed to parliament predicted.

The debt ratio will climb to 100.3 per cent of GDP in 2015 and 101.5 per cent a year after, before dropping to 98.5 per cent in 2017.

European Union rules say that debt must not exceed 60 per cent of GDP, or be falling significantly towards this ratio.

Spain enjoyed a relatively low debt ratio, equal to 36.3 per cent of GDP, before the start of the global financial crisis in 2007.

But public debt soared after the implosion of a decade-long property bubble, which tipped the economy into a deep double-dip recession and threw millions out of work.

Spain emerged from the latest two-year downturn in mid-2013 and grew in the second quarter of 2014 at a faster-than-expected quarterly rate of 0.6 percent.

The government forecasts the Spain's economy will grow 1.3 percent in 2014, compared to a 1.2 percent contraction last year, bouncing back after six years of crisis that brought it close to financial collapse.

The draft 2015 budget, which was approved by Prime Minister Mariano Rajoy's cabinet on Friday, predicts the recovery will accelerate in 2015 to 2.0 per cent growth.

Rajoy's conservative government has struggled to contain annual deficits by raising taxes, freezing public salaries and curbing spending on services such as education and healthcare, despite angry street protests.

The government's fresh public debt ratio forecasts are based on new EU accounting rules requiring illicit activities, such as prostitution and drug smuggling, to be counted in estimates of GDP.

When national output is recalculated under the new EU norms, Spain's public deficit as a percentage of GDP in 2013 was revised to 6.33 per cent, down from 6.62 per cent.

The Spanish government had promised Brussels to bring the public deficit down to 6.5 per cent of GDP in 2013. - AFP