More bad news and “slippage” in Spain says Moody’s.———
Madrid, June 28, 2011 — If Spanish regions do not take further steps to achieve sustainable improvements in their fiscal positions, their ratings will come under downward pressure, Moody’s Investors Service cautions in a new Special Comment published today.
Moody’s believes that several of Spain’s regional governments are likely to exceed the 2011 deficit targets of 1.3% of GDP. The main drivers of this view are the regions’ overly optimistic budgeted revenue forecasts; the difficulties they face in controlling rigid spending in healthcare and education; and the unwillingness among some regions to take fiscal consolidation measures prior to the May 2011 regional elections. If the regions do not implement new measures, Moody’s estimates that the overall regional deficit would deviate by an additional 0.75% of GDP from the initial target of 1.3%. Moreover, longstanding payment arrears in the healthcare sector and the need to alleviate liquidity tensions in the current funding environment have resulted in growing payables in many Spanish regions, which Moody’s views as credit-negative.
Like last year, Moody’s expects the regions it rates to continue to fall into two groups: (i) those in the single-A rating category (namely, Castilla La Mancha, Catalunya, Murcia and Valencia) which deviated widely from the deficit limit last year and are expected to again face significant difficulties in controlling their deficit trajectory in 2011; and (ii) those in the Aa category (Andalucia, Castilla y Leon, Extremadura, Galicia, Madrid and Basque country) which either complied with deficit targets last year, or registered only a limited deviation from them, and are in a reasonable position to reach the deficit target this year. However, Moody’s also expects some regions in the latter group to experience tighter liquidity positions and growing commercial debt, thus adding pressure to their ratings.
Moody’s Special Comment provides an update of the rating agency’s view of the fiscal situation in Spain’s regions and the likely implications for their ratings. The new report is entitled “Spain: Continued fiscal slippage among Spanish regions would have negative ratings impact” and is now available on www.moodys.com.
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