Eight Spanish regions will bust deficit limits: report

26th November 2010, Comments 0 comments

Eight of Spain's 17 autonomous regions expect to bust government-imposed public deficit targets for 2011, sowing doubt over the country's finances, the daily El Pais said on Friday.

Financial markets are deeply concerned about whether fragile Spanish regions, which enjoy a large degree of political autonomy, will be able to meet deficit-cutting targets set by Madrid.

Citing budget plans presented by 15 of the 17 regions, the paper said that eight had incidated they would not meet Madrid's request to trim their deficits to 1.3 percent of total economic output.

Among hardest-hit regions: the western region Extremadura was set for a deficit equal to 2.30 percent of output, southern Andalusia 1.55 percent and northern Navarra 1.53 percent.

"This is casting uncertainty over the necessary improvement in fiscal imbalances," the leading centre-left daily said.

Spain's Socialist government has committed to slash its public deficit, which grew to 11.1 percent of gross domestic product in 2009: it is aiming for 9.3 percent in 2010, six percent in 2010 and then three percent in 2013.

The deficit run up in the regions was equal to 1.92 percent of GDP in 2009. Madrid wants regions to limit the deficit to 2.4 percent in 2010 and 1.3 percent in 2011.

Spanish Finance Minister Elena Salgado met policymakers of the 17 regions on Wednesday to remind them of the targets and to request economic updates each quarter.

She also showed the red card to the regions of southeastern Murcia and central Castile-La Mancha: because they have a "significant risk" of being unable to meet their deficit targets in 2010 they will not be allowed to issue bonds until they are back on track.

Rating agency Moody's Investors Service downgraded five regions in June and in past weeks did the same to the eastern regions of Catalonia and Valencia, while warning of possible downgrades for three others.

Spain has a highly decentralised system of government and budget management. The country is a member of the eurozone as well as of the European Union for which budget ceilings are based on the so-called public deficit. This measure covers the state, welfare and also local authority budgets.

© 2010 AFP

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