Spain revises 2011 deficit upwards as regions weigh

 

Spain was forced to revise its 2011 budget deficit upwards on Friday, after three of the country's regions restated their own figures, exposing the struggle the autonomous communities have had curbing spending even ahead of deeper cuts this year.

Spain said its 2011 public deficit now came in at 8.9% of GDP, up from the 8.5% initially stated. The country had already widely overshot its deficit target of 6% for last year.

The change comes as Spain is racing to restore confidence in its banks and reassure investors spooked by euro zone fears that it can meet ambitious spending targets.

The country's treasury department, which disclosed the new figure late on Friday, said Spain was sticking by its 2012 budget deficit target of 5.3% of GDP, despite the setback with last year's numbers.

The move came after three of Spain's 17 regions - Madrid, Valencia together with Castilla and Leon - earlier revealed in their budget plans for this year that their own 2011 budget deficits were higher than initially stated.

The central region of Madrid said it finished 2011 with a deficit of 2.2% of GDP, rather than the 1.13% it had initially released. Valencia's budget deficit came in at 4.5% at the end of 2011, instead of 3.78%.

Castilla and Leon's deficit was also slightly higher than previously stated.

The 3 regions are among the most important in Spain - Madrid is the 2nd largest by GDP, and Valencia the 4th.

Though the autonomous communities have already struggled to rein in spending, deeper cuts now loom, after the central government on Thursday approved their plans to cut spending by €13 billion euros and increase revenue by €5 billion.

Of the 17 highly-devolved regions, only Asturias, in the north-west of Spain, had its budget rejected, meaning it will have to present a new one for approval.

The communities' commitment to savings this year will be crucial for Spain to get its overall budget on track.

Fitch said on Friday the government's approval of the regions' budget plans was positive, adding that the willingness of autonomous regions to pass structural reform had increased, but warned there was still a risk they could yet miss 2012 targets.

"We ... expect the central government to put considerable pressure on the regions to cooperate," the rating agency said. "Nevertheless, in the current economic context we consider that there is a risk that potential reforms might have a limited impact on 2012 accounts."