The challenge for Spain’s economic recovery plan

  • Spain will be the second largest recipient of EU funds to mitigate the economic effects of the pandemic
  • Pedro Sanchez’s administration faces the challenge of properly managing the inflow of funds in a short period of time
  • It’s crucial that stakeholders – including international businesses and other organisations - with commercial or policy interests in Spain, articulate their needs now

The unprecedented economic crisis due to Covid-19 has been met by an exceptional fiscal response by politicians at European Union and national level. Spain will benefit from significant funds, as part of The European Recovery Plan. This Plan is going to be the cornerstone of the country’s economic recovery strategy. The priorities defined by the national and local government will significantly shape the conditions on how money in the fund can be allocated and used.  


Many sectors in the Spanish economy are likely to benefit from these funds. But if this is to happen, it’s crucial that sectors and organisations are ready to evolve, adapt and modernize in line with new political priorities. The role of private investment (national and foreign) in Spain is important in proving and providing value as this could lead to a multiplier effect of four and maximize the impact of the government’s investment.


The coming weeks and months are vital as the government will be formulating the parameters of the future policies that will determine how funds are allocated. It’s crucial that stakeholders – including international businesses and other organisations - with commercial or policy interests in Spain, articulate their needs now. If policies are to be designed efficiently policymakers will need to be briefed on the practical ideas and insights of various stakeholders. If you are an international business already investing in Spain, or considering this, it is paramount to position yourself to help the government formulate detailed policy and make the most of these funds to accelerate economic recovery. 


The funds total more than 10% of Spanish GDP

The European Commission has proposed a major recovery plan. It is unprecedented in terms of quantity, 750 billion euros, as well as how this will be financed - through the issuing of common debt.


The Commission took the opportunity to reinforce the priorities it originally outlined around one year ago by attaching these as conditions to the fund’s use. This ensures that Member States pursue an ecological and digital transition to become more sustainable and resilient. 


Spain, as one of the EU countries most affected by the pandemic and with its public finances in a weaker state, will be the second largest fund recipient in the EU

This translates to about 140 billion euros, more than 10% of Spain’s GDP. Of these, some 72 billion euros will be direct transfers, which do not have to be repaid and will not count towards Spain’s deficit or public debt. This is a massive inflow of money that Spain needs to use wisely in order to rebuild and modernize the economy. By helping their organisations think through this challenge, public affairs team can help their organisation to ensure funds are used effectively and maximized.


The priorities set by the Spanish government are clear: the economy needs to move towards digitization, accelerate the environmental transition - with a view to delivering emissions reductions goals - and increase social and territorial cohesion and promote equality policies.


The first draft of the plan 

Pedro Sánchez, the Spanish prime minister, announced the main policy lines for the distribution of the funds. In the initial stage, the government plans to use the 72 billion euros of direct transfers until 2023. Of this amount, 27 billion euros are already included in the 2021 budget plans.


The proportion of the funds to be spent on different priorities are clearly defined: 37% of the funds will be used for the transition towards a more sustainable environmental model while the digital transformation of the economy will use 33%. The specific policies are not yet finalized. The government plans to clarify these in the coming weeks and announce more concrete measures.


The ten main policy lines that will frame the government’s priorities have also been announced at a high level: education and training policies will have 18% of the funds, while science, innovation and improvement of the health system, in addition to the modernization and digitization of the economy and SMEs, will have 17% each; urban agenda and agriculture will have 16%, and energy transition 12% of the funds.


Administrative bottlenecks need to be eliminated 

However, the time frame for the future project proposals (end of 2023) and delivered (until 2026) could be too short time frame if funds are to be allocated properly.


Apart from having clear priorities and well-defined lines of action, a large part of the fund’s success will depend on the capacity of the public administration to allocate and mobilize this critical flow of funds in a relatively short time period - without creating a bottleneck. Spain has not made full use of European funds previously and in the 2014-2020 budget period it only spent one third of allocated funds, ranking in the bottom of all EU countries.


In conclusion, measures such as increasing the capacity of the public administration or the creation of expert groups to analyse projects appear as crucial as the various policy measures if funds are to be distributed efficiently and effectively. 


In addition, it will be vital to have a long-term vision, designing long-lasting reforms that allow the economy to modernize and shift to the priorities needed during for the 21st century.

By Marc Puig, Economy Director

Public Affairs Experts - November 6th, 2020

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