Spain’s Public Debt Rose Above 2013 Target Last Quarter

Spain’s public debt rose above Prime Minister Mariano Rajoy’s year-end goal last quarter as the nation struggled to emerge from its second recession since 2008.

Borrowings by the euro area’s fourth-largest economy at the end of June rose to 92.2 percent of gross domestic product, or 943 billion euros ($1.3 trillion), the Madrid-based Bank of Spain said on its website today. That compares with 923 billion euros, or 90.1 percent of GDP, at the end of March, and the government’s goal of 91.4 percent by the end of the year.

Spain’s debt load has more than doubled since 2008, when the end of a real-estate boom triggered an economic slump that is now in its its sixth year. The International Monetary Fund predicts the debt-to-GDP ratio will top 100 percent in 2015. The European Commission says it’ll be higher than the euro-area average, forecast to be 96 percent, for the first time in the single currency’s history.

Spain’s debt-to-GDP projections may be subject to “slight” changes after revisions to the medium-term outlook for the deficit, the government said in a document prepared for a Group of 20 meeting last week.

The central government accounted for more than 70 percent of public debt last quarter, while the 17 semi-autonomous regions had 193 billion euros, up 1.9 percent from March, the Bank of Spain data showed today. Debt from Spain’s more than 8,000 town halls was 43.2 billion euros, while the state’s social security welfare system contributed 17.2 billion euros.

Credit Rating

With its sovereign bonds rated between one and two levels above junk by three rating companies, Spain has so far avoided a full bailout, in part due to the European Central Bank’s pledge to defend the euro. The yield on the country’s 10-year benchmark bonds rose 2 basis points to 4.48 percent at 1:27 p.m. in Madrid, compared with a euro-era high of 7.75 percent in July 2012, after it secured EU loans to shore up its banks.

Spain’s credit rating remains under pressure as it’s too early to determine whether the economic crisis has bottomed out, DBRS Inc. Head of Sovereign Ratings Fergus McCormick said in an interview published Sept. 9 by Expansion.

The ECB yesterday said in its monthly bulletin that Spain’s compliance with its general government deficit target is “difficult to gauge” and that it will depend on a stronger recovery of tax bases in the second half of the year.

Reform Focus

EU Economic and Monetary Affairs Commissioner Olli Rehn today said Spain must stay the course of reform even as there are signs of an economic turnaround. Meanwhile the general secretary of Spain’s largest business lobby, CEOE, Jose Maria Lacasa, told reporters in Madrid that the government must stimulate growth and focus budget cuts on current spending.

Rajoy said Sept. 7 that Group of 20 leaders didn’t discuss risk premiums and possible sovereign bailouts when they met in St. Petersburg. They talked about signs of a recovery and prospects that Spain’s recession will end soon, he said. The economy contracted 0.1 percent in the three months through June.

The government predicts growth will return in the second half after eight straight quarters of contraction. Budget Minister Cristobal Montoro said this week Spain is also on track to meet its budget-deficit target of 6.5 percent of GDP in 2013, after the shortfall widened to 10.6 percent last year from 9.4 percent in 2011.

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