Moody's says deficit outlook grim for Spain regions

12th September 2011, Comments 0 comments

Moody's warned Monday that Spain's regions will not meet their deficit-cutting targets despite asset sales and new government measures to boost home sales.

Most of the powerful regions missed deficit targets for the first half of 2011, latest figures showed last week.

The overall budget deficit for the 17 semi-autonomous regions amounted to 1.2 percent of gross domestic product in six months -- already nearly at the full-year target of 1.3 percent.

"Such poor results at the year's halfway mark reflect the regional governments' inability to rein in spending aggressively enough to address their structural deficits," Moody's Investors Service said in a report.

"The document underlines our view that this year regional governments will not reach the deficit target they agreed to with the central government," it said.

Moody's noted government measures announced in August to stimulate the housing sector by halving value added tax on new home purchases to 4.0 percent from 8.0 percent until the end of this year.

Spain's regions had taken a hit from lower collections of property transfer tax as the sector still struggled to recover from the 2008 property bubble collapse, it said.

The temporary cut in VAT may help drive up property transfer tax collections in the second half of this year and reduce the stock of empty homes, the New York-based agency said.

"But offsetting the negative results of the first half will be difficult," it warned.

"Furthermore, the sale of assets to generate revenue is unlikely to help the regions reach their goals, given that just five percent of the 2 billion euros ($2.7 billion) in assets for sale by the regional governments has actually been sold," the agency said.

"Some of these sales will materialise in the second half, but overall they will likely remain well below initial estimates."

The overall accumulated debt in the 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.

Moody's renewed an earlier warning that the central government will be forced to offset the poor performance by the regions by outperforming its own deficit target.

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.

On July 29, Moody's downgraded by a notch the credit rating of six Spanish regions, including the powerful Catalonia region, due to "the deterioration in their fiscal and debt positions."

© 2011 AFP

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