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Fitch: Basque Government Likely to be Major Beneficiary of Extra Funding
June 1, 2017 / 8:10 AM / 4 months ago

Fitch: Basque Government Likely to be Major Beneficiary of Extra Funding

(The following statement was released by the rating agency) BARCELONA, June 01 (Fitch) Fitch Ratings says the Spanish central government's decision to return the disputed funding to the Basque public sector, as well as to reduce the yearly transfer of the Basque public sector to the central government, will benefit the regional government (BBB+/Stable) and, to a lesser extent, its three Historical Territories. On 17 May, the Ministry of Finance and Civil Service published its agreements (i) to return EUR1.4 billion to the Basque public sector (including the regional government, the three Historical Territories and the municipalities over a five-year period for previous overfunding), and (ii) to reduce for 2017 the annual contribution from the Basque public sector to around EUR1.3 billion (from an initial budget of EUR1.525 billion in 2016). Annual contributions are thereafter subject to a series of complex adjustments and final contributions might vary significantly. Those amounts will be distributed among the different layers of the Basque public administration, based on the mechanisms of financial agreement in place. The agency is not aware of the final breakdown between the different administrations but believes that the regional government would be the main beneficiary, potentially receiving as much as EUR1.1 billion or EUR200 million pa over a five-year period (10% to be received in 2017, 15% in 2018, 20% in 2019, 25% in 2020 and 30% in 2021), with the three Historical Territories receiving the remainder. This extra funding initially estimated at EUR1.1 billion means the regional government could outperform our expectations as regards fiscal performance, with an operating margin above 5% for 2017 versus our forecast of 4.3%, contrasting with the Basque country posting an operating performance below expectations in 2016. Although the three Historical Territories (A/Stable/F1) are likely to receive a smaller share of the transfer, they are under less spending pressure than the regional government and may therefore still improve their savings. Fitch revised the Outlook of the Basque Country (BBB+/F2) to Stable from Positive on 3 March 2017, after improvement in its fiscal performance was slower than what we had expected in September 2014. Debt also increased sharply to EUR8.7 billion at end-2016, from EUR7.7 billion at end-2014. Fitch will assess the impact of this additional expected funding in its next review, and how it will affect the expenditure and savings of the Basque government. The general administration of the Basque government has a budget of about EUR10 billion and is mainly in charge of healthcare and education, while the bulk of its funding comes from the taxes collected by the three Historical Territories. Finally, it remains to be seen if and how this large additional funding to the Basque public sector will impact the upcoming review of the financing model of autonomous communities. Contact: Guilhem Costes Senior Director 34 93 323 8410 Fitch Ratings Espana, S..A U..) Av. Diagonal, 601, Barcelona 08028 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: pilar.perez@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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