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Budget data shows "unprecedented efforts" : Rajoy

Source: Bloomberg - Tue 12th Feb 2013
Budget data shows 'unprecedented efforts' : Rajoy

Prime Minister Mariano Rajoy has commented how the government achieved a significant reduction of Spain's budget deficit since replacing the Socialists last year, even as he didn't give a figure for the shortfall.

"Public deficit data for 2012 to be published in the coming weeks will show unprecedented fiscal consolidation efforts have been made," Rajoy said during a news conference in Madrid today. The budget cuts are of "extraordinary merit" in times of recession have removed doubts about the sustainability of Spanish public finances, he said.

Budget data will show how close Rajoy's 5 rounds of spending cuts and tax increases got the shortfall to a target set at 6.3% of output for 2012 by euro-area finance ministers in July.

Spain's deficit goals are 4.5% of GDP for this year and 2.8% for 2014. The Bank of Spain predicts the nation will miss its goals unless it steps up the deepest budget cuts in its democratic history. On the brink of a junk credit rating, Spain escaped a sovereign bailout last year after the ECB's pledge to safeguard the euro lowered borrowing costs.

Debt Auction

Spanish 10-year bond yields fell 7 basis points to 5.36% this morning in Madrid, as the Treasury prepared to sell as much as 5.5 billion of 6-month and 12-month bills. That compares with a euro-era high of 7.75% in July.

Rajoy will meet ECB President Mario Draghi at 4 p.m. at his Moncloa Palace Madrid residence after he speaks to lawmakers and reporters.

A 5-year slump in the euro region's 4th-largest economy has led it to miss all its targets since 2009, when overspending peaked at 11.2% of GDP.

Spain's deficit was the 2nd-largest in the region along with Greece's in 2011, with both nations at 9.4%. Ireland had the biggest budget deficit in 2011.

Economists expect a Spanish budget gap of 8.0% in 2012, in line with the European Commission's forecast, including European aid to recapitalize the banking sector accounting for one percentage point.

Fiscal slippage has fueled a surge in Spain's public debt load which has more than doubled since the end of a real-estate fueled boom in 2008. Eurostat forecasts it'll overshoot the euro region's average next year, at 97.1% of GDP.

Budget Plan

While the Commission's last report in November pointed to risks in Rajoy's 2013 budget plan and recommended more budget cuts for 2014, EU Economic and Monetary Affairs Commissioner Olli Rehn signaled on Jan. 28 he might seek to ease austerity prescriptions for Spain.

The policy recommendations are due in May, after the Commission updates its growth and deficit forecasts on Feb. 22, and EU statistics agency Eurostat releases the first of its bi- annual government debt and deficit estimates in April.

Economists including Ricardo Santos at BNP Paribas say there is a risk Eurostat's numbers will be worse than Spain's data this month. "History tells us deficit numbers tend to be revised up, mostly as a result of late regional data, which tend to show hefty arrears," according to a note co-written by Santos on Jan. 24.

Eurostat reported in August that "significant shortcomings remain" in statistical reporting following an inspection. In October, it revised the 2011 gap to 9.4% of GDP, compared with Spain's initial 8.5% estimate. It also raised its 2010 figure to 9.7% from 9.3%.

The 2010 change was mainly due to unpaid bills not having been reported by regions and town halls, while the 2011 increase also included the reclassification of bank capital injections as their financial situation worsened, it said.

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