IMF warns of 'severe challenges' facing Spain

25 May 2010

The International Monetary Fund (IMF) has called for a "far-reaching and comprehensive" reform of the Spanish economy.

According to its report, Spain faces severe challenges caused by problems including a large fiscal deficit, weak levels of competitiveness and "anaemic productivity growth".

The IMF said that while an ambitious fiscal consolidation program is already underway, the labor market and the banking sector need to be overhauled.

"Such a comprehensive strategy would be helped by broad political and social support, and time is of the essence," it said.

The report went on to warn that additional strain may be put on Spanish banks by competition for deposits and lower earnings due to weak credit growth.

Earlier this month, the Bank of Spain had to bail out Cajasur, after the savings bank was damaged by bad property loans.

An administrator has been appointed to oversee the firm after it pulled out of a deal to be taken over by Unicaja.

By Claire Archer

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