Spain has announced its austerity budget for 2013, against a backdrop of a falling economy and 25 per cent unemployment rate, as pictures of Mariano Rajoy, the Spanish prime minister, enjoying a cigar on New York’s Sixth Avenue were splashed across Spanish newspapers on Thursday.

Madrid is expected to outline a further $50bn worth of savings, tax rises, and structural reforms, only a day after thousands of protesters rallied near the Spanish parliament for a second straight night on Wednesday.

The government spending would be cut by 8.9 per cent in 2013, while overall budget spending would increase by 5.6 per cent.

This is a crisis budget aimed at emerging from the crisis, in this budget there is a larger adjustment of spending than revenue,” said Deputy Prime Minister, Soraya Saenz de Santamaria, in a press conference.

Saenz de Santamaria said the government would include 43 new laws to reform the economy over the next six months.

It will also present reforms to the pension system by year-end.

Al Jazeera’s Simon McGregor-Wood, reporting from Madrid, said: “The news is not good for the Spanish people, because it will be more bad news for many, many Spaniards.”

“Expect more public anger in the days ahead, as already we have seen protests in the past few days,” our correspondent said.

It comes amid further protests this week, and growing expectations that Spain will seek a bailout from its eurozone partners.

Greater bailouts

Meanwhile Castile La Mancha has become the fifth of Spain’s 17 regional governments to say that it will draw on a rescue fund set up by Madrid.

The central Spanish region said it would request $1.04bn euros from the $23bn Regional Liquidity Fund, joining Valencia, Murcia and Catalonia, who have collectively requested $3.85bn euros, and Andalucia who has yet to specify how much it needs.

Stocks fell sharply on Thursday, as well as a statement from the Spanish central bank that the country’s economy had continued to shrink in the third quarter of the year as Thousands of protesters rallied near the Spanish parliament for a second straight night on Wednesday.

Spain, the eurozone’s fourth largest economy, fell back into recession in the last quarter of 2011, the second recession since the bursting of the country’s property bubble.

But with a shrinking economy and unrest in the country, reducing the deficit via further austerity measures may prove a difficult task for the government.

On Friday, the government is due to unveil an independent audit of its stricken banks to determine how much capital is needed to reinforce them from further shocks.

The budget and audit “could potentially boost sentiment towards Spain and pave the way for a bailout deal to be agreed”, analysts at Capital Economics said in a note.

“But Spain will still be left with a number of other major problems” in meeting its fiscal targets, securing its banks and fielding pressure from Catalonia, they added.