Spain's public deficit in 2011 was equivalent to 8.51 percent of gross domestic product, Finance Minister Cristobal Montoro said on Monday, up from a preliminary estimate of 8.2 percent due mainly to overspending by regional governments.
The government's official target for 2012 is to cut the deficit to 4.4 percent of GDP, which would require unprecedented cuts of more than 40 billion euros ($53.58 billion).
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However, the European Commission has said it may give Spain and other countries softer deficit targets this year to help them through the economic downturn.
"The big issue now is that this seriously casts doubt on the aim to reduce the deficit to 4.4 percent this year, and with a backdrop of recession as we have, it would be a titanic effort," said Nicolas Lopez, head of research at M&G Valores.
The 2011 spending gap was down from a figure of 9.3 percent in 2010, but above an initial target of 6 percent set by the European Union in conjunction with Spain's Socialist government which left power in December after losing elections.
Montoro told journalists the central government accounted for 5.1 percentage points of the 2011 deficit, and local governments for 2.94 percentage points.
He said the 8.51 percent figure was provisional and would be sent to the European Commission for review.
Spain has struggled for the past two years to convince financial markets its public finances are in order and that it will not need a bailout like fellow eurozone members Greece, Ireland and Portugal.
Spanish government financing costs came close last November to a 7 percent level generally considered unsustainable, but have since subsided to around 5.85 percent due to a second bailout deal for Greece and cheap credit from the European Central Bank.
The European Commission has said it will not consider relaxing Spain's deficit target until the government finalises its 2012 budget, which the recently invested People's Party administration plans to unveil on March 30.
Earlier in February, three senior EU officials told Reuters that Spain could be sanctioned for inaction on its deficit and that the European Commission believes the new government had overstated the deficit figures for 2011 in order to give itself a cushion as it tries to reign in spending in 2012.
In the news conference on Monday, Montoro defended Spain's statistics.
"Anyone inside or outside the European Commission who says we inflated the deficit... is completely out of touch with the quality of our budget statistics," Montoro said. ($1 = 0.7466 euros) (Writing by Martin Roberts; Editing by Fiona ortiz; editing by Ron Askew)