Fiscal Policy Strategy

Fiscal Policy Strategy 22th Dec 2015

Employment (thousands. Q4 and 15Q3) Structural features of the Spanish economy Direct investment position abroad (as % GDP) Source: INE 2011 2012 2013 2014 2015T3 GDP per capita (PPS) Dif. 2015Q3-2013 Dif. 2015Q3-2011 Employees 18,153.0 17,339.4 17,135.2 17,569.1 18,048.7 913.5-104.3 2011 2012 2013 2014 2015 Q1 2015 Q2 Dif. 2015Q2-2011 Spanish FDI abroad 48.5 51.4 48.9 52.1 54.3 53.7 5.2 (as % GDP) Source: Banco de España (IMF BPM5; 2012-2015 BPM6) Source: Eurostat GDP per cápita 2011 2012 2013 2014 Dif. 2014-2011 24,500 24,600 24,600 25,100 600 1

Macroeconomic scenario Year on year % change 2014 2015f 2016f 2017f 2018f Real GDP 1.4 3.3 3.0 2.9 2.9 GDP deflator -0.4 0.5 1.1 1.4 1.6 Private Consumption 1.2 3.4 3.0 2.7 2.5 Public Consumption 0.0 0.1 0.3 1.0 1.5 Gross Fixed Capital Formation 3.5 6.4 5.6 5.6 5.5 Domestic Demand(*) 1.6 3.3 2.9 2.9 2.9 Exports of goods and services 5.1 5.5 6.0 5.8 5.7 Imports of goods and services 6.4 6.0 6.4 6.3 6.2 External Demand(*) -0.2 0.0 0.1 0.0 0.0 Employment (**) 1.1 3.0 3.0 2.9 2.9 Unemployment rate (average) 24.4 22.0 19.7 17.6 15.5 Employees affiliated to the Social Security Net lending (+)/ borrowing (-) vs RoW (***) Public sector net lending (+)/ borrowing (-) (***) 1.6 3.2 (Nov) (*) Contribution to GDP growth; (**) full -time equivalent (***) % GDP 1.6 1.5 1.6 1.4 1.3-5.78-4.2-2.8-1.4-0.3 Real GDP (y-o-y % change ) Banco de España (December2015) Real GDP (y-o-y % change ) National Consensus (November 2015) 2015f 2016f 3.2 2.8 2015f 2016f 3.2 2.7 Source: MINECO, MINHAP. (*) Contribution to GDP growth; (**) full -time equivalent. (1) Net of financial sector assistance one-off (2014: 0,11pp, 2015f 0,03pp) 2

Real GDP growth (y-o-y %) Economic growth differential Euro area Advanced economies (G7) Spain 2009-4.5-3.8-3.6 2010 2.1 2.9 0.0 2011 1.6 1.6-1.0 2012-0.9 1.4-2.6 2013-0.3 1.2-1.7 2014 0.9 1.7 1.4 2015* 1.6 1.9 3.3 2016* 1.8 2.2 3.0 2017* 1.9 2.1 2.9 Source: INE, PGE 2016, IMF (WEO October 2015), and European Commission (Autumn forecast 2015). 3

External indebtedness stability and risk premium and deficit reduction Source: Banco de España, MINHAP 2011 2012 2013 2014 2015Q2 Net financial liabilities 89.8 92.3 95.0 93.2 88.6 4

Fiscal consolidation and lending capacity Net lending (+) or net borrowing (-) by institutional sector (% GDP) Source: INE, IGAE and Draft Budgetary Plan 2016 (sept. 2015) (% GDP) 2010 2011 2012 2013 2014 2015Q2 2015f 2016f 2017f 2018f Net lending (+)/ borrowing (-) visà-vis RoW -3.3-2.9 0.1 2.2 1.6 2.0 1.5 1.6 1.4 1.3 5

Private debt reduction vs public debt and external indebtedness Net financial liabilities(% GDP) 2015 2015 (% GDP) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Net liabilities Public Sector 49.6 53.9 53.4 52.7 46.8 43.3 40.5 39.2 35.9 33.5 28.5 22.1 17.3 22.2 33.5 39.1 47.6 58.7 70.1 82.6 83.3 80.6 Net liabilities non fin. Private Sector -29.0-27.5-28.7-19.7-12.4-7.4-0.5 5.5 11.8 22.4 30.4 43.0 62.1 66.8 65.4 60.9 53.2 47.4 32.2 16.9 11.8 7.1 Net liabilities vis a vis RoW 20.6 24.0 25.9 33.4 34.4 34.4 37.0 40.9 45.7 52.0 57.1 66.9 78.4 78.0 89.8 85.2 89.8 92.3 95.0 93.2 94.1 88.6 Source: Banco de España 6

Financial account stability Financial account 1996-2015 Inflows (+) outflows (-) Direct Investment Portfolio Investment (% PIB) 2011 2012 2013 2014 2015 (Jan-Sep) NCL 2.2 1.8 3.3 2.4-2.5 NCA 3.0-0.2 1.9 3.3-4.8 NCL-NCA -0.9 2.0 1.4-0.9-1.9 Source: Banco de España. BPM6. NCL-NCA -2.5-5.3 3.3 0.6-1.4 7

Outturn and budgetary stability targets Net lending (+)/net borrowing (-) ( % of GDP) Stability Targets 2011 2012 2013 (D) 2014 (P) 2015 2016 2017 2018 Central Government -5.12-4.17-4.30-3.56-2.9-2.2-1.1-0.2 Regional Governments -3.35-1.86-1.57-1.75-0.7-0.3-0.1 0.0 Local Governments -0.40 0.32 0.55 0.57 0.0 0.0 0.0 0.0 Social Security -0.10-0.98-1.12-1.04-0.6-0.3-0.2-0.1 General Government -8.98-6.70-6.43-5.78-4.2-2.8-1.4-0.3 Source: IGAE. MINHAP. Excluding financial sector assistance. 2011 Excluding 2009 Settlements of the regional financing system 8

Fiscal effort International comparison Fiscal effort 2012-2014 (Change in the cyclically adjusted primary balance, % potential GDP) Source: IMF, Fiscal Monitor Oct 15 9

Deficit reduction 2014 vs 2011 y and consolidation path (% GDP) Central Government Regional Governments Local Governments Social Security General Government Adjustment Adjustment 2018 vs 2014 vs 2011 2014 Total Adjustment 1.57 3.36 4.92 1.61 1.75 3.35 0.98-0.57 0.40-0.94 0.94 0.00 3.21 5.48 8.68 Excluding financial sector assistance. 2011 Excluding 2009 Settlements of the regional financing system Source: IGAE. MINHAP. 10

General Government and subsectors outturn balances Net lending (+)/net borrowing (-) (%GDP) Cambiar en grafico comas por puntos (y-o-y % change) 2011 2012 2013 2014 2015f 2016f GDP (volumei -1.0-2.6-1.7 1.4 3.3 3.0 Source: IGAE, MINHAP. Net of financial sector assistance one-off. Excluding 2008-2009 Settlements of the regional financing system for 2010-2011. 11

Regional Governments outturn balances Net lending (+)/net borrowing (-) (% regional GDP) 2010** 2011** 2012 2013 (D) 2014 (P) Target 2014 Andalucía -3.15-3.37-2.10-1.56-1.35-1.0 Aragón -2.90-2.65-1.66-2.23-1.81-1.0 Asturias -2.69-3.63-1.02-1.03-1.27-1.0 Baleares -4.39-4.35-2.00-1.22-1.74-1.0 Canarias -2.40-1.54-1.13-1.05-0.93-1.0 Cantabria -3.90-3.73-1.90-1.29-1.65-1.0 Castilla-La Mancha -6.29-7.62-1.31-2.01-1.80-1.0 Castilla y León -2.58-2.73-1.49-1.19-1.12-1.0 Cataluña -4.48-4.11-2.26-2.14-2.75-1.0 Extremadura -2.45-4.59-1.05-0.99-2.51-1.0 Galicia -2.31-2.22-1.35-1.14-1.00-1.0 Comunidad de Madrid -1.02-1.83-1.02-0.95-1.38-1.0 Región de Murcia* -4.88-4.69-3.25-3.22-2.89-1.0 Comunidad Foral de Navarra -3.79-3.10-1.77-1.46-0.85-1.0 La Rioja -3.83-1.47-1.16-1.07-1.26-1.0 Comunidad Valenciana -4.59-4.94-3.83-2.17-2.48-1.0 País Vasco -2.44-2.71-1.47-1.24-1.01-1.0 Total Regional governments -3.17-3.35-1.86-1.57-1.75-1.0 * National Accounts data before considering the effect of the earthquake in Lorca, Murcia, for evaluating target compliance ** Excluding 2008-2009 Settlements of the regional financing system for 2010-2011 Source: IGAE. Ministry of Finance and Public Administration 12

Regional Fiscal Balances evolution Net lending (+)/net borrowing (-)* (% regional GDP) *National Accounts data before considering the effect of the earthquake in Lorca, Murcia, for evaluating target compliance. Excluding 2009 Settlements of the regional financing system for 2011. Source: IGAE. Ministry of Finance and Public Administration 13

Net lending (+) / Net borrowing (-) EDP % of GDP Source: IGAE Local Governments Budget Balance 2011 2012 2013 (D) 2014 (P) Local Governments -0.40 0.32 0.55 0.57 Non-financial budget balance* 2011 2012 2013 2014 Barcelona 69.9 120.1 283.8 172.5 Madrid 195.2 859.8 1,168.2 1,331.2 Málaga -1.5 40.0 84.7 103.9 Sevilla -32.6 66.6 86.7 29.6 Valencia -25.2 7.5 119.3 117.5 Zaragoza -2.7-45.8 81.8 63.5 Total 203.1 1,048.3 1,824.5 1,818.4 * General administration of local governments and its autonomous bodies. 2014 budget execution advance 4Q data. Source: Ministry of Finance and Public Administrations M 14

Revenue National Accounts Source: IGAE, INE and MINHAP. 15

Total Tax revenues (Bn ) 2007 2011 2012 2013 2014 2015 forecast Personal Income Tax 72.614 69.803 70.619 69.951 72.663 71.467-1.6% Corporate Income Tax 44.823 16.611 21.435 19.945 18.713 22.604 20.8% CIT Instalment payments Evolution of Tax revenues Large corporations and groups 18.070 7.626 11.636 14.692 15.905 18.878 18.7% SMEs 4.810 1.872 1.758 1.485 1.595 1.900 19.1% Other 187 136 215 119-74 222 Total 23.068 9.634 13.609 16.296 17.425 21.000 20.5% Other 2.542 2.158 3.027 3.154 3.239 3.626 11.9% Chapter I.- Direct Taxes 119.979 88.572 95.081 93.050 94.614 97.697 3.3% Vat 55.851 49.302 50.464 51.931 56.174 59.920 6.7% Excise Taxes 19.786 18.983 18.210 19.073 19.104 19.129 0.1% Other 3.224 2.965 2.920 2.721 2.956 3.285 11.1% Chapter II.- Indirect Taxes 78.861 71.250 71.594 73.725 78.233 82.334 5.2% Chapter III.- Other Tax revenues 1.836 1,938 1.892 2.073 2.140 2.225 4.0% Total Tax Revenues 200.676 161.760 168.567 168.847 174.987 182.256 4.2% % 15/14 Source: AEAT. 16

Taxable base Taxable base and national demand (current prices, y-o- y % change) (y-o-y % change) 2014 2015f 2016f Taxable base 2,6 3,8 5,2 National Demand 1,7 3,3 4,0 Source: MNECO, MINANP 17

Tax bases and revenues % change (y-o- y) 2011 2012 2013 2014 2015f 2016f 2015 ( I a III TR) III TR Tax bases On income -1.4-3.1 0.5 1.3 5.0 5.8 Gross household income 0.4-4.4-1.3 0.2 2.9 4.1 Corporate income tax base -15.2 8.0 14.7 8.6 17.0 14.3 On expenditure -4.3-3.4-6.0 4.3 2.1 4.4 Final expenditure subject to VAT -5.8-4.5-6.1 5,6 2.9 4.0 Consumption subject to excise duties 4.0 1.7-5.6-1.9-2.1 6.4 Total tax bases on income and expenditure -2.7-3.2-2.3 2.6 3.8 5.2 6,4 9,3 2,9 2,9 27,0 27,4 3,1 3,4 4,5 4,4-3,4-1,2 5,0 7,0 AEAT (cash) Tax revenue - VAT Large Corporations (Gross) % Jan-Nov 2015-6.4 - VAT SMEs (Gross) 11.5 - Income tax Instalment payments of Personal enterprises Source: AEAT 12.7 IGAE (national accounts) Taxes on production and imports Source: IGAE % Jan-Nov 2015 7.8 VAT 7.8 Taxes on income and wealth 5.0 Total taxes 6.6 18

Evolution in CIT revenue CIT Instalment payments. ( M ) 2011 2012 2013 2014 2015 A Large corporations & Groups 7,626 11,636 14,692 15,905 18,878 Consolidated Groups 3,430 6,338 9,194 10,062 11,904 (M ) Large corporations 4,196 5,298 5,498 5,843 6,974 SMEs 1,872 1,758 1,485 1,595 1,900 Other revenues 136 215 119-74 222 TOTAL 9,634 13,609 16,296 17,425 21,000 (y-o-y % change) 2011 2012 2013 2014 2015A Large corporations & Groups -4.9 52.6 26.3 8.3 18.7 Consolidated Groups -25.1 84.8 45.1 9.4 18.3 (y-o-y % change) Large corporations 22.1 26.3 3.8 6.3 19.4 SMEs -14.4-6.1-15.5 7.4 19.1 Other revenues TOTAL -7.6 41.3 19.7 6.9 20.5 Source: AEAT 19

Fight against fraud Form 720: Reporting statement of properties and rights situated abroad Fight against fraud results (M ) Tax year Reporting Taxpayers Value of properties declared( M ) 2013 135,927 90,976 2014 2015 First-time declared right or property Right or property previously declared Right or property revoked or extinct First-time declared right or property Right or property previously declared Right or property revoked or extinct 32,768 20,790 29,254 70,333 29,815-15,942 28,565 14,766 30,639 46,067 26,576-12,684 Source: AEAT Form 750: Special Tax Return Tax year Num of Taxpayers Resulting amount payable ( ) 2012 29,683 1,193,598,829 20

Expenditure National Accounts Source: IGAE, INE and MINHAP. Expenditure not including financial assistance one-offs. 21

Net lending (+)/net borrowing (-) (Million ; %GDP) Fiscal balances oct-14 oct-15 oct 15-14 oct 15/14 oct-14 oct-15 oct 15-14 Million y-o-y % % GDP Change p.p Central Government -27,286-21,637 5,649-20.7-2.6-2.0 0.6 Regional Governments -13,390-12,595 795-5.9-1.3-1.2 0.1 Social Security -249-2,702-2,453 0.0-0.3-0.3 Balance General Gov.* -40,925-36,934 3,991-9.8-3.9-3.4 0.5 Revenue General Gov.* 301,154 311,358 10,204 3.4 28.9 28.8-0.1 Expenditure General Gov* 342,079 348,292 6,213 1.8 32.9 32.2-0.7 (*)General Government excluding Local governments; Central gov.expenditure excluding financial aid (2014 767 amd 2015 231 ) Q3 2014 Q3 2015 Q3 15-14 Q3 15/14 Q3 2014 Q3 2015 Q3 15-14 Million y-o-y % % GDP Change p.p Local Gov. Balance 4,185 3,677-508 -12.13 0.4 0.3-0.1 nov-14 nov-15 nov 15-14 nov 15/14 nov-14 nov-15 nov 15-14 Million y-o-y % % GDP Change p.p State Balance (Estado) -35,372-27,523 7,849-22.2-3.4-2.6 0.8 State revenue 155,695 163,001 7,306 4.7 15.0 15.1 0.1 State expenditure 191,067 190,524-543 -0.3 18.4 17.6-0.8 Primary balance -7,630-535 7,095 - -0.7 0.0 0.7 Source: IGAE 22

Fiscal consolidation: General Government consumption and public employment General government consumption (y-o-y %) Government M consumption 2011 219,673 2012 205,236 2013 202,373 2014 202,437 2012-2014- -17,236 M (-7.8%) Public sector employees (thousands) 2010-2004: +11.4% 2014-2010: -9.9% Source: INE, current, not seasonally adjusted NA Source: INE, LFS Q3 2015 23

Compensation of employees Intermediate consumption Social transfers other than in kind Main items of expenditure General Government Million 2007 2010 2011 2012 2013 2014 General Gov General Gov General Gov General Gov General Gov General Gov Y-o-y Y-o-y Y-o-y Y-o-y Y-o-y Level Level % Level % Level % Level % Level % 107,445 124,884-0.5 122,601-1.8 113,925-7.1 114,711 0.7 114,938 0.2 54,226 61,05 0.0 61,292 0.4 58,599-4.4 54,974-6.2 54,957 0.0 123,760 162,693 4.9 164,182 0.9 168,472 2.6 170,608 1.3 170,655 0.0 Social transfers in kind supplied via market producers 26,026 31,558-0.4 30,538-3.2 28,570-6.4 28,204-1.3 28,092-0.4 Interest expenditure 16,892 20,248 10.4 26,315 30.0 30,922 17.5 34,669 12.1 35,291 1.8 Subsidies 11,857 12,354-1.0 12,204-1.2 10,004-18.0 10,853 8.5 11,4 5.0 Gross fixed capital formation Government Consumption Source: IGAE 49,467 50,662-8.1 39,638-21.8 25,876-34.7 22,753-12,1 21,889-3.8 191,042 221,715 0.3 219,673-0.9 205,236-6.57 202,373-1.4 202,437 0.0 24

Taxes on production and imports Main items of revenue General Government Million 2007 2010 2011 2012 2013 2014 General Gov General Gov General Gov General Gov General Gov General Gov Y-o-y Y-o-y Y-o-y Y-o-y Y-o-y Level Level % Level % Level % Level % Level % 124,632 110,407 19.74 106,513-3.53 108,551 1.91 115,010 5.95 119,309 3.74 - Taxes on products 112,963 95,753 21.71 91,032-4.93 89,935-1.21 96,003 6.75 99,226 3.36 -Taxes on production 11,669 14,654 8.27 15,481 5.64 18,616 20.25 19,271 2.10 20,083 5.66 Current taxes on income and wealth -Paid by households and non assigned 137,626 100,625-0.94 102,01 1.38 106,265 4.17 105,024-1.17 105,393 0.35 86,83 80,095 4.51 82,851 3.44 83,906 1.27 83,739-0.20 84,502 0.91 -Paid by corporations 50,796 20,53-17.69 19,159-6.68 22,359 16.70 21,285-4.80 20,891-1.85 Social Contributions 136,417 138,649-0.77 137,802-0.61 131,859-4.31 128,217-2.76 130,063 1.44 Source: IGAE 25

Real per capita expenditure euros base 2013 Expenditure (net of financial assistance) Primary expenditure (net of financial assistance) % change Expenditure (net of financial assistance) % change Primary expenditure (net of financial assistance) Source: IGAE 2000 8,526 7,836 2.4% 3.0% 2001 8,632 7,968 1.2% 1.7% 2002 8,797 8,198 1.9% 2.9% 2003 8,825 8,295 0.3% 1.2% 2004 9,047 8,583 2.5% 3.5% 2005 9,131 8,715 0.9% 1.5% 2006 9,350 8,960 2.4% 2.8% 2007 9,696 9,307 3.7% 3.9% 2008 10,164 9,782 4.8% 5.1% 2009 10,767 10,367 5.9% 6.0% 2010 10,668 10,229-0.9% -1.3% 2011 10,424 9,857-2.3% -3.6% 2012 9,903 9,238-5.0% -6.3% 2013 9,856 9,114-0.5% -1.3% 2014 9,969 9,207 0.8% 0.7% 2015 10,025 9,298 0.6% 1.0% 2016 9,981 9,286-0.1% 0.2% 2017 9,991 9,327 0.1% 0.4% 2018 Fuente: IGAE 10,030 9,387 0.4% 0.6% % 2018/2013 1.8% 3.0% 26

Expenditure by function and real per capita expenditure growth General Government expenditure by function 2007 Expenditure (%GDP) 2013 Expenditure (%GDP)* 2015 Expenditure (%GDP) 2016 Expenditure (%GDP) 2016-2013 Expenditure Difference p.p. GDP 2016-2013 Real per capita Expenditure % change 2016-2013 General Government (S.13) 01 General public services 4.9 6.9 6.5 6.2-0.7-1.8 02 Defense 1.0 0.9 1.0 0.9 0.0 7.8 03 Public order and safety 1.9 2.0 1.9 1.9-0.1 2.2 04 Economic affairs 5.2 4.0 3.8 3.7-0.3 2.0 05 Environmental protection 1.0 0.8 0.8 0.8 0.0 1.7 06 Housing and community amenities 0.9 0.5 0.4 0.4-0.1 1.3 07 Health 5.7 6.0 5.8 5.6-0.4 1.5 08 Recreation, culture an religion 1.6 1.1 1.1 1.1 0.0 1.9 09 Education 4.0 4.0 3.9 3.8-0.2 1.8 10 Social protection 12.8 17.6 16.8 16.3-1.3 0.7 Total expenditure 38.9 43.8 42.1 40.7-3.1 0.9 (*) Excluding financial assistance Source: INE, MINECO, MINHAP, Draft Budgetary Plan 2016 (sept. 2015) 27

Main items of expenditure Central Government Million 2007 2010 2011 2012 2013 (D) 2014 (P) Central Central Central Gov. Gov. Gov. Central Gov. Central Gov. Central Gov. % % % Level Level Level Level change Level change Level change Compensation of employees 21,622 24,461 23,951 22,656-5.4 23,517 3.8 23,251-1.1 Intermediate consumption 8,712 9,003 9,144 8,731-4.5 8,220-5.9 8,160-0.7 Social transfers other than in kind 12,200 14,993 14,480 14,777 2.1 15,259 3.3 15,581 2.1 Social transfers in kind supplied via market producers 1,144 1,725 1,471 1,417-3.7 1,139-19.6 1,118-1.8 Interest expenditure 14,366 18,348 22,836 27,223 19.2 31,011 13.9 31,900 2.9 Subsidies 2,733 2,862 2,863 2,687-6.1 4,732 76.1 5,317 12.4 Gross fixed capital formation 14,656 15,006 12,555 9,423-25.0 7,398-21.5 6,840-7.5 Source: IGAE 28

Main items of expenditure Regional Governments 2007 2010 2011 2012 2013 (D) 2014 (P) Regional Gov. Regional Gov. Regional Gov. Regional Gov. Regional Gov. Regional Gov. % % % Level Level Level Level change Level change Level change Compensation of employees 64,405 75,590 74,081 68,484-7.6 68,046-0.6 68,495 0.7 Intermediate consumption 25,421 29,617 30,020 28,795-4.1 26,204-9.0 26,428 0.9 Social transfers other than in kind 23,763 28,517 27,789 25,995-6.5 25,884-0.4 25,779-0.4 Social transfers in kind supplied via market producers Million 2,543 4,162 4,055 3,928-3.1 3,438-12.5 3,771 9.7 Interest expenditure 2,590 3,409 5,135 5,894 14.8 7,660 30.0 7,672 0.2 Subsidies 3,756 3,981 4,039 3,034-24.9 2,723-10.3 2,581-5.2 Gross fixed capital formation 20,056 19,798 16,690 11,111-33.4 10,345 6.9 9,287-10.2 Source: IGAE 29

Main items of expenditure Local Governments 2007 2010 2011 2012 2013 (D) 2014 (P) Local Gov. Local Gov. Local Gov. Local Gov. Local Gov. Local Gov. % % % Level Level Level Level change Level change Level change Compensation of employees 18,989 22,102 21,913 20,257-7.6 20,574 1.6 20,660 0.4 Intermediate consumption 18,689 21,135 20,897 19,786-5.3 19,240-2.8 19,122-0.6 Social transfers other than in kind 0,612 0,855 0,901 0,487-45.9 0,444-8.8 0,434-2.3 Social transfers in kind supplied via market producers Million 0,459 0,632 0,696 0,667-4.2 0,689 3.3 0,682-1.0 Interest expenditure 1,129 0,761 0,975 1,398 43.4 1,326-5.2 1,197-9.7 Subsidies 1,504 1,754 1,640 1,446-11.8 1,389-3.9 1,499 7.9 Gross fixed capital formation 14,315 15,504 10,111 5,014-50.4 4,905-2.2 5,595 14.1 Source: IGAE 30

Main items of expenditure Social Security 2007 2010 2011 2012 2013 (D) 2014 (P) Soc. Sec. Soc. Sec. Soc. Sec. Soc. Sec. Soc. Sec. Soc. Sec. % % % Level Level Level Level change Level change Level change Compensation of employees 2,429 2,731 2,656 2,528-4.8 2,574 1.8 2,532-1.6 Intermediate consumption 1,404 1,295 1,231 1,287 4.5 1,310 1.8 1,247-4.8 Social transfers other than in kind 108,405 142,683 144,746 149,280 3.1 151,467 1.5 150,869-0.4 Social transfers in kind supplied via market producers Million 0,660 0,684 0,582 0,491-15.6 0,492 0.2 0,513 4.3 Subsidies 3,864 3,757 3,662 2,837-22.5 2,009-29.2 2,003-0.3 Gross fixed capital formation 0,440 0,385 0,282 0,328 16.3 0,105-68.0 0,167 59.0 Source: IGAE 31

Public Sector Reform Accountability Transparency Expenditure rule, debt ceiling and target deficit of all levels of government. Reduced risk of breaching rules by the followup procedure of the Payments to Suppliers General State Controller provided with new instruments (adjustment plans and Treasury adjustment), in exchange for liquidity (Liquidity mechanisms). Budgetary control reinforced by mutualisation of the Regional and Local government's debt. Independent assessment of effective compliance of the budget stability principle (AIREF). Recovery of the Local government civil servants with national qualification. Monthly reporting on the budgetary execution. Publication of the Economic and Financial rebalancing plans. Institutionalization of national accounts compiling. (Technical Committee of National Accounts). Providing new information such as: period of payment to suppliers,treasury plans, staff, health expenditure, Public sector bodies... Sanctions regime derived from the non compliance with the provision of information. Local Entities competences are limited depending on the financial resources at their disposal. New regime includes new criminal offenses (penal code reform) and administrative (Transparency Law). 32

Liquidity measures Total amount of Liquidity mechanisms to Local and Regional Governments: 184.98 bn 2012-2014: 133.9 bn 2015: 51.1 bn Suppliers payment financing plan: 41.8 bn 2012: 27.3 bn 2013: 6.5 bn 2014: 8.0 bn ICO line 2012: 5.4 bn Liquidity Fund: 62.8 bn 2012: 16.6 bn 2013: 22.9 bn 2014: 23.2 bn Other measures: 23.9 bn 2012: 10.6 bn 2013: 7.8 bn 2014: 5.5 bn Financing Funds: 39.9 bn Financial Facility: 14.3 bn Liquidity Fund: 22.9 bn Social Fund: 0.683 bn Remaining Financing Funds: 0.992bn Fund for financing Local Govs.: 1.0 bn Other measures 2015: 11.2 bn 70% 70% of the total of the liquidity measures intended to fund Social Policies 33

Total Liquidity to CCAA y EELL LIQUIDITY MECHANISMS GRANTED TO LOCAL AND REGIONAL GOVERNMENTS, YEARS 2012, 2013, 2014 y 2015. M TOTAL LIQUIDITY 2012 TOTAL LIQUIDITY 2013 TOTAL LIQUIDITY 2014 TOTAL LIQUIDITY 2015 TOTAL LIQUIDITY 2012 2013 2014 2015 ANDALUCIA 10,167.80 6,947.84 6,366.07 5,345.20 28,826.91 ARAGON 840.50 105.08 228.65 1,631.95 2,806.18 CAST. LA MANCHA 5,339.36 1,608.58 2,442.40 2,033.54 11,423.89 CASTILLA - LEON 1,860.33 223.54 197.10 2,356.30 4,637.27 CATALUÑA 12,920.41 14,771.06 11,102.11 14,169.20 52,962.79 CANARIAS 1,731.63 1,076.68 1,027.08 1,351.48 5,186.86 EXTREMADURA 511.26 144.62 441.84 930.70 2,028.42 GALICIA 637.16 252.25 228.90 1,918.36 3,036.67 C. VALENCIANA 14,404.66 6,355.84 9,673.48 10,889.78 41,323.76 ASTURIAS 734.25 696.71 159.40 756.29 2,346.66 BALEARS (ILLES) 2,084.44 1,678.35 1,793.44 1,675.66 7,231.90 CANTABRIA 624.61 378.31 396.00 5643.94 2,042.86 MADRID 4,379.67 826.91 133.60 2,058.29 7,398.47 MURCIA 2,262.02 1,413.47 1,789.35 1,492.99 6,957.84 RIOJA (LA) 138.18 65.05 25.90 373.00 602.13 PAIS VASCO 0.00 0.00 0.00 0.00 0.00 NAVARRA 0.00 1.16 0.00 0.00 1.16 Ceuta 82.12 0.00 0.00 0.00 82.12 TOTAL in the Regions* (distributed) 58,718.43 36,545.44 36,005.33 47,626.69 178,895.88 Regions (to be distributed) 992.35 992.35 Total in the Regions* 58,718.43 36,545.44 36,005.33 48,619.03 179,888.23 Local governments ** 1,259.30 671.50 670.60 2,493.86 5,095.26 Total liquidity mechanisms Regional and Local Governments 59,977.73 37,216.94 36,675.93 51,112.90 184,983.49 * Including suppliers financing plan by Local Entity in the region. ** No including Local Entities suppliers financing plan. 34

Total financing to suppliers 2012-2015 TOTAL FINANCING TO SUPPLIERS 2012-2015 (Financing Funds to CCAA y EELL) M 2012 2013 2014 AÑO 2015 TOTAL ANDALUCIA 7,237.02 2,885.18 4,233.90 491.00 14,847.10 ARAGON 654.00 12.28 73.85 394.99 1,135.13 CAST. LA MANCHA 3,623.69 949.65 1,448.85 350.64 6,372.83 CASTILLA - LEON 1,479.23 26.44 0.00 775.04 2,280,71 CATALUÑA 4,486.94 4,335.25 5,932.87 1,813.44 16,568.50 CANARIAS 1,079.35 557.22 619.31 118.36 2,374.25 EXTREMADURA 349.36 37.92 335.14 22.00 744.42 GALICIA 196.96 23.35 0.00 0.00 220.31 C. VALENCIANA 6,621.53 2,242.71 5,017.57 2,874.03 16,755.85 ASTURIAS 553.17 358.75 0.00 0.00 911.93 BALEARS (ILLES) 1,484.03 777.54 935.52 175.43 3,372.53 CANTABRIA 493.67 233.27 240.74 89.99 1,057.67 MADRID 3,535.37 693.31 0.00 1,006.99 5,235.67 MURCIA 1,646.09 625.98 1,246.02 303.08 3,821.18 RIOJA (LA) 77.78 0.15 0.00 51.98 129.91 PAIS VASCO 0.00 0.00 0.00 0.00 0.00 NAVARRA 0.00 1.16 0.00 0.00 1.16 Ceuta 82.12 0.00 0.00 0.00 82.12 TOTAL in the Regions* (distributed) 33,600.33 13,760.17 20,083.80 8,466.96 75,911.95 * Including suppliers financing plan by Local Entity in the region. 35

Territorial funding M 2015* 2016 % 2016/2015 Territorial funding 102,547 110,551 7.81% Regional Governments funding 85,332 92,795 8.75% Local Entities funding 17,214 17,756 3.14% * 2015 (final settlement 2013) 36

2015* 2016 Regional funding Total funding 2016-2015 % 2016/15 Cataluña 15,363.3 17,225.1 1,862.0 12.12% Galicia 6,323.3 6,736.3 413.1 6.53% Andalucía 15,408.7 17,121.1 1,712.4 11.11% Principado de Asturias 2,388.4 2,501.2 112.7 4.72% Cantabria 1,529.9 1,577.6 47.8 3.12% La Rioja 816.8 886.6 69.8 8.55% Región de Murcia 2,573.5 2,827.2 253.7 9.86% C. Valenciana 8,077.1 9,029.2 952.1 11.79% Aragón 2,930.9 3,118.6 187.7 6.40% Castilla-La Mancha 4,243.0 4,448.3 205.3 4.84% Canarias 3,710.8 3,898.1 187.3 5.05% Extremadura 2,636.8 2,840.1 203.3 7.71% Baleares 2,059.3 2,168.2 108.9 5.29% Madrid 11,605.2 12,425.6 820.4 7.07% Castilla y León 5,592.8 5,911.9 319.1 5.71% Total Regions 85,259.7 92,715.1 7,455.5 8.74% Melilla 32.7 36.1 3.3 10.16% Ceuta 39.9 43.9 4.0 10.03% Ceuta and Melilla 72.7 80.0 7.3 10.09% * 2015 liquidación definitiva Total 85,332.3 92,795.1 7,462.8 8.75% * 2015 (final settlement 2013) M 37

Savings from liquidity measures Interest Savings 2015 Interest Savings 2016 Operation term savings Andalucía 589.79 512.58 4,033.91 Aragón 9.34 16.33 106.05 Asturias 44.52 44.51 314.02 Baleares 138.75 121.11 938.56 Canarias 108.27 96.59 736.63 Cantabria 38.9 31.69 270.09 Castilla la Mancha 267.12 222.47 1,882.65 Castilla y León 85.24 24.45 248.18 Cataluña 1,236.92 1,026.35 8,171.44 Extremadura 11.84 13.35 89.34 Galicia 93.56 20.1 181.83 La Rioja 11.28 3.08 24.46 Madrid 5.17 21.78 203.06 Murcia 148.71 123.11 997.09 Valencia 753.19 631.38 5,012.82 Total Regions 3,542.59 2,908.88 23,210.12 M 38

Public debt by subsector Public debt (%PIB) Source: Banco de España. 2015: third quarter. 39

Debt of Regions and local governments ( % of GDP) Debt of regional and local governments Source: Banco de España, 2015 : third quarter 40

Commercial debt Commercial Debt incurred by Public Administrations (M ) Source: Banco de España 41

Drivers of public debt growth 2012 2013 2014 2015f General Government debt 84.4 92.1 97.7 98.7 Change in public debt 15.3 7.6 5.6 1.0 Factors of debt growth : Drivers of public debt growth ( % of GDP) Primary deficit 3.7 3.1 2.4 1.1 Interest expenditure 2.9 3.3 3.3 3.1 Financial sector recapitalisation 3.7 0.5 0.1 0.0 Financial Funds to territorial gov. 4.2 3.0 2.9 3.6 FADE 0.5 0.7-0.1-0.2 EFSF (lending to Greece, Irl.,Port) 1.5 0.5 0.1 0.0 Others -2.6-3.9-2.4-3.1 Contribution of change in nominal GDP 1.3 0.5-0.8-3.5 Source: Banco de España and MINHAP, Draft Budgetary Plan 2016 (sept. 2015) 42

Corporate deleverage and market capitalization Savings and Investment of Non-Financial corporations (as % GDP) Non Financial corporations (M ) Non financial corporations (M ) Jan-12 Oct-15 Dif. M Dif. % Indebtedness (Stock) 1,194,031 926,273-267,758-22.4 Madrid Stock Exchange market cap. 442,034 704,830 262,796 59.5 Source: INE Source: Banco de España 43

Household deleverage and financial wealth Savings and Investment of Households (as % of GDP) Household Deleverage and Financial Wealth (M ) Households (M ) Jan-12 Oct-15 Dif. M Dif. % Indebtedness (gross) 867,932 727,624-140,308-16.2 2011Q4 2015Q2 Dif. M Dif. % Financial wealth 822,431 1,259,853 437,423 53.2 Source: INE. Source: Banco de España 44

New loans and long term government bond yield Loans. New business. Total (y-o-y % change) Loans. New business. Households and non financial corporations up to 1M. (y-o-y % change) 10-Y Government bond yield (monthly average %) Loans. New Business. (y-o-y %) Source: Banco de España. 2011 2012 2013 2014 2015 (Jan-Oct) Spain -23.7-8.9-19.0-5.9 16.3 Euro Area -7.0-6.7-6.0-3.5 19.2 Loans. New Business. Households and Non financial corp. <1 M (y-o-y %) 2011 2012 2013 2014 2015 (Jan-Oct) Spain -25.6-15.7-11.3 11.6 17.5 Euro Area -6.9-9.7 0.1 1.3 24.8 10-Y Government bond yield 10-Y spread over German bond(pp) 2011 2012 2013 2014 2015 (Nov) 5.437 5.847 4.562 2.722 1.730 2.829 4.352 2.992 1.554 1.180 45

Households. New loans New Loans. Total Households. (y-o-y % change) New Loans. Households- House purchase (y-o-y % change) New Loans. Households- Consumption (y-o-y % change) New Loans. Total Households Source: Banco de España. 2011 2012 2013 2014 2015 (Jan-Oct) Spain -39.8-14.7-19.1 18.1 26.3 Euro Area -7.8-13.3 3.8 2.1 36.6 New Loans. Households- House purchase 2011 2012 2013 2014 2015 (Jan-Oct) Spain -46.0-13.9-32.3 22.7 36.8 Euro Area -7.6-16.8 7.7 3.6 55.2 New Loans. Households- Consumption 2011 2012 2013 2014 2015 (Jan-Oct) Spain -34.5-15.4 8.4 18.3 17.8 Euro Area -0.3-7.7-3.5 3.2 13.3 46

Price stability and competitiveness Unit Labour Cost (Base year 100=2010) Harmonised Consumer Price Index (y-o-y % change) Source: OECD Source: Eurostat (*) Average data in the current period over the same average past year. 47

Trade balance, crude oil and exchange rate Energy and non-energy trade balance (M ) Brent oil Price $ per barrel Exchange rate($/ ), and real effective exchange rate (index) Trade balance (M ) 2011 2012 2013 2014 2015 (Jan- Oct) Non-energy -5,179 15,790 25,965 15,368 3,198 2011 2012 2013 2014 2015 (Nov) 2015f Energy -41,159-46,547-41,920-39,840-23,728 Total -46,338-30,757-15,955-24,472-20,530 Balance of Payments (% GDP) Goods y Services 2011 2012 2013 2014 2015 (Jan- Sep) Imports 29.1 29.1 28.7 30.1 30.8 Exports 29.0 30.6 32.0 32.5 33.6 Total -0.2 1.5 3.2 2.5 2.7 Brent oil Price $ per barrel 2011 2012 2013 2014 2015 (Jan-Nov) 2015f 112.2 112.4 109.7 99.4 53.4 61.5 Exchange rate $/ Real effective exchange rate 1.392 1.286 1.328 1.329 1.074 1.100 100.3 95.0 98.2 97.9 Source: Customs Service, Banco de España and European Central Bank. 48 89.3 (Oct) -

Structural reforms STRUCTURAL REFORMS PUBLIC SECTOR REFORMS FINANCIAL SECTOR REFORMS Reforms 2012 Labour Market Health sector Education Budgetary framework Budgetary Stability Law Financial Sector SAREB Pension System Reform Single Market Local Administrations Reform Regulatory Bodies. CNMV Recapitalizing Reforms 2013 Energy sector Entrepreneurs Act e- invoicing CORA New Taxation for entrepreneurs R+D+i Commercial debt Act Average payment period Restructuring Reforms 2014 Active employment policy measures and youth guarantee Social Security flat rate Independent Authority for Fiscal Responsibility New Legal framework for Financial Disintermediation Reforms 2015 Active Policies Second Chance Act Tax Reform Reduction of S.S. Contributions Insolvency Regime 49

Correction of imbalances in a stable macroeconomic framework Net lending (+) or borrowing (-) vis-à-vis ROW, inflation % and real GDP annual % change Source: INE and Budgetary Plan 2016 (sept 2015) 50

Correction of imbalances: unemployment rate vs net lending or borrowing v-á-v RoW Net lending (+) or borrowing (-) vis-à-vis ROW and unemployment rate. Source: INE, Eurostat and PGE 2016. 51

Contribution to GDP Growth Domestic demand, external demand contributions and annual % change in affiliated to Social Security, tax revenues and real GDP (quarterly data) Source: AEAT, INE and MEYSS ( y-o-y %) 2014 average 2014 2015 (last data) Real GDP 1.4 2.0 Q4 3.4 (Q3) Social Security Affiliated 1.6 2.6 Dec 3.2 (Nov) Tax revenues (homog.) 3.6 3.6 Jan-Dec 4.7 (Jan-nov15) 52

Contributions to economic growth Contribution to national demand and its components to GDP growth (pp and y-o-y % change) Contributions (pp) 2015Q3 Real GDP (y-o-y %) 3.4 National Demand 3.9 - Final consumption expenditure 2.6 F.C.E. Private sector 2.0 F.C.E. Government 0.6 -Gross capital formation 1.3 G.F.C.F. Construction 0.6 G.F.C.F. Equipment 0.7 G.F.C.F. Rest 0.1 External Demand -0.5 *Last date: GDP 2015Q3 Source: INE 53