The IMF gave Spain a broad thumbs up but warned that additional reforms were still needed, such as an overhaul of employment contracts, a raise in VAT and the introduction of healthcare co-payments.
Spain's recovery “has gathered speed” and the growth forecast was increased to 3.1 percent during 2015, up from the 2.5 percent it predicted in April.
Favourable conditions such as lower oil prices, the depreciation of the euro and a “supportive monetary policy” towards Spain by the European Central Bank, have helped Spain on the road to recovery, the IMF said.
However the international organization warned that political instability or a reversal of unpopular reforms could jeopardize that path.
The IMF hinted at fears that the ruling Popular Party could cool its pace of reforms in a bid to win back support ahead of a general election later this year in the wake of a drubbing at regional and municipal election last month.
"A reversal of past reforms would create uncertainty and could stall the recovery, especially if the external environment were to deteriorate," the IMF said in a report published Monday following an official visit to the country.
Additional reforms were necessary to tackle unemployment and increase competitiveness, the IMF concluded.
"Vulnerabilities remain and deep structural problems persist, so additional efforts will be needed to sustain robust growth over the medium term," the report said.
It also recommended raising VAT to bring Spain “more in line with other European countries” and called on the regions to shoulder more fiscal responsibility for public services.
"At the regional level, additional fiscal savings could be generated - for example, by reducing the costs of providing public health and education services and, as recommended by the Tax Reform Expert Committee last year, by increasing regions' responsibility to pay for these services," it said.