Rating action

Scope Ratings GmbH (Scope) has today affirmed the Kingdom of Spain’s (Spain) long-term issuer and senior unsecured debt ratings at A, in both local and foreign currency, and revised the Outlooks to Positive, from Stable. Scope has also affirmed Spain’s short-term issuer ratings at S-1 in both local and foreign currency, and revised the Outlooks to Positive, from Stable.

For the updated rating report, please click here.

Key rating drivers

The revision of the Outlook reflects:

1. The expectation of robust economic performance, underpinned by a sustained influx of migrants and NGEU resources, alongside receding external vulnerabilities. Spain’s GDP growth, although anticipated to decline from 2.9% in 2025 to around 1.8% in the 2026-30 period on average, will remain almost double that of the euro area. Moreover, Scope expects external vulnerabilities to continue to recede, as capital and current account surpluses are set to remain supportive going forward. The Spanish economy is modestly exposed to higher U.S. tariffs, and its current account will continue to benefit from sound tourism and non-travel services exports.
    
2. Scope’s projection that the public debt-to-GDP ratio remains on a firm downward trajectory over the medium term, driven by sound, although declining nominal growth, moderate interest costs and a return to primary surpluses. The expenditure constraints linked to rolling over the 2023 budget, alongside strong fiscal revenues and the unwinding of past energy-related measures, will likely lead to a shift in the primary balance to a surplus next year, the first time since 2007. Scope estimates the fiscal deficit to remain at around 2.3% of GDP on average until 2030, from 3.2% recorded in 2024. This will help the debt-to-GDP ratio to remain on a declining trend to below 93% of GDP by 2030 from 101.6% of GDP in 2024, significantly down from its peak of 119.3% in 2020.

Going forward, Scope will monitor developments related to political stability, policy continuity and the government’s commitment to a prudent fiscal stance supporting the continued reduction of public debt beyond the current political cycle. Scope will also assess the impact of the reforms of the regional funding system and its implications for the general government budget.

Credit challenges relate to: i) a still-elevated public debt burden, which limits fiscal flexibility; ii) persistent structural labour market weaknesses, including high long-term and youth unemployment; iii) increasing long-term budgetary pressures mainly due to rising age-related spending caused by accelerated ageing dynamics; and iv) parliamentary fragmentation.

A robust economic performance, sustained by the strong influx of migrants and NGEU resources, alongside receding external vulnerabilities. Driven by a strong immigration intake, sound service exports, and investment growth related to the “Plan de Recuperación, Transformación y Resiliencia,” (RTRP), Spain’s GDP has been expanding at an annualized growth rate of almost 3.0% since 2023, well above the euro area average of 0.9%. On the supply side, net immigration flows, mainly from Latin America, have been a key driver for job creation, contributing around 75% to the increase in employment in 2024. Moreover, the strong growth of migrants and smooth labour market integration have eased labour shortages in sectors such as construction and hospitality, positively affecting labour cost dynamics. Scope expects the net influx of migrants, which, since 2022 averaged above 600 thousand per year, to moderate but to remain supportive of employment growth going forward.

Scope projects Spain’s output growth to remain robust at 2.9% this year and to decline to 2.5% in 2026, as net exports are likely to contribute less to GDP growth, owing to the impact of a weaker external environment and a slower growth of tourism exports. Looking forward, Scope expects Spain’s economic performance to remain resilient at around 1.8% on average in the 2027-30 period, close to its potential, reflecting a sound capacity to absorb migrants in the labour market, in light of the still elevated unemployment rate, sustaining private consumption. Moreover, a further decline in interest rates and stronger investments in the construction sector, even after the end of the NGEU plan, are expected to remain important drivers to GDP growth.

The Spanish minority government, despite a very fragmented parliament, has been able to secure important reforms, including the labour market and the pension reform, which among other milestones and targets, have enabled the country to receive EUR 71.4 bn of NGEU disbursements as of end August 2025. Scope expects Spain not to request the entire NGEU loan envelop of EUR 83.2bn, given the political hurdles for a weak minority government to fulfill all milestones and targets, and the lower relative funding benefit given Spain’s favourable sovereign funding conditions. This should not alter significantly the positive impulse the plan will have on Spain’s growth. The most important reforms were already secured and an acceleration in the execution of investment is likely to provide sustained support to the Spanish economic performance, even after the end the NGEU plan in 2026, as projects will take more time to be accomplished. So far, EUR 82.3bn of funds have been committed and EUR 62.7bn have been allocated or spent as of August 2025. Following the recent revision to the national accounts, investments linked to European funds appeared to have been translated into stronger than initially anticipated growth, particularly in construction and intangibles¹. Furthermore, investment in the property market is also projected to rise because of pent-up housing demand.

The country’s external vulnerabilities are set to continue receding going forward. Spain’s external position has improved over the last decade, reflecting stronger competitiveness, past significant deleverage, reliance on cheaper renewable energy and strong service exports. The current account surplus has steadily risen since 2020 from 0.4% of GDP to 3.2% and remains elevated at 3.0% as of Q2 2025. As less than 5% of total exports are directed to the U.S., Scope projects a mild impact from higher U.S. tariffs. Moreover, the negative Net International Investment Position has more than halved since 2010 to around 44% of GDP in Q2 2025. According to the IMF, the negative NIIP will continue to decline to below 30% by 2030² while the current account surplus will average slightly below 2.0% of GDP in the 2026-30 period. This also reflects the ongoing improvement with the renewable energy mix that reduces Spain’s dependence on energy imports supporting the country’s external resilience.

A shift to a primary balance surplus, alongside a moderate increase in the interest bill, support an improvement in public accounts. The combination of higher taxes, including those legislated in November last year, the robust cyclical economic performance of the economy, and the withdrawal of past support measures, have resulted in a steady improvement in the fiscal deficit. The headline budget deficit declined to 3.2% of GDP in 2024 from 3.5% in 2023, and Scope anticipates a further improvement to 2.5% this year. This will be driven by solid tax collections, lower non-recurring expenditure and the unwinding of temporary support measures legislated in the past. Looking forward, Scope expects the primary balance to shift to surplus of 0.3% of GDP in 2026, the first time since 2007, and to stabilize at around 0.4% on average in the 2027-30 period. Maintaining a surplus at this level for a prolonged period will be key to an improvement in the debt-to GDP trajectory, as nominal growth is expected to gradually normalize.

Interest costs are expected to rise moderately, benefitting from a long average maturity of slightly below 8 years and a large share of debt at fixed rates. Moreover, the refinancing risk is also mitigated by a relatively low share of debt to roll over within one year, amounting to below 14% as Q3 2025, lower than that of France and Germany. Moreover, despite a high level of public debt, the effective interest cost, estimated at 2.3% in 2025, is lower than the peak of 3.6% recorded in 2013, underscoring an improved debt affordability. That said, Scope estimates the interest bill to gradually increase to average at around 2.7% of GDP in 2026-30 period.

In Scope’s view the absence of a new budget, although limiting a proactive consolidation strategy, reduces significant upward pressures on public accounts. By rolling over the 2023 budget, the government has been reshuffling expenditure items within the budget, as well as approving on a law-by-law basis measures aimed at reaching its policy objectives. For example, the government was able to reshuffle expenditures to finance EUR 10.4bn of additional military expenditures to meet the 2.0% of GDP target in 2025 (from the 1.4% estimated in 2024). Scope expects that the 2023 budget will be rolled over again for 2026.

Rating challenges: modest productivity, labour market rigidities, a still-elevated public debt burden, ageing-related spending pressure limit fiscal flexibility, and political fragmentation.

Modest productivity and still elevated unemployment. Despite notable gains in employment and output in recent years, Spain continues to underperform in labour productivity and per capita income relative to its euro area peers. Labour market fragmentation and a high share of temporary or low-productivity jobs continue to weigh on overall efficiency. Although structural reforms have helped reduce unemployment from multi-decade highs, the unemployment rate remained the highest in the EU at 10.5% as of September, highlighting ongoing challenges in absorbing labour market slack, such as among youth and long-term unemployed. Additional measures to scale up firm’s dimension and innovation, as well as further active labour market policies would be needed to boost productivity and improve structurally the labour market.

Structural budgetary pressures from ageing dynamics. Spain faces rising long-term spending pressures, particularly from population ageing. While the latest pension reform has strengthened the inflow of social contributions and increased the retirement age, among other things, age-related expenditures are forecast to increase at a faster pace than the EU average. Pension and healthcare spending are expected to be the primary drivers of this increase, placing strain on fiscal sustainability. Furthermore, the fiscal dynamics between central and regional governments, whose budgets depend on negotiated frameworks, also introduce complexity. While consolidation at the central level is expected to continue, regional governments are not projected to contribute to fiscal tightening through 2027, potentially delaying more comprehensive fiscal adjustment beyond the medium term.

High public debt levels and constrained fiscal space. Spain’s public debt remains elevated, at around 101.6% of GDP in 2024, among the highest in the euro area. Although the debt ratio is on a gradual downward path and projected to return to pre-pandemic levels by 2027, it continues to limit fiscal flexibility. High debt, in conjunction with rising age-related spending and rising interest costs, limits the government’s ability to respond effectively to future economic or financial shocks. Sustained primary surpluses and prudent budget execution will be essential to ensure a durable reduction in debt over the medium term.

Finally, Spain’s high parliamentary fragmentation and weak minority government result in elevated political uncertainty, which weighs on the reform momentum and on the government’s capacity to respond swiftly to shocks. The ruling party, PSOE, is struggling to secure its agenda without making concessions to coalition partners. Against this background, meeting NGEU-related milestones and targets and implementing a pro-active fiscal consolidation strategy to secure primary fiscal surpluses in the medium term is challenging.

Rating-change drivers

Upside scenarios for the ratings and Outlooks are if (individually or collectively):

1. Government debt-to-GDP on a firm downward trajectory, supported by sustained commitment to fiscal consolidation;
    
2. Sustained economic growth, for instance driven by improved labour markets and diversification into emerging sectors; and/or
    
3. Marked improvement in external competitiveness resulting in a stronger external position.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. Weaker economic growth or public finances, reversing the declining debt-to-GDP trajectory.
    
2. Higher domestic political risk, materially deteriorating Spain's economic conditions and public finances.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘a’ for the Kingdom of Spain. Under Scope’s methodology, the indicative rating receives i) a one-notch positive adjustment for the euro as reflecting a global reserve currency, and ii) no negative adjustment for political risks. On this basis, a final SQM quantitative rating of ‘a+’ is reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of Spain’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states.

Scope identified the following credit weaknesses in the QS: i) fiscal policy framework; and ii) social factors. On aggregate, the QS generates a one-notch negative adjustment for Spain’s credit ratings. This results in final A long-term ratings on the Kingdom of Spain.

A rating committee has discussed and confirmed these results.

Environment, social and governance (ESG) factors

Scope explicitly factors in ESG issues in its ratings process vis-à-vis the sovereign-rating methodology’s stand-alone ESG sovereign-risk pillar, which holds a significant 25% weighting under the quantitative model (SQM) and 20% weight under the methodology’s qualitative overlay (QS).

Spain’s environmental profile is broadly aligned with the euro area average under Scope’s Sovereign Quantitative Model (SQM). Elevated per capita emissions and high ecological footprint contrast with relatively low carbon intensity per unit of GDP and moderate natural disaster risk, as indicated by the ND-GAIN Index. While transition risks remain, particularly from droughts and biodiversity loss, policy momentum, especially in renewable energy, demonstrates meaningful progress toward decarbonisation, albeit with further steps needed to meet 2050 climate targets.

Demographic and social challenges remain pronounced. Despite reform efforts, Spain continues to face persistent labour market duality, high old-age dependency, income inequality, and notable regional disparities in employment and economic outcomes. These factors weigh on long-term growth and fiscal sustainability, reflected by a negative qualitative adjustment in Scope’s assessment of social risks.

In terms of governance, Spain ranks well relative to its peers across most of World Bank’s worldwide governance indicators, reflecting institutional strength. However, limited reform capacity under the current minority government, particularly in areas such as pension sustainability and intergovernmental coordination, continues to constrain long-term policy effectiveness.

Rating Committee
The main points discussed by the rating committee were: i) domestic economic risk; ii) public finance risks, including fiscal policy framework and debt dynamics; iii) external risks; iv) financial stability risks, including private sector debt; v) ESG considerations; and vi) peer developments.

Rating driver references
1. IMF Article IV Spain, June 2025 
2. AIReF, Informe sobre los proyectos y líneas fundamentales de los presupuestos de las administraciones públicas 2026, October 2025 

Methodology
The methodology used for these Credit Ratings and Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and Outlooks is [Sovereign Quantitative Model (ex CVS Model), Version 4.1] available in Scope Ratings’ list of models, published under scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation   YES
With access to internal documents                                 YES
With access to management                                           YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Carlo Capuano, Executive Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings in January 2003. The Credit Ratings/Outlooks were last updated on 18 July 2025.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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