The IMF called Monday for ‘urgent’ labor and banking reforms in Spain as the Socialist government struggled to rein in its public deficit amid a mounting European debt crisis.
"Spain's economy needs far-reaching and comprehensive reforms," the Washington-based International Monetary Fund said in a report after consultations with the government.
The fund described the challenges facing Spain as "severe," citing a "dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private-sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness."
Noting that "ambitious" fiscal consolidation was underway, the IMF said it needed to be "complemented with growth-enhancing structural reforms."
This, it said, should be built on progress made especially in overhauling the labor market. The IMF also called for a bold pension reform, along the lines proposed by the government, to be "quickly adopted."
"Consolidation and reform of the banking system needs to be accelerated," it said.
Financial markets were rattled Monday as the European debt crisis intensified with a weekend Spanish bailout of a troubled financial firm.
The rescue of regional savings bank CajaSur, taken over by the Bank of Spain, could cost up to 2.7 billion euros, a Spanish newspaper reported Monday, burdening Spain's already strained public finances.
CajaSur's rescue came as the Spanish government introduced a fresh round of austerity measures aimed at bringing the public deficit down to a eurozone limit of three percent of gross domestic product, from 11.2 percent last year.
The bailout renewed eurozone debt concerns which have been dragging markets lower in recent weeks.