Fitch downgrades five Spanish regions
Fitch Ratings on Wednesday downgraded the credit of five Spanish regions, including the powerhouse of Catalonia, warning they will struggle to cut deficits in a weak economy.
The red ink running through the accounts of Spain's regional governments is a major concern for the markets, which fear it could compromise the central government's goal to cut the annual public deficit.
Fitch cut the ratings of Catalonia, Andalusia, the Canary Islands, Murcia and Valencia a week after official figures showed most regions missed their deficit targets for the first half of 2011.
Lower credit ratings tend to make it more expensive to borrow on the debt market.
Fitch also kept the long-term outlooks on all of them at "negative."
The budget deficit for the 17 regions amounted to 1.2 percent of gross domestic product in the six months -- already nearly reaching the full-year target of 1.3 percent, the government said last week.
"Fitch Ratings has downgraded five Spanish regions following a comprehensive review," the credit rating agency said in a statement.
"The downgrades reflect the sharp fiscal deterioration seen in recent years which has led to sharp increases in debt levels."
The agency said it believed the regions would take all possible steps to cut spending but it expected the weak economic recovery would limit any growth in their revenue.
Prime Minister Jose Luis Rodriguez Zapatero tipped economic growth in the third quarter of this year would be "similar" to the 0.2-percent quarterly rate recorded in the second quarter.
Uncertainty because of the Greek debt crisis could impact that prediction, he warned.
"Fitch is of the opinion that 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," the agency said.
Fitch said it expected that most regions would be able to break even on their annual budgets by 2013 given a renewed focus on spending cuts.
"Nonetheless, the negative outlooks reflect the still difficult fiscal and economic environment and the execution risks in implementing some of the cost cutting measures announced," it said.
Fitch trimmed the rating for Andalusia and the Canary Islands by one notch each to A-plus from AA-minus; Catalonia and Valencia by one notch each to A-minus; and Murcia by two notches to A.
The overall accumulated debt in the 17 Spanish regions -- 121 billion euros - is also a concern. Deepest in debt are Valencia, with a debt equal to 17.4 percent of GDP, and Catalonia at 17.2 percent.
Spain is seeking to slash the total public deficit to 6.0 percent of gross domestic product by the end of 2011 from 9.2 percent in 2010. It aims to reach the EU-agreed ceiling of 3.0 percent by 2013.
© 2011 AFP