Moody's downgrades regions in Spain

 

Moody's downgraded the credit rating of four wayward Spanish regions by a notch Friday, saying they had lurched beyond deficit limits set in 2010 and would face trouble in 2011 and 2012.

The New York-based credit rating agency acted a day after it downgraded Spain's sovereign credit, blaming in part spending by the semi-autonomous regions.

Moody's Investors Service cut the long-term ratings of Castilla-La Mancha to A2 from A1; Catalonia to A3 from A2; Murcia to A1 from Aa3 and Valencia to A2 from A1. Catalonia's short-term rating fell to Prime-2 from Prime-1.

The agency posted a "negative" outlook on all four regions, meaning it could cut the ratings again.

"Today's downgrades reflect the wide deviations registered by these regions from the deficit limits set for 2010 and the subsequent difficulties Moody's anticipates they will encounter in controlling their deficit and debt trajectories in 2011-12," the agency said in a statement.

"In addition, the downgrades reflect consistent weaknesses in budget management over the past few years, as illustrated by unreliable forecast budget figures."

The regions had begun to cut costs but had failed to bring spending into line with slumping tax revenue in 2010, Moody's said.

"Given the wide deficits registered in 2010, Moody's notes that the extent of the fiscal consolidation required to reach a deficit-to-GDP ratio of 1.3 percent in 2011 is unprecedented," it said.

Regional elections in May in Castilla-La Mancha, Murcia and Valencia were likely to dissuade their governments from launching cuts to healthcare and education, it added.

The outlook was grim because of Spain's slow economic growth prospects and the uncertainty over whether the regions could borrow at affordable rates on nervous markets to finance their activities.