Fitch Ratings downgraded the credit rating of eight deficit-laden Spanish regions including Madrid last Thursday as a recession bites and they struggle to access long-term financing.
Spain’s regions are pivotal to rein in mushrooming sovereign debt
Spain’s powerful regions, which fund education and health, are pivotal to the country’s efforts to slash annual public deficits and rein in mushrooming sovereign debt.
“The rating actions reflect the negative economic and market environment in Spain, which has resulted in depressed fiscal revenues,” Fitch said in a statement.
It cited, too, “structural fiscal deficits of the regional administrations, which will require considerable additional efforts to be reduced, and also the difficulties in accessing long-term funding.”
Downgraded regions were Madrid, Catalonia, Andalusia, Asturias, the Basque Country, Canary Islands, Cantabria and Murcia. Among the hardest hit, the northeastern Catalonia region’s long-term credit rating was slashed by two notches and left on BBB-minus, one notch above junk-bond status.
All were left with a negative outlook in view of the Spanish economy’s troubles.
The regions are blamed for much of Spain’s deficit slippage last year, when the country missed its target of keeping the deficit to six per cent of economic output and let it slide to 8.9 per cent.
As the central government battles to slash the shortfall to 5.3 per cent of output this year, and three per cent in 2013, it is stepping up pressure on the regions to fall in line. The government has ordered them to cut their deficits from 2.94 per cent of gross domestic product to 1.5 per cent in 2012.
Spanish municipalities and regional governments have built up heavy debt loads following the collapse of a property bubble in 2008 that fuelled growth for over a decade.
“Regions still face significant financing pressure in 2012 as a large proportion of debt falls due in the second half of the year,” Fitch said in its report.