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Spain to Cut Borrowing by 25% Next Year

Source: AFP - Wed 29th Dec 2010

Spain is on course to cut net borrowing from bond markets by almost 25% next year, the Treasury announced today, as it fends off fears concerning the market, comparable to the crisis in Ireland.

Investors have expressed concern over the annual deficit of the Spanish government accumulating, together with its reliance on the bond markets, leading them to demand ever higher returns.

A rescue package for Spain would be far bigger than anything seen to date in Europe: the size of its economy is twice that of Greece, Ireland and Portugal together.

Spain's Treasury said it had managed to cut borrowing from markets in 2010 and would do so again in 2011 because of austerity measures adopted by the government.

For 2011, the Treasury estimated net financing needs of 47.2 billion euros - a decline of 24 % from this year.

But the figure was slightly higher than previously announced because of the country's 3.588-billion-euro contribution to a European financial rescue for Greece.

Net bond issues in 2010 amounted to 62.1 billion euros, compared to the 76.8 million euros forecast at the start of the year, the Treasury said in a statement. It was a sharp decline from the 116.7 billion euros in net bond issues for 2009.

Financing needs declined in 2010 "because of the fiscal austerity measures put in place by the government mid-year to strengthen the stabilisation of public accounts."

To improve transparency, the Treasury said it would publish its bond financing programme on a monthly basis instead of each quarter so as to enable it to adapt issues according to market needs."

Prime Minister Jose Luis Rodriguez Zapatero's Socialist government adopted a cost-cutting programme in 2010 to battle the financial crisis, setting a goal of reducing the annual deficit to 6 % of gross domestic product in 2011 compared to 9.3 % in 2010 and 11.1 percent in 2009.

Finance Minister Elena Salgado has said partial privatisations including of the airport operator and national lottery will allow the government to further reduce net bond issues in 2011 by a third to about 30-31 billion euros.

Those sales have yet to be completed, however, and are not included in the latest Treasury forecasts.

Rating agency Moody's Investors Service has warned it may downgrade Spain's credit, warning that Spain may have to raise 170 billion euros from the markets next year including rolling over existing debt.

In addition, Spanish regions needed another 30 billion euros in refinancing in 2011, it said. And banks had another 90 billion euros of debt to refinance that year, said the agency.

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