Tuesday, May 28, 2024

Need For Financing Autonomies Will Break A Record In 2021

The autonomous communities will need more money than ever to finance themselves next year : about 50,000 million euros, according to the estimates of the Afi consultancy.

This amount includes both the maturities and repayments of the debt that the regions must satisfy in 2021 as well as the largest deficit that they will have to finance due to the pandemic, 1.1% of GDP according to the Government’s forecasts.

The figure also includes the bill incurred during the previous financial crisis, a burden that continues to weigh on the autonomies after more than a decade.

Spend, spend and spend. The slogan was clear: in the midst of an unprecedented crisis, with restrictions on activity and in view of the need to strengthen health systems and public benefits, we must not skimp on outlays.

This maxim has permeated the policies of all the major economies of the world, which have mobilized millionaire resources to prevent the virus from causing structural damage to the productive fabric.

Spain has also jumped on the expansive bandwagon and, for now, the countercyclical measures are plugging the bleeding. But the scar that the pandemic will leave on public accounts will be deep and will take time to heal, since it will not be easy or fast to get rid of the mountain of debt and deficit that the Public Administrations have accumulated to face the biggest blow since the Civil War. .

The recently approved Budgets foresee net Treasury emissions of 110,000 million in 2021. This figure, which is always calculated with caution based on estimates of new expenses, income or needs of the communities, will also take into account next year arrival of European aid and will be added to the huge amount of liabilities already put into circulation this year.

According to the Government, the debt-to-GDP ratio will go from 95.5% in 2019 to 118.8% in 2020, the highest in a century. Even so, the forecast is that the average cost of debt will continue to fall next year thanks to ultra-low rates, which will prevent it from becoming, for the moment, an unsustainable burden.

The communities, in the front line to contain the health emergency, will need more than 50,000 million to finance themselves in 2021, according to provisional calculations by International Financial Analysts (Afi).

Some 36,600 million correspond to maturities and amortizations, a figure similar to that of 2020, 14,000 million to cover the largest deficit and about 900 million to the negative settlements of 2008 and 2009 that the regions dragged from the previous financial crisis.

Catalonia, the Valencian Community and Andalusia will be, for yet another year, the regions that will require the most resources in 2021; Navarra, Cantabria and La Rioja the least. “It is a historical record of gross debt, but the deficit component is uncertain and will depend on the economic evolution,” says César Cantalapiedra, partner of the consulting firm.

The Government, in line with the decision of Brussels to freeze the Stability and Growth Pact in the face of the virulence of the crisis, has suspended the fiscal rules for 2020 and 2021. Instead of approving a mandatory path – which marks the maximum limit of imbalance -, has set non-binding reference rates.

In the case of the communities, this is 2.2% of GDP by 2021, although the Treasury has promised to assume half of the gap through an extraordinary transfer of 13,486 million.

This year, communities have enjoyed an unprecedented flow of money to ensure critical services without cash strain. In fact, the Treasury kept the amount of installments on account – which advances to the regions based on expected income – calculated before the outbreak of the pandemic, 115,662 million.

To this figure must be added other extraordinary transfers, such as the covid-19 fund of 16,000 million that will not have to be reimbursed to the State. In 2021, regional financing will provide slightly less resources (113,729 million), but the difference will be more than compensated with the aforementioned provision to cover part of the deficit and other funds from European aid.

The adjustment will come in 2022, when the accounts will have to be balanced. The current financing model foresees that every two years it is reviewed if the communities received more or less resources than they owed, depending on whether the income has been higher or lower than the forecasts.

If these have fallen short, the regions have a positive settlement; on the contrary, if the performance has been worse than expected, they return the excess received to the State.

The fact that the Government kept the tap open in 2020 – the resources were calculated based on a rise in GDP of 1.6%, when the fall now forecast by the Executive is 11.2% – will imply that in 2022 the communities return to the State what they have received too much.

Airef has already put numbers to this reimbursement: about 5,000 million. The question is how that money will be refunded. In the case of the Great Recession, the repayment was stretched over time, and therefore in 2021 the regions continue to pay the negative settlements of 2008 and 2009.

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