Moody's warns on deficit in Spanish regions
Moody's warned Monday that Spain's government will find it "very difficult" to meet deficit-cutting targets because it cannot curb wayward semi-autonomous regions such as Catalonia.
Catalonia, the northeastern region whose capital is Barcelona, has presented a budget for 2011 with a public deficit equal to 2.66 percent of economic output, far above a 1.30-percent target imposed by Madrid.
"This is credit negative and confirms the difficulties that Spain's second-largest region has in curbing its deficit and debt trajectory," said a report by Moody's Investors Service.
"It is also credit negative for the central government as Catalonia's planned deficit overrun spotlights the central government's limited ability to enforce budgetary discipline at the regional level."
Catalonia's defiance complicates the central government's effort to reduce the overall public deficit from 9.24 percent of gross domestic product in 2010 to 6.0 percent in 2011, the rating agency said.
It also showed how difficult it was for regions to cut spending on healthcare and education, the New York-based agency said in its Weekly Credit Outlook.
Even with a 40-percent cut in investment on infrastructure, the region was only able to present a plan to reduce costs in 2011 by three percent from 2010, even as revenues were set to plunge six percent.
The outcome of a heated debate over Catalonia's claims that it is owed money by the central government was still unclear, Moody's said.
In any case, Madrid's options were limited, it said.
The central government could prevent Catalonia issuing new debt but this would only push Catalonia to stop paying suppliers, tightening liquidity further.
"Catalonia's stance clearly shows that the central government does not have effective tools to enforce fiscal compliance at the regional government level," the agency said.
Most likely, Moody's said, the central government would try to beat its own budget-reduction targets this year to compensate. But this was only a short-term solution to a structural problem, the agency argued.
Either central and regional governments would have to work together on the deficit-cutting targets or the central government would have to ensure compliance, for example by introducing a spending limit on regions.
"Failing that, we believe that it will be very difficult for the Spanish government to achieve its ambitious fiscal targets in the current and coming years," Moody's said.
Spain's government has promised to reduce the deficit from 9.24 percent of GDP in 2010 to 6.0 percent in 2011, 4.0 percent in 2012, 3.0 percent in 2011 and 2.1 percent in 2014.
© 2011 AFP