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Fitch says Spain's approval of regional plans positive

Source: Reuters - Fri 18th May 2012
Fitch says Spain's approval of regional plans positive

The Spanish central government's approval of the regions' Economic and Financial Plans (EFP) could contribute to an improvement in their liquidity and market access, but the regions need to deliver on their plans, Fitch Ratings says. And it does not substantially change our view of the fundamental risk for the regions.

The mass approval sends a clear message that Spanish central and regional governments are now in a constructive dialogue, aiming to cut spending by €13 Billion and increase revenue by €5 Billion. Asturias is the only region not to have its EFP approved, but we are much less concerned about its credit profile than that of several other autonomous communities. We consider that the willingness of autonomous communities to pass structural reforms has increased. We also expect the central government to put considerable pressure on the regions to co-operate, in particular through the recent Budget Stability and Financial Sustainability Law. This law pushes regional administrations to cut spending in 2012.

Nevertheless, in the current economic context we consider that there is a risk that potential reforms might have a limited impact on 2012 accounts. This will make it challenging for autonomous communities to meet their 2012 fiscal targets, although we do expect a considerable improvement on 2011. Recent initiatives, such as health care reform, show that the central government is pressing for large cost savings.

We do not yet have details on implementation and consider further measures necessary, especially in light of the difficulty of increasing revenue. The situation in Asturias has been clouded by political posturing and the lack of a regional president. We expect the parliament to appoint a president next week and a return to normality to follow. We consider Asturias a mid-ranking region by credit profile, although its current political volatility reduces its ability to implement austerity measures.

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