Salgado Says Surge in Interest Costs Is Within Budget Forecast

Spanish Finance Minister Elena Salgado said a surge in the country’s interest costs won’t put the deficit target at risk as the budget includes “very conservative” estimates for financing costs.

“Our budget is based on a very conservative estimate,” Salgado said in a telephone interview today in Madrid. “Traditionally, we have never needed to use the whole amount that’s allowed for in the budget.”

Spain’s 10-year bond yield surged to the highest in a decade last week on increasing expectations of a Greek default, and the Treasury paid more than 6 percent on average to sell 15- year bonds. The Socialist government is fighting to shield the economy from the contagion of the sovereign debt crisis with the deepest austerity measures in three decades, changes to labor rules and asset sales.

The sale of state lottery operator Sociedad Estatal Loterias y Apuestas del Estado will be an “extraordinary success,” Salgado said, even after Telefonica SA, the country’s largest phone company, pulled an initial public offering for its call center business on June 10, citing market conditions. The listing is expected in the first week of November, she said.

Even as interest costs surge, Salgado said she is sticking to her forecasts for economic growth of 1.3 percent this year and 2.3 percent in 2012. First-quarter GDP “doesn’t contradict” the government’s forecast, she said.

She also expects regional governments to meet their joint budget-deficit target of 1.3 percent of GDP this year. That shortfall, together with the central government’s deficit and the balance of the social security system, makes up the total public-sector deficit that is targeted at 6 percent of GDP this year, down from 9.2 percent in 2010.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net

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