11.12.2020
Testimony before the Upper House Parliamentary Budget
Committee in relation to the Draft State Budget for 2021
Pablo Hernández de Cos
Governor
Ladies and gentlemen,
My appearance before this committee is part of the passage through Parliament of the State
and Social Security budgets (the Budget) for 2021. The main aims of this Budget, in my
opinion, should be to mitigate the considerable adverse impact of the COVID-19 pandemic
on Spain's economic growth and welfare, to facilitate economic recovery and to lay the
foundations for addressing the Spanish economy's structural challenges.
In order to provide you with an assessment of the extent to which this Draft Budget
contributes to these aims, my speech will revolve around three main themes. First, I will
describe the recent behaviour of the economy and will suggest how it may behave in the
coming quarters, for which purpose I shall make use of the macroeconomic projections that
the Banco de España has published this morning. This description will allow me to assess
the macroeconomic forecast which forms the basis for the Draft Budget. Second I will give
my views on the main budget figures, highlighting the overall fiscal policy stance, the
composition of revenues and spending, and the risks that may jeopardise achievement of
the budget deficit target. Finally, I will set out the main challenges that fiscal policy must
address in the medium term.
1 The Spanish economy: recent developments and outlook
1.1 International environment
As we all know, in the first half of this year the spread of the pandemic and the measures
deployed to contain it caused an unprecedented slump in global economic activity, which
reached its nadir in the spring.
Against a background in which the restrictions imposed were progressively eased, the world
economy then embarked upon a path of recovery, which has, however, proven to be
incomplete, uneven and fragile. In particular, the worsening of the pandemic in recent
months has led to a significant slowdown, which may even entail an activity contraction in
some areas in Q4.
The latest news on the availability of different vaccines at the beginning of next year are
obviously positive and should serve to improve confidence and rule out the most adverse
scenarios, although the effect on activity will take time to be appreciated. Even so, the level
of uncertainty regarding the duration of the crisis, the greater or lesser persistence of its
effects and, therefore, the dynamics of the subsequent recovery remains very high.
The most recently published forecasts are consistent with this diagnosis. For example, the
OECD's, presented at the beginning of this month, have a baseline scenario under which,
after growing by 2.7% in 2019, world GDP will contract by 4.2% in 2020. This contraction
will be particularly severe in the - essentially advanced - OECD economies, which are
expected to see a fall in GDP of 5.5%. In 2021, activity is projected to recover relatively
forcefully - albeit heterogeneously - in practically all economies, which would entail growth
of 4.2% at world level. Despite this recovery, the level of GDP at the end of 2021 would, in
the great majority of countries, still be lower than in 2019, with the notable exception of
China. In the OECD as a whole this gap would amount to some 2.4 percentage points (pp).
Allow me to briefly mention the euro area, given its influence on Spain. And also let me
explain the monetary policy decisions taken yesterday by the Governing Council of the
European Central Bank (ECB).
In the first half of this year, the recession was particularly sharp in the euro area, while, in
Q3, activity recovered strongly, posting quarter-on-quarter growth of 12.5%. In spite of this,
the level of GDP in Q3 was still down 4.4% from the last quarter of 2019. Among the four
largest euro area economies, the loss of output relative to its end-2019 level was more
pronounced in Spain (9.1%) than in Italy, Germany or France (which recorded falls of 4.7%,
4% and 3.7%, respectively).
In the autumn, the rapid spread of the second wave of the pandemic in Europe put a brake
on this recovery, being accompanied by an increase in uncertainty and the reintroduction
of containment measures. These have been somewhat more targeted than those deployed
during the first wave and, therefore, have had a smaller impact on economic activity. Even
so, it is possible that this slowdown may eventually lead to a fresh fall in activity in some
countries.
In this context, the latest Eurosystem projections, presented yesterday,1 show poorer
growth expectations for 2020 Q4 and 2021. Specifically, the baseline scenario considers a
decline in euro area GDP of 7.3% in 2020, followed by an increase of 3.9% in 2021, which
is 1.1 pp less than was expected in September. Also, the risks to this baseline scenario
remain on the downside, although given the news regarding vaccines, their magnitude
would be somewhat lower than in September.
As regards inflation, it is projected to stand at only 0.2% in 2020, rising to 1% in 2021. These
rates also involve a downward revision to the September projections, partly as a
consequence of the negative surprises generated by price developments in recent months
which have brought the euro area's headline inflation down to -0.3% in November and core
inflation to 0.2%, an all-time low. According to the projections, prices will accelerate further
in 2022 (1.1%) and in 2023 (1.4%), but these rates would still be very distant from the ECB's
medium-term price stability objective.
It is in this context that the Governing Council of the ECB decided at its meeting yesterday
to implement a new package of measures. First, we announced an increase of €500 billion
in the envelope of the pandemic emergency purchase programme (PEPP), and its extension
to March 2022. We also decided to extend the reinvestment period for purchases under this
programme until at least the end of 2023.
The PEPP programme, introduced last March, has been crucial to keep financial conditions
favourable for all agents (public sector, firms and households) and for all euro area countries
during the current crisis. The recalibration approved yesterday seeks to preserve the current
loose financing conditions and to prevent the reappearance of financial fragmentation in the
coming quarters, against a background characterised by the economic effects of the
second wave of the pandemic, the impact of which has been asymmetric across countries,
and the uncertainty surrounding future developments.
Second, we have eased some of the conditions of the targeted long-term refinancing
operations (TLTROs). The total amount that participating banks will be entitled to borrow
has been raised from 50% to 55% of their stock of eligible loans, against a background in
which a large number of euro area banks had exhausted or were close to exhausting their
total borrowing allowance. Also, the period during which banks will benefit from the reduced
interest rate on such operations has been extended by 12 months, until June 2022, provided
that they comply with the requirement to maintain their provision of eligible credit to firms
and households during a new assessment period. Finally, another three quarterly TLTRO
operations have been scheduled between June and December 2021.
The TLTRO operations have been fundamental in preserving, during the pandemic crisis,
the supply of bank credit to the real economy, and in particular to small and medium-sized
enterprises, which are especially dependent on bank loans as a result of their limited
capacity to obtain funds on the capital markets. The recalibration announced yesterday
seeks to continue to preserve the provision of bank funding to firms and households over
the next two years, against a background in which, according to the information available,
there could be a tightening of the supply of bank credit, and in which measures such as
public guarantee facilities, which have been so important in boosting such supply, may play
a lesser role.
These decisions, especially those relating to the PEPP, are particularly important from the
standpoint of euro area countries' budgetary policy, since they will continue to provide room
for manoeuvre to fiscal authorities to maintain the measures to support the economy.
This is particularly important in countries such as Spain, which has been especially affected
by the COVID-19 crisis and already had large budget deficits and high public debt levels
before the crisis. The ECB's actions are preventing an increase in financing costs which,
had it occurred, would have significantly limited national fiscal authorities' room for
manoeuvre.
1.2 Recent developments in the Spanish economy
In Spain, the impact of the pandemic on economic activity has been particularly severe.
Specifically, during the first half of the year, Spain's GDP contracted by 22.1% from its
end2019 level. In the spring, the progressive easing of containment measures led to a recovery
phase, which was reflected in quarter-on-quarter GDP growth of 16.7% in Q3. However, in
Q3, Spanish GDP was still 8.7% down from the same period of 2019.
Apart from affecting some sectors but not others, the economic impact of the pandemic is
proving to be very uneven. At sector level, for example, the deterioration in manufacturing,
construction and the primary sector was less severe, and the recovery stronger, than in
services. Q3 data show a year-on-year decline in value added in transport services,
wholesale and retail trade and hospitality of more than 20%, well above the decline of 3.6%
in manufacturing.2 In terms of groups of workers, the negative effect of the crisis was
especially acute in the case of young people and those with temporary contracts.3
2
The labour market indicators also show similar behaviour. In particular, while the year-on-year rate of change of effective
social security registrations in the hospitality sector was -36.6% in November, the deterioration in employment was much
less severe in manufacturing (-4.8%). In fact, in some industries, such as agriculture and market services, employment
was already growing at positive rates in November (0.5% and 2.9%, respectively).
3
The latest data for social security registrations show a year-on-year decline of almost 10% for workers under the age
of 30, a much larger contraction than observed for all workers (-1.8%). Also, while employees with temporary contracts
declined by 7.6% year-on-year in November, those with permanent contracts barely decreased (by 0.1%).
At the same time, the recovery is fragile. Indeed, in recent months, as fresh outbreaks of the
pandemic increased and the authorities reintroduced restrictions on mobility and activity in
certain sectors, the economic recovery began to lose momentum.
In the case of the labour market, effective social security registrations (a variable that is
calculated excluding furloughed workers), which fell by 22.5% year-on-year in April and
improved very notably until September (when they fell by 6% year-on-year), stood at 5.8%
in October and November.4
With regard to confidence indicators, the composite PMI, which had rebounded appreciably
between April and July, declined steadily between August and November and stands at a
level consistent with an economic downturn. Similarly, the economic sentiment index
declined in both October and November, reaching 87.5 points, its lowest value since June.
Lastly, several high-frequency indicators, such as those for electricity demand, fuel
consumption and mobility, suggest that the recovery slowed over the course of Q3 and, in
some cases, even reversed in the final stretch of the year. Along the same lines, spending
using bank cards, whose annual growth rate stabilised over the summer months, shifted
down in October and appears to have remained weak in November. These developments
are consistent with movements in the retail trade index in recent months.
However, for now the indicators offer only partial and incomplete information on the
performance of activity in Q4 as a whole. In any event, it is clear that the second wave of
the pandemic is having a smaller impact on the economy than the first. This appears related
to the fact that the containment measures have, broadly speaking, been less strict and more
targeted than those deployed in the initial months of the pandemic. There will also have
been some learning on the part of agents in terms of adapting to the pandemic and the
associated restrictions.
Meanwhile, less deterioration was observed in Spain during Q4 than in some of the main
euro area economies.5 This may stem from the differing severity of the restrictions imposed
in each country, but also the fact that the pandemic's second wave began earlier in Spain -
having an adverse bearing on activity in the third quarter - than in most of Europe, where its
adverse effects will essentially be concentrated in Q4.
Overall, the baseline scenario of the macroeconomic projections published today by the
Banco de España points to a slight quarter-on-quarter contraction of output in Q4 (-0.8%),
which is somewhat less acute than that estimated for the euro area in the Eurosystem
projection exercise (-2.2%). Given the current level of uncertainty, this baseline scenario
comes with two alternative scenarios. In the severe scenario the Spanish economy would
contract more sharply (by -3%), while in the more benign scenario GDP would slightly
expand, by 0.6%.
1.3 The most persistent damage and changes caused by the crisis
Beyond the short-term effects the crisis is having on the economy, certain other more
persistent effects can now be identified.
First, the impact on public finances stands out. Specifically, the budget deficit rose to 6.9%
of GDP in cumulative 12-month terms to June, more than 4 pp above the 2019 level. The
latest data, which do not include local government, reflect a deficit to September of 8.1%
of GDP, up 5.2 pp on the 2019 close. In turn, the public debt-to-GDP ratio stood at 114.1%
in Q3, almost 20 pp above the end-2019 figure (95.5%).
Second, regarding the business sector, the number of firms registered for social security
purposes has fallen since February6 - posting a year-on-year decline of 7.2% in November
- and there has been a significant increase in financial vulnerability levels.7 In particular, it is
estimated that 40% of Spanish firms may be unable to service their debts out of their
earnings in 2020, 27 pp more than in 2019. In addition, in terms of solvency, the percentage
of firms that will be unable to repay their debts out of expected future earnings is estimated
to have risen by between 4 pp and 8 pp - according to the scenario envisaged - up to
between 15% and 19%. These figures would be higher for SMEs, and especially for firms
operating in the sectors hardest hit by the pandemic.
Third, insofar as the sectors most affected by the pandemic employ a relatively high share
of young and low-income workers,8 the crisis appears to have had a particularly harsh
impact on the workers who were most vulnerable at the outset and who have fewer available
resources to sustain their expenses. This could affect the future development of inequality
in Spain.9
Lastly, the crisis has given rise to significant changes to production processes and
consumption patterns, related in particular to the deepening of digitalisation processes and
the growth in teleworking. Thus, the results of a survey compiled by the Banco de España
show that 31% of the firms surveyed consider teleworking to be a significant or very
significant tool to mitigate the effects of the pandemic. In addition, around 20% of the firms
10
reported that they were making more use of online sales channels. Although it is difficult
to identify the scale of these changes, some could be structural, resulting in a reallocation
of resources between firms and sectors.11
These examples illustrate the challenge that economic policy faces in the coming quarters.
In addition to providing income support to firms and households, it must also correctly
address this structural damage and help the productive system swiftly adapt to changes
that are beginning to be perceived as permanent.
7
See, for example, Blanco et al. (2020), Spanish non-financial corporations' liquidity needs and solvency after the
COVID19 shock, Occasional Paper No 2020, Banco de España; and Blanco et al. (2020), "The impact of the COVID-19 crisis
on the financial position of non-financial corporations in 2020: CBSO-based evidence", Analytical Articles, Economic
Bulletin, 4/2020, Banco de España.
8
To illustrate this point, the number of temporary employees fell sharply (-13%) in year-on-year terms to Q3, according
to Spanish Labour Force Survey (EPA) figures, while the number of permanent employees fell by 0.8%. The fall in
employment was similar by sex (-3.6% for female employees and -3.4% for male employees) and remained very high
for the 16 to 29 age group (-12.8% in Q3), compared with an increase of 1.4% for the over 45s. Among young people,
the unemployment rate is up 7 pp compared with 2019 Q3 at 31.4%. The decline in employment among persons with a
low level of education (-13.8%) contrasts with the increase of 1.5% year-on-year among those with a high level of
education.
9
For more details, see Banco de España Annual Report 2019, Box 4.2, "The employment income and financial situation
of the workers most affected by COVID-19".
10
See "Spanish business survey on activity and the impact of COVID-19", Box 3 of the Banco de España's
Macroeconomic projections for the Spanish economy (2020-2023), December 2020.
11
Thus, credit card spending data show that, at end-November, the online sales channel recorded year-on-year growth
of around 20%, while the traditional sales channel declined by nearly 10%. In addition, the retail trade index for October
reflected considerable differences in the sales patterns of SMEs and single-location firms, whose sales fell by 15.2%
and 6.6%, respectively, compared with October 2019, and in those of the large chains and large retail outlets, whose
sales rose by 7.3% and 1.4%, respectively
1.4 The Banco de España's macroeconomic projections
I will now turn to the macroeconomic projections that the Banco de España has published
this morning.12 Compared with those published in mid-September, the new projections
include the economic data released since then, the latest pandemic developments - which
have been more negative than expected a few months ago - and the positive news on the
progress made towards achieving effective medical treatment for COVID-19. I should also
point out that the European funds from the Next Generation EU (NGEU) programme have
been explicitly included in these projections. In addition, the projection horizon has been
extended by one year, to 2023.
As I have indicated, the economic situation remains subject to an extremely high level of
uncertainty, mainly deriving from the doubts regarding the course of the pandemic. The
news about the development of several vaccines has eased this uncertainty, although the
challenge of producing and distributing them to the population as a whole remains.
As I will explain in detail later, there is also a high degree of uncertainty regarding the amount
of European funds that the Spanish economy will be able to mobilise in the coming years
and their multiplier effect on the economy.
Among the geopolitical factors, doubts remain regarding the outcome of the Brexit
negotiations, with a no-deal scenario at the end of the transition period still a possibility.
Indeed, this is the hypothesis included in the Eurosystem's latest projections (and, therefore,
in our projections for the Spanish economy). On a more positive note, the outcome of the
elections in the United States could revitalise the multilateral framework of international
relations.
Other key elements of uncertainty concern the extent to which economic agents will adapt
to the pandemic and the restrictions it entails, the damage to economic growth potential
caused by this crisis and the structural changes, to which I have already referred, that it may
bring about or speed up.
In this setting, the Banco de España, together with the other central banks of the
Eurosystem, has chosen, as in previous quarters, to set out several scenarios: the baseline
scenario, and a mild and a severe scenario. The baseline scenario assumes that the
restrictions in 2021 Q1 will be similar in terms of stringency to those observed in 2020 Q4.
It also assumes that the distribution of a medical solution from the start of 2021 will allow
the containment measures to be eased - albeit gradually - as from Q2. Compared with this
baseline scenario, the mild/severe scenario assumes that the course of the pandemic will
be more/less favourable and that vaccines will be distributed among the population, so that
the containment measures in place will be somewhat less/more stringent.
Considering these scenarios, in 2020 GDP would fall by between 10.7% under the mild
scenario and 11.6% under the severe scenario. Under the baseline scenario, it would shrink
by 11.1%.
In accordance with these projections, the economy is expected to pick up quite vigorously
in 2021 and 2022, and somewhat more moderately in 2023. Thus, for example, under the
baseline scenario, GDP would grow by 6.8% in 2021, by 4.2% in 2022 and by 1.7% in 2023.
Under the most optimistic scenario, these rates of growth would be higher throughout the
projection horizon, especially in 2021 when GDP would increase by 8.6%. By contrast,
under the severe scenario, the recovery profile would be significantly more moderate, with
GDP growth of just 4.2% in 2021.
The effects of the pandemic on the Spanish economy are also expected to be quite
persistent. Even under the most optimistic scenario, our economy would not return to its
end-2019 activity levels until end-2021. Under the baseline scenario this would not happen
until mid-2023, while under the severe scenario the recovery would not be complete by the
end of the projection period.
Turning to the labour market, the rise in the unemployment rate is expected to be relatively
contained in 2020 - partly as a result of the furlough schemes - and to be somewhat higher
in 2021. From then on, the unemployment rate is expected to fall gradually, although under
the baseline scenario it would not return to its pre-crisis levels until the end of the projection
period.
Regarding public finances, the budget deficit is expected to rise sharply in 2020, up to
around 10.5% of GDP under the baseline scenario. Going forward it should decrease,
although at the end of the projection period, even under the most optimistic scenario, it
would still be substantially above its end-2019 level. The public debt ratio is expected to
rise by more than 20 pp in 2020 and will not improve significantly throughout the projection
horizon; indeed, under the severe scenario, it may even increase further.
Lastly as regards consumer prices, under all three scenarios the inflation rate will remain in
negative territory in 2020 on average (approximately -0.3%) and will climb only very
gradually in the coming years, up to a maximum of 1.4% in 2023 under the mild scenario.
These forecasts entail a downward revision of those published in September, essentially on
account of the negative surprises observed in recent months, which have resulted in a
headline inflation rate of -0.9% in November.
1.5 The optimum economic policy response to this macroeconomic setting
To date, the measures taken in the fields of fiscal, monetary, employment and financial
policies in response to the COVID-19 crisis have significantly mitigated its economic impact,
easing the deterioration of real activity and of economic agents' income and liquidity and
preventing systemic financial stability risks from materialising.
Going forward, the economic outlook will essentially depend on the extent to which these
policies can adapt to an extremely uncertain and changing environment, so that a balance
may be achieved between their effectiveness and the efficient use of public funds.
I have already referred to the role played by monetary policy, in which the Banco de España,
as a member of the Eurosystem, actively participates. The ECB's actions will continue to be
determinant in maintaining favourable financing conditions, making them extensive to all
euro area countries and supporting the flow of bank credit. This will continue to provide
leeway for the tax authorities to roll out the measures necessary to support firms and
households.
In the specific area of budgetary policy, and within the time horizon covered by the Budget
for 2021, efforts should continue to be focused, as has been the case throughout 2020, on
combating both the health crisis and the adverse economic consequences of the lockdown
measures introduced to mitigate it.
On the health front, the fight against COVID-19 clearly remains top priority. This may require
continuing to adjust the capacity of the healthcare system, to ease the effects of the second
wave and to handle any possible fresh outbreaks. In addition, arrangements will have to be
put in place to ensure that, once the health authorities approve the use of the vaccines, they
may be distributed swiftly and efficiently.
In all other areas, the priority in the short term must continue to be to support households
and firms until there is a sound and sustained pick-up in activity. This support is crucial to
minimise the risk of the current health and economic crisis triggering a financial crisis that
would entail much higher and longer-lasting costs in terms of activity and employment. In
this respect, we must stand ready to introduce any additional support measures, or to
extend or recalibrate existing measures, that may be necessary should the pandemic take
a more adverse turn.
The development of vaccines and their ultimate distribution to the population provide a time
horizon over which economic policy should remain very robust. This must be compatible
with avoiding adopting permanent measures that increase the structural budget deficit,
which would further impair the sustainability of public finances.
The focus of this support should also become gradually more selective, concentrated on
the population groups and firms hit hardest by the crisis, so as to maximise its effectiveness
in a setting in which public funds are limited. This idea is reflected, for example, in the new
design of the furlough schemes in force since September.
In addition, support policies for firms must be tailored to latest developments - especially,
as I indicated earlier, to the deterioration in their solvency - and, at the same time, must not
hamper the reallocation of funds between sectors and firms.
In this respect, the extension of the grace period and maturity of loans under the Official
Credit Institute (ICO) guarantee facilities, approved by the Government in November, will
help ease the financial pressure borne by many firms. But in some cases it would also be
advisable for them to strengthen their solvency position by means of capital instruments.
The €10 billion fund managed by SEPI (the State industrial holdings corporation) enables
large strategic corporations to be recapitalised, but it would be advisable to complement
this with new tools aimed at strengthening the solvency position of smaller firms. Moreover,
for firms that are highly indebted but whose business is viable, debt restructuring could be
an advantageous option for lenders and borrowers alike. To facilitate this process,
insolvency arrangements should be improved to enhance their efficiency13 and processes
should be put in place to allow firms with non-viable business models to effect an orderly
market exit.
To facilitate the reallocation of resources to more dynamic activities, active labour market
policies and training and retraining of the workers most affected by this crisis should play a
key role. Efficient use could be made of the European funds under the NGEU programme
to promote this role.
Regarding these European funds, it is clear that one key factor for the development of the
Spanish economy in the coming years will be the capacity to mobilise and allocate the funds
efficiently. Considering their high volume, they will be fundamental, both to boost economic
recovery in the short term and to modernise our economy and increase its growth potential
in the medium term.
In this respect, although it is important to mobilise the largest volume of funds possible, the
way in which they are assigned to different expenditure items and potential investment
projects is no less important. It is essential that they be assigned to new investment projects
with a high multiplier effect on economic growth potential, for example, through an increase
in human and technological capital stock. These effects would be optimised if the funds
were accompanied by an ambitious structural reform package that would allow our
economy to function more efficiently overall. The funds themselves should also contribute
to the roll-out of these reforms. In addition, bearing in mind the temporary nature of the
funds, it is important that they are not used to defray the cost of permanent increases in
expenditure, as this would simply increase our already high structural deficit.
An analytical exercise conducted by the Banco de España14 illustrates the sensitivity of
expected GDP growth in Spain in the coming years to different hypotheses as to the amount
of the European funds used and the efficiency with which they are assigned to projects. The
results of this analysis show that if the rate of absorption of the NGEU programme funds in
2021 reaches 75% of the level announced by the Government, the impact of these funds
on the rate of growth of GDP in 2021 would be between 1 pp and 1.6 pp, taking a range of
fiscal multipliers consistent with the relevant empirical evidence available. However, if the
rate of absorption of the NGEU funds in 2021 were more in line with the historical evidence
available for other European fund programmes (around 30% of the funds available), the
impact on GDP growth in 2021 would be approximately 0.6 pp for an average fiscal
multiplier according to the academic literature.
1.6 Draft Budget macroeconomic forecast
The macroeconomic forecast underpinning the Draft Budget expects real GDP in Spain to
fall by 11.2% in 2020, followed by growth of 9.8% in 2021. I will now compare these
forecasts with those of the Banco de España.
In any event, I must stress that, in such an extraordinarily uncertain and changing
environment as the present one, we need to be especially cautious when comparing these
projections. Furthermore, we must also acknowledge that those published earlier were
necessarily underpinned by more limited data. Specifically, the macroeconomic forecast
underpinning the Draft Budget was presented to the Spanish Parliament in October, while
the latest Banco de España macroeconomic projections have been published today.
I will now focus on three points concerning this comparison which, in my view, should be
highlighted.
First, with regard to the starting point for this Draft Budget, which is none other than the
forecasts made for 2020, the projected fall in GDP in Spain (-11.2%) is consistent with the
growth forecast under the baseline scenario of the Banco de España (-11.1%).15
Second, we must take into consideration that use of the aforementioned European funds
appears to be behind a significant portion of the projected real GDP growth of 9.8% in 2021
included in the Budget. Specifically, in 2021 €27 billion is expected to be available from
these funds (around 2.4% of estimated GDP for 2020), which would generate, according to
the estimates included in the Budget, a positive impact on the rate of growth of GDP in that
year of 2.6 pp.
With regard to this impact, I wish to highlight that both full absorption of the NGEU funds in
2021 and their multiplier effect on activity assumed in the Draft Budget appear optimistic in
light of the historical and empirical evidence. In particular, after seven years of the last three
European structural fund programming periods (with smaller volumes than those expected
under the NGEU) Spain's rate of absorption of the funds available was below 80% in all
cases. The materialisation of a multiplier effect above unity in 2021, such as that assumed
in the Budget, would require a particularly rigorous strategy for efficiently assigning and
absorbing these funds. This cannot be assessed appropriately because of the Budget's