Budget Minister Cristobal Montoro said borrowings of 186.1 billion euros ($248 billion) this year will take the debt-to-GDP ratio to 79.8 percent from 68.5 percent in 2011, well above the EU 60 percent limit.
"Spain is a critical situation. That is what we're trying to address," he told a news conference after delivering the conservative government's cost-cutting budget for 2012 to parliament.
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The country's public debt ratio will still be below the average 90.4 percent of Gross Domestic Product expected for the entire 17-nation eurozone, he added.
But it has grown without interruption since the first quarter of 2008 when, after nearly a decade of fast growth and budget surpluses, the national accumulated debt amounted to just 35.8 percent of GDP.
Adding to the strain on public finances, the number of people out of work rose for the eighth straight month in March as Spain headed back to recession with the economy expected to shrink 1.7 percent this year after expanding 0.7 percent in 2011.
The number of workers registered as without work climbed 0.82 percent from February to 4.75 million, the highest figure since the current statistics series began in 1996, the labour ministry said.
The 2012 budget -- approved by the cabinet on Friday -- includes 27 billion euros in tax increases and spending cuts aimed at slashing the annual public deficit to 5.3 percent of output this year from 8.5 percent last year.
It closes tax loopholes and rebates for large companies and freezes wages of public sector employees but spares jobless benefits and pensions amid growing public anger at the dire economic situation.
Spain is racing to slash its public deficit to reassure markets that it will not follow Greece, Ireland and Portugal in needed an international bailout after it missed its public deficit target last year.
"Faced with the market tensions, Spain has no option but to clean up its finances and reduce its deficit," said Jose Carlos Diez, analyst at Intermoney brokerage.
The country's debt-servicing costs this year are expected to be 28.8 billion euros, the equivalent of 2.75 percent of GDP, far lower than other troubled eurozone nations like Portugal, Greece and Italy, he added.
"Spain does not have a debt problem, it has a deficit problem," said Diez.
Some economists warn that the steep spending cuts will cause unemployment to rise at a faster pace.
"Today's Spanish data show that the labour market continues to deteriorate quite rapidly. There is still no respite in view, particularly given that the accelerated pace of fiscal consolidation has yet to fully bite," said Julian Callow, head of European economics at Barclays Capital in London in a note.
Spain's unemployment rate, released quarterly by the national statistics institute and which includes registered and unregistered unemployed, stood at 22.85 percent at the end of 2011 with 5.27 million jobless.
The government expects the jobless rate -- already the highest in the industrialised world -- to hit 24.3 percent this year as the economy continues to reel from the collapse of a property boom in 2008.
To fight unemployment, the government passed a labour reform package last month which makes it cheaper and easier for companies to lay people off and cut wages unilaterally.
It argues the reform -- which is hotly contested by unions -- will spur job creation in the long term as it will make Spanish labour competitive even though unemployment will rise in the short term.
Unions argue the reform eliminates hard-won rights and will only increase unemployment and on Thursday staged a general strike against the government's measures.
