May 11, 2017 / 8:12 AM / 7 months ago

Fitch: Transfers Boost Spain Regions in 2017; Debt Still Rising

(The following statement was released by the rating agency) BARCELONA/LONDON, May 11 (Fitch) Additional central government funding will support the Spanish autonomous communities' financial performance in 2017, but will not stop their debt from rising in the absence of structural reform of the regional financing system, Fitch Ratings says. Last month's review of the central government draft budget law allocates an additional EUR4.4 billion to the 15 autonomous communities funded under the so-called 'common system' (ie all apart from Navarre and the Basque Country) in 2017, compared to the initial allocations announced in October last year. The latest allocations include the updated tax settlement that takes into account the difference between projected and actual revenues for 2015. Transfers from central government to the autonomous communities will total EUR99.8 billion this year, up 5.7% from last year. This removes the risk that the new Spanish government formed last year would seek to reduce transfers, which typically account for 75%-80% of the autonomous communities' current revenues. Additional transfers are not distributed uniformly, but the aggregate increase means current revenues will be on average 3.17% higher (and a minimum of around 2.5% higher) than was envisaged in October. The Canary Islands will benefit from a 6.2% increase as a result of receiving certain non-earmarked transfers for the first time in 2017. This will support a further improvement in budgetary performance, building on the outturns seen in 2016. Preliminary 2016 accounts published in March show that the Spanish autonomous communities reported a negative current balance of EUR2.3 billion, or 1.7% of current revenue, in 2016, a sharp improvement from 2015's EUR11.5 billion. This was due partly to transfers from central government from the tax settlement of 2014, partly to lower-than-expected current spending growth, and also reflected central government's interest subsidies on the autonomous communities' borrowing. <iframe allowfullscreen src="// 2?src=embed" title="Spanish regions 2017 current margins version 2" width="780" height="687" scrolling="no" frameborder="0"> The increase in transfers in 2017 reinforces our view that the sector could report its first positive aggregate current balance since 2009 this year. GDP growth and an improving labour market should translate into a positive tax settlement in 2019. However, potential positive current balances will not reverse the trend of rising direct debt, which has climbed to EUR263.3 billion in 2016 from EUR59.1 billion in 2006, although the pace of debt accumulation should slow. We think that higher revenues will prompt an increase in spending rather than deleveraging (we think that the central government's review of the size of tax allocations is conservative given Spain's rate of economic growth, in order to contain the risk of sharp spending increases by the regions). Current expenditure may rise as regional governments seek to boost social spending after several years of austerity, while capital expenditure, which has also been scaled down in recent years, may also bounce back. High debt would present a risk to current margins if interest rates rose from their very low levels. Interest costs amounted to around 2% of total debt outstanding last year, a historical low, mainly due to low rates on central government liquidity facilities. The importance of central government liquidity support is reflected in our 'BBB-' rating floor for the autonomous communities (the floor is currently suspended for Catalonia). The draft budget maintains the EUR25 billion of funding allocated to the central government's liquidity mechanisms in support of the autonomous communities for another year. We believe that bringing down debt will depend on the reform of the regional funding system and the allocation of spending responsibilities between central and local governments. However, this appears to still be a distant prospect, with a government commission not due to report until the end of this year. In the absence of structural funding reform, the availability and functioning of state liquidity support will remain a key part of our credit analysis. Contact: Patricio Novales Associate Director, International Public Finance +34 93 323 8417 Fitch Ratings Espana S.A.U. Avenida Diagonal, 601 08028 Barcelona Guilhem Costes Senior Director, International Public Finance +34 93 323 8410 Mark Brown Senior Analyst, Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Related Research Spanish Autonomous Communities: Preliminary 2016 Results here 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. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below