Growing Debt Problem Gives Rajoy Budget Headache

Prime Minister Mariano Rajoy’s progress in curbing a deficit worsened by the cost of servicing Spain’s swelling debt load will be revealed this week with the release of data on the country’s finances.

The Budget Ministry will tomorrow publish figures for February showing the central government’s budget shortfall, which accounted for more than half of the nation’s deficit in 2012. Data in the following days on mortgage loans, inflation and retail sales will also highlight the plight of the taxpayers financing those outlays.

Rajoy last week signaled the difficulty of his task in curbing a budget deficit without the aid of economic growth as he backtracked for the first time on his pledge to haul Spain out of a six-year slump later this year. He said the euro region’s fourth-largest economy may face a worse recession than the 0.5 percent contraction he’d previously predicted for 2013.

“The increase in government debt is causing the interest rate burden to take a bigger toll on tax revenues,” said Ricardo Santos, an economist at BNP Paribas in London. “Spain needs to do more in terms of structural tightening, not only this year, but also in 2014 and this will imply a significant drag on growth.”

Bloomberg

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