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Spain's 2020 budget deficit rises to nearly 11% of GDP

MADRID (Reuters) - Spain’s budget deficit jumped to an 11-year high in 2020 after social spending rose and tax revenue fell because of restrictions imposed to curb the spread of COVID-19, but the gap was below the government’s forecast.

FILE PHOTO: Spain's Budget Minister Maria Jesus Montero arrives to attend a cabinet meeting at the Moncloa Palace in Madrid, Spain, January 14, 2020. REUTERS/Susana Vera/File Photo

Budget Minister Maria Jesus Montero told a news conference on Monday the deficit had widened to the equivalent of 10.97% of gross domestic product in 2020 from 2.9% in 2019, and said the government would reduce the deficit this year.

The budget gap was narrower than the government’s latest official target, which stood at 11.3% of GDP.

Excluding the roughly 10-billion-euro ($11.78 billion) hit from the recent reclassification of Spain’s SAREB ‘bad bank’ as a public entity, the deficit was 10.09% of GDP.

“The deficit increase doesn’t imply the government has renounced the principle and benefit of budget stability,” she said. “The priority will still be the pandemic, but that will not prevent us from reducing the deficit in 2021.”

Public spending increased by around 53 billion euros in 2020, Montero said, with some 85% of the total aimed at mitigating the effects of the pandemic.

“Never before has the state made an effort on this scale,” Montero said.

The government’s ERTE furlough scheme helped cushion the blow to the labour market and kept a lot of companies from going bust - preventing a scenario that would have been even more devastating for government revenues, she said.

Tax revenues fell around 8% in 2020.

Spain’s national government shouldered the vast majority of the pandemic costs, while regional governments reduced their deficits by an average of nearly 70%, with nine authorities ending the year in surplus.

Last year’s budget gap was the widest since 2009 when the government reported a deficit of 11.3% of GDP.

($1 = 0.8493 euros)

Reporting by Inti Landauro, Emma Pinedo, Anita Kobylinska and Belén Carreño; Editing by Nathan Allen, Andrei Khalip and Timothy Heritage