The Fund has said that Spain’s outlook remains “very difficult” with “significant downside risks”.
Spanish unemployment has hit its new high record, with jobless rate reaching 24.6% during the April to June quarter.
The IMF called for further reforms for the Spanish economy needed to bring down unemployment and tackle public debt that were “increasing rapidly”.
“Directors underlined the urgency of additional progress in boosting competitiveness and jobs, given the high level of unemployment, in particular among the youth,” it said.
It also stressed the need for continued support for Spain’s battered banking sector, and suggested the European Stability Mechanism, the eurozone’s firewall fund, should be used directly to support Spanish banks.
Spanish stocks, on the other hand, rose sharply on Friday. The rise was linked to French President Francois Hollande and German Chancellor Angela Merkel’s strong statement of support to the Euro.
Spain’s borrowing costs has jumped above 7%, a level widely seen as unsustainable that may force Spain to seek a full bailout.
However, the borrowing costs, or yields, fell back on Thursday after the head of the European Central Bank (ECB), Mario Draghi, said the bank would do “whatever it takes” to preserve the single currency.
On Friday, Spain said it was not seeking a bailout from the EU.
“There is not going to be a bailout and a bailout is not an option,” government spokeswoman Soraya Saenz de Santamaria said.
This came after reports suggested Spanish Economy Minister Luis de Guindos had raised the subject of a 300bn euro bailout at a meeting with Germany’s Finance Minister Wolfgang Schaeuble earlier this week.
On Friday afternoon, Spanish bond yields stood at 6.7%.