Moody's downgrades two Spanish regional governments

21st December 2010, Comments 0 comments

Moody's rating agency said Tuesday it has downgraded its credit rating for two of Spain's 17 regional governments, a week after it warned it may lower the central government's rating.

The New York-based agency lowered its long-term rating on the government of the southern region of Marcia to Aa3 from Aa2 and for the central region of Castille-La Manche to A1 from Aa3, it said in a statement.

The two are the only regional governments struggling with public deficits above 2.0 percent of gross domestic product, according to finance ministry data published Monday.

Spain's central government has set a public deficit target for the regional governments of 2.4 percent of gross domestic product for 2010 as part of measures to rein in spending and soothe market fears that Madrid could need a bailout like the ones given Greece and Ireland.

A rescue for Spain would be far bigger than anything seen to date in Europe: the size of its economy is twice that of Greece, Ireland and Portugal combined.

Finance Minister Elena Salgado said Monday that Spain's 17 regional governments had a combined public deficit during the first nine-months of the year equivalent to 1.24 percent of GDP, a figure which is "perfectly compatible" with the year-end target for regional government debt.

Spain's 17 Spanish regions have considerable autonomy, with the right to issue bonds to finance their expenses.

They account for around one-third of general government expenditures -- and just over half of the nation's total number of civil servants.

Last month the finance ministry said Murcia and Castilla-La Mancha would not be allowed to issue bonds until they brought their finance back on track.

Moody's said its downgrade for Castilla-La Mancha reflects its "expectation of a more significant deterioration than initially forecast in the region's financial performance in 2010 and 2011.

In the case of Murcia, the ratings agency said "the downgrade reflects the continued deterioration in the region's operating performance in recent years".

Last week Moody's, which trimmed Spain's sovereign debt rating from top-notch Aaa to Aa1 in September, said it had now put it on review for a further cut.

The Spanish government aims to slash its public deficit from 11.1 percent of GDP last year, the third highest in the eurozone after Greece and Ireland, to 3.0 percent -- the European Union limit -- by 2013.

© 2010 AFP

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