Spanish regions’ debt burden surged to a record in the second quarter, adding to pressure on the central government to rein in spending or risk missing the nation’s deficit goal.
The 17 semi-autonomous regions’ outstanding debt burden rose to euro 133.2 billion ($183.7 billion), or 12.4 per cent of gross domestic product, from 11.6 per cent in the first quarter, the Bank of Spain said on its website today. From a year earlier, the debt surged 24 per cent and the outstanding amount has more than doubled since 2007.
Spain’s regions are key to the nation’s efforts to cut the euro area’s third-largest budget deficit as they manage more than a third of public spending, including health and education.
Fitch Ratings downgraded five regions including Andalusia and Catalonia this week, saying debt levels are climbing and the weak economic recovery will undermine revenue.
Spain’s regional governments are behind schedule to meet deficit targets, according to data released last week that Moody’s Investors Service called “credit negative.” Slippage by the regions “adds to pressure on the central government to make the needed cuts to meet the general government deficit targets,” Fitch Director Douglas Renwick said on Tuesday. Risks to Spain’s sovereign rating are “clearly on the downside,” he said.
‘SLIPPAGE’ RISK
“My sense is the central government won’t be able to offset completely the slippage by the regions,” Giada Giani, an economist at Citigroup Inc, said in a telephone interview from London.
The 17 regions posted an average budget shortfall of 1.2 per cent of GDP in the first half, the Madrid-based Finance Ministry said last Thurdsay, citing data that aren’t directly comparable to the figures used in the final deficit calculations. The regions have a target of 1.3 per cent of GDP this year, as part of the overall public-deficit goal of six per cent of GDP for this year, down from 9.2 per cent in 2010.
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The overall public-sector debt load amounted to 65.2 per cent of GDP, the Bank of Spain said today. That compares with the government’s year-end forecast of 67.3 per cent of GDP, which it revised down in April from the 68.7 per cent estimated in the budget.
ELECTIONS
Thirteen of Spain’s 17 states held elections on May 22, adding to pressure on spending. The opposition People’s Party emerged from the vote with control of most regions and has been slashing spending since taking over. The party is also set to win national elections on November 20, polls shows, and opposition leader Mariano Rajoy said yesterday he would push for a new budget stability law and a “binding” spending limit for regional administrations.
The PP would win 44.8 per cent of the vote if elections were held now, giving Rajoy an outright majority in Parliament, the newspaper El Pais reported on Monday, citing a poll.
The Socialists would win 30.7 per cent, according to the poll, which had a margin of error of 3.2 percentage points.