Spain’s debt grows as regions struggle to control finances
Spain’s public debt rose 16.5% in the second quarter of this year compared with the same period in 2010, according to Bank of Spain data. The overall public debt was €702.8bn equivalent to 65.2% of GDP, above the eurozone’s 60% of GDP limit.
There was a rise in indebtedness across all public sectors with the debt of 17 autonomous administrations reaching €133.17bn, equivalent to 12.4% of GDP. The regions’ debt rose 7.98% compared to the first six months of 2010. The central government debt rose to €531.99bn or 49.4% of GDP.
Controlling the autonomous regions’ debt is traditionally difficult for the central government, but it is crucial to government efforts to cut the public deficit and public debt.
Earlier this week, Fitch Ratings downgraded five Spanish regions, Andalusia, Catalonia, Murcia, Valencia and the Canary Islands, following a comprehensive review. The agency will publish shortly a review of the remaining five Fitch-rated Spanish regions, but the long-term outlooks for all 10 autonomous regions are negative, it said.
The downgrades reflect the sharp fiscal deterioration seen in recent years which has led to big increases in debt levels. While regional governments are reining in expenditure, the weak economic recovery will limit fiscal revenue growth, the agency said.
According to the ministry of economy and finance, aggregate revenues for the first six months of the year for all Spanish regions are estimated to have declined by 3.59% compared to the same period last year. The regions have reported an aggregate deficit of 1.2% of GDP close to a 1.3% limit for the full year.
“Considerable efforts will still need to be undertaken by the regions, particularly in the area of cost control to ensure adherence to the established limits,” Fitch said.
The agency expects the majority of the regions to report at least a break-even current account balance by 2013. This should be achievable given the recent greater focus on the control of expenditure by the autonomous communities, though there are “execution risks” in implementing some of the cost cutting measures announced.