S&P warns of worsening Spanish regional government deficits

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Standard & Poor's, which last month cut Spain's credit rating, warned Monday that the nation's powerful regional governments face worsening deficits.

"We anticipate that, in 2010, Spain's autonomous communities will post the worst consolidated budgetary performance in recent history," said S&P credit analyst Lorenzo Pareja said in a statement.

S&P predicts Spain's regional debt burden could surpass 110 percent of consolidated operating revenues in 2012, up from just 40 percent in 2007.

Spain's regional governments face a period of "sluggish" growth in tax revenues as the country's gross domestic product (GDP) will grow by an average of 0.9 percent over 2010-13, it said.

At the same time S&P said the regions' capacity to rein in spending was surrounded by "uncertainties" given their historically high expenditure growth, their desire to keep ambitious investment programmes and expensive social services.

Spain is highly decentralized with its 17 autonomous communities accounting for around one-third of general government expenditures, according to S&P.

They are responsible for providing essential services like health care, education and social care and account for just over half of the nation's total number of civil servants.

Socialist Prime Minister Jose Luis Rodriguez Zapatero on Wednesday announced austerity cuts worth 15 billion euros over two years in a new bid to shore up Spain's public finances amid fears it could follow Greece into a debt crisis.

The measures include a five percent pay cut for public sector workers from June, a freeze on state pensions and wage freeze from 2011.

The cuts are on top of a 50-billion-euro (63-billion-dollar) austerity package announced in January designed to slash public deficit to the eurozone limit of 3.0 of GDP by 2013 from 11.2 percent last year.

S&P on April 28 lowered Spain's long-term sovereign credit rating to "AA" from "AA+" and said the outlook was negative on fears the country's poor growth prospects could further weaken its public finances.

Spain, which has the eurozone's third-largest deficit after Ireland and Greece, was last cut by S&P in January 2009 when its credit rating was lowered one notch from AAA, the highest possible rating.

© 2010 AFP

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