Central Gov't pledges to bail out Regional Healthcare

 

The Spanish government has promised to inject a further €8 billion into the troubled public-health system in 2012, underlining the problems faced with escalating costs at a time when the country is struggling to reassure investors that a bailout will not be required.

The regions cover the costs for free health-care services and prescription drugs, which currently make up the second-biggest government cost after pensions. Spending on Health-care has increased by 10% annually since 2002, standing at €70 billion last year.

The massive deficit in the public health system have grown more problematic due to falling revenues gained from taxes as a result of the ailing economy overall. Suppliers to the sector claim they are owed around €12 billion and that average settlement of debts often takes as much as 2 years, which worryingly the government does not dispute.

Central government's pledge to give more funds to the health system in its 2012 budget seems to avoid the major issue here of reigning in the increasing debt of the regional governments.

Moody's have commented on the measure being just a short-term fix that the country can not afford, as central government attempts to cut public-sector deficit from 9.3% of GDP last year to 3% by 2013. Worries surrounding Spain's finances, along with the worsening financial crisis in Greece, have sent the yield premium on 10-year Spanish debt over benchmark German bonds-a reflection of perceived risk of a Spanish default-steadily higher in recent weeks.

Moody's downgraded Spanish sovereign debt to Aa2 in March, with a negative outlook from Aa1 previously, citing concerns about the state of regional finances, among other things.