Washington, Jul 28 (IANS): The International Monetary Fund (IMF) has said that Spain needs to take "decisive actions" to tackle economic challenges and restore market confidence.

"The economy has entered an unprecedented double-dip recession with unemployment already very high and public debt increasing rapidly," the IMF said in its annual report on the Spanish economy, reported Xinhua.

Spain's borrowing cost remained high and banks were unable to tap private funding market, the report said.

While noting that the economic outlook remains "very difficult" and "vulnerable to significant downside risks", the IMF urged the Spanish authorities to make "decisive actions on many fronts."

The fund emphasized the importance of sustained efforts and "a clear, credible medium-term strategy" for fiscal consolidation, financial sector restructuring, and structural reforms.

It stressed the need for continued support for Spain's troubled banking sector, and suggested using the European Stability Mechanism, the permanent bailout fund for the euro zone, directly for recapitalization of Spanish banks.

The IMF said the success of Spain's efforts in restoring confidence, jobs and growth depends "critically" on progress at the European level in strengthening the currency union.

It also forecast the Spanish economy to contract by 1.7 percent this year.