A report issued by the IMF praised Spain's reforms for stabilizing an economy that almost imploded last year, particularly by propping up public finances, but said the jobless rate is "unacceptably high and the outlook difficult."
After years of recession, Spain will probably start growing economically at the end of this year and into next year but the growth may not be enough to bring down the unemployment rate, said James Daniel, the IMF mission chief for Spain.
"The uncertainty is whether the recovery will be strong enough to generate jobs," Daniel told reporters.
Spain has been in recession for most of the past four years following the collapse of its once-booming real estate sector in 2008. Concerns over its public finances, drained as the government tried to spend its way out of the financial crisis, have also piled the pressure on the government to rein in spending.
The country narrowly avoided taking an international bailout like those accepted by Greece, Ireland and Portugal. But it did receive permission last year from a European-funded program to tap as much as 100 billion euros ($133.74 billion) to save ailing lenders, and has taken 40 billion euros so far.
The IMF said it expects Spain's economy to grow about 1 percent a year over the next five years with "limited gains in employment."
The organization went on to compliment Spain for restoring credibility to its economic policies through a series of harsh and unpopular austerity measures imposed last year by Prime Minister Mariano Rajoy. These raised taxes and cut cherished government services like education and national health care.
But it said Spain "needs to deliver on its announced program, and indeed go further in some areas. The focus should be on a pro-jobs strategy that allows the economy to grow and hire."
The unemployment rate is among the highest in the 17-nation eurozone, and joblessness for Spaniards under age 25 is 57 percent. Many young and highly educated Spaniards have emigrated in recent years or are seriously considering doing to because the outlook is so bad for jobs. Top destinations include Britain, Germany and Latin America.
The IMF report also urged Spain to embark on more labor reforms for job generation after Spain already passed a host of measures last year making it easier and cheaper for companies to hire and fire workers. Among the other measure the report recommended were for companies to be more flexible with setting shifts, more collective bargaining reforms and further reductions on severance pay following dismissals.
"Spain needs to generate jobs and that probably means more flexibility on wages going forward," Daniel said.