Fitch Ratings says in a newly published comment that it has some concerns about the Q111 budgetary results for the Spanish regions, as published by the Ministry of Economy. Certain regions have yet to show evidence of reining in expenses sufficiently to achieve the target deficits of 1.3% of national GDP for the year. Although it is too early to assess whether all regions will be able to comply with the deficit limits, results to date show that overall current revenues are continuing to drop, compared to the same period last year, and current expenditure to rise.
At present, Fitch has a Negative Outlook for all ten rated Spanish autonomous communities as their credit quality has been deteriorating over the past years following the economic contraction and reported high deficits. Important elements that would enable a revision of the Outlook to Stable would be full compliance with the Economic and Financial Plans, containment of the increase in debt experienced in recent years and a return to a positive current balance.
Spanish regions are responsible for the delivery of essential social services, such as health care and education. The provision of these services has increased rapidly in recent years. The audits of regional finances announced by the new ruling right-of-centre party may bring to light "hidden" deficits, in some regions, which could make the situation of complying with the target more complicated. Fitch will view with concern the reliability of the reporting and accounts if, subsequent to these special audits, a number of regions declare a higher deficit than has so far been recorded.
The aggregate deficit before financing of all 17 autonomous communities for Q111 amounted to EUR4.995m, which is the equivalent of 0.46% of GDP against a target of 1.3% for the whole year. Madrid recorded the largest deficit with EUR1.180m (0.6% of its GDP), followed by Andalusia with EUR1.103m (0.75% of its GDP).
Whilst Fitch acknowledges that certain regions have made considerable efforts to cut back expenditure, more work will needed to achieve the targeted overall deficit for the year. Nevertheless, only ten regions reported a lower percentage growth in current expenditure for Q1 compared to the same period last year. Fitch would have expected a higher number of regions to have made greater efforts to control expenditure
Overall, current revenues have shown a slight decrease compared to the previous quarter (-1.42% for all 17 autonomous communities). However, on an individual basis the results range from a modest increase of 0.86% in La Rioja to sound 9.9% growth in the Basque Country. Nine regions reported a drop in current revenues with the most significant being Navarra and the Balearic Islands with over 11% each.
