Spain’s largest region is confident it can meet its budget-deficit goal this year and remains ready to deepen pay cuts to 5 percent if needed, said Catalan finance chief Andreu Mas-Colell.
Catalonia is waiting for the central government to present its budget on March 30 to see how much funding regions will get, he said in an interview. His government must cut its deficit to 1.5 percent of gross domestic product from 3.7 percent last year, when it missed its goal for a 1.3 percent shortfall.
“Can we meet it? Yes we can,” Mas-Colell, 67, said yesterday in his office in Barcelona. “If the income that we get from the central government budget is as we expect it to be, then we will meet the target.”
Spanish regions control over a third of public spending and are crucial to efforts to cut the nation’s budget shortfall, the fourth-largest in the euro area. Prime Minister Mariano Rajoy has now loosened his government’s deficit target for this year, and Citigroup Inc. chief economist Willem Buiter said this week that Spain “is the key country about which I’m most worried.”
Catalonia has cut wages of around 200,000 workers in the public sector by 3 percent and may deepen that reduction to 5 percent from June depending on the outcome of the state budget, said Mas-Colell, who is a former professor at Harvard University and the University of California, Berkeley.
“It’s painful, but reducing public services slightly and reducing public-sector workers’ salaries is preferable to laying people off,” he said. There are no plans to charge patients more for healthcare, he added.
Last year, the regions’ deficit was more than twice their goal at 2.9 percent of GDP, pushing the nation’s total shortfall to 8.5 percent. Spain now targets an overall budget deficit of 5.3 percent this year, compared with the 4.4 percent initially agreed with the European Union.
Catalonia said yesterday it aims to sell 2 billion euros ($2.6 billion) of one-year and two-year bonds yielding 4.5 percent and 5 percent respectively to retail investors from April 2 to meet redemptions as public debt markets remain closed to most Spanish regions.
The central government has created credit lines to help regions meet bond redemptions and pay suppliers, and El Mundo reported yesterday that it may allow regions to issue debt jointly using so-called “hispabonos.”
“It would be a very logical step, as we think it odd the world perceives the autonomous communities as part of the whole of the Kingdom of Spain, yet we are responsible for financing public services and to look for financing without the guarantee of the state,” said Mas-Colell, who has been calling for jointly issued bonds backed by the government since August.
While markets remain shut to regions including Andalusia, which sold bonds to its citizens yesterday, states that do have access face higher borrowing costs than the central government. Madrid, the second-biggest regional economy and the state with the smallest budget deficit, paid 200 basis points more than equivalent Spanish securities to sell 2015 bonds on March 15.
“We have no problem placing our debt but we would like to place them on more favorable terms over a longer time period,” Mas-Colell said.