Moody’s says Spanish regions to miss deficit targets
Moody's warned on Monday that Spain's regions will miss deficit-cutting targets for 2011 and could imperil Spanish efforts to curb the national deficit in 2012.
A newly elected conservative Popular Party government must face up to the regions’ deficit woes when it takes power this month after beating the ruling Socialists in November 20 elections, it said.
The alarm sounded by Moody’s Investors Service echoed a similar report by Fitch Ratings on Friday, which also said the regions could miss their targets as revenues fell in the weak economy.
Official data released last week showed that the belt-tighting in Spain’s 17 regions — of which 11 are governed by the Popular Party — had helped them close in on 2011 deficit targets.
They curbed their combined deficit to 1.19 percent of gross domestic product (GDP) in the first nine months of the year from 1.21 percent of GDP in the second quarter.
The full-year deficit target for the regions is 1.3 percent of GDP.
But Moody’s poured cold water on any celebrations, saying the austerity measures so far were insufficent to prevent the regions missing the full year 1.3-percent target.
“We maintain our forecast that the regions are likely to exceed this target by almost one percentage point, which is credit negative for the Spanish regions,” it said.
Among the factors likely to blow out the full-year deficit:
— Regions spend a big slice of their budgets in the final quarter of the year;
— The central region of Castile-La Mancha has already passed a supplementary budget based on a much bigger deficit than in the third quarter;
— The full-year deficit will include results of regionally owned enterprises, healthcare deficits and European accounting changes likely to deepen the deficit.
Popular Party leader Mariano Rajoy, who is to be sworn in as prime minister December 22, last week called a meeting of regional governments controlled by his party to push for more savings.
“The recently elected Spanish government will have to tackle the regions’ fiscal problems as these problems threaten to incrase national deficit figures in 2012,” Moody’s said.
The agency said central government oversight of regions historically had been “ineffective”. At the same time regions had been blocked from raising money on the debt markets, thereby squeezing liquidity.
“Although the deficit targets for 2011 and 2012 only have short-term significance, they are important in rebuilding market confidence,” Moody’s said.
“Challenging market conditions have already caused regions’ stretched liquidity to deteriorate further and has led to the accumulation of significant commercial debt.”
Under pressure on the debt markets, Spain is seeking to slash its annual public deficit to 6.0 percent of gross domestic product by the end of 2011 from 9.2 percent in 2010.
It aims to narrow the deficit to 3.0 percent of GDP — the limit agreed by European Union members — by 2013.
The public budget in European Union terms comprises the budgets of central goverment, welfare systems and local authorities.