The OECD considers the Catalan Government’s public debt to be “relatively small [...] compared to its spending responsibilities”

The Organisation for Economic Cooperation and Development’s Senior Economist for Spain thinks that the Catalan Government’s budget cuts are going “in the right direction”. He also denied that the Autonomous Communities’ deficit puts Spain solvency’s at risk.

CNA / Albert Segura

July 5, 2011 12:32 AM

Paris (ACN).- The Organisation for Economic Cooperation and Development (OECD) judges Catalonia’s public deficit and the rest of the Spanish Autonomous Communities to be “relatively small […] compared to their spending responsibilities” and devolved powers. The OECD’s Senior Economist Andrés Fuentes, the organisation’s main analyst on Spain’s economy, assures that the Autonomous Community Government’s deficit does not put Spain’s solvency at risk. Last June, the Bank of Spain put the blame on the Autonomous Community Governments for having reached an historical record regarding its public debt levels; the debt of the regional governments in Spain represented at the end of March 2011, 11.4% of Spain’s GDP, while these administrations are responsible for around 40% of all public spending, in charge of main basic services such as healthcare, education and social policies. Regarding Catalonia, Fuentes stated that the Catalan Government’s budget cuts, through which public spending has been reduced by 10% in 2011 are going “in the right direction”. Catalonia’s public deficit was in 2010, 3.86% of its GDP and the accumulated public debt represents 17.2% of its GDP (34.3 billion euros), although Catalonia has more devolved powers than other regional governments. It must be noted that Catalonia is giving in terms of inter-regional solidarity (the money it gives to poorer regions within Spain) around 9% of its GDP, which represents some 18 billion euros per year.

The OECD acknowledged that some Autonomous Communities “are involved” in reducing the current deficit and are adopting “important measures to cut spending” and “improve the budget situation”. “We don’t think there is something to fear about the solvency of Spain’s public finances”, stressed Andrés Fuentes, OECD Senior Economist working on Spain’s economy. The 10% reduction of the Catalan Government’s budget in only one year “shows that the Autonomous Communities are being pro-active” and “they are progressing” in order to put their house in order, explained Fuentes.

The OECD’s Senior Economist continued by underlining that “compared to the spending responsibility the Autonomous Communities have, the weight of their own public debt is relatively small, the main part [of Spain’s public debt] belongs at State level” (not the regional level, but at Spanish Government level), explained Fuentes.

The Bank of Spain released the data corresponding to first quarter of 2011 two weeks ago. The Autonomous Communities were responsible for 17% of Spain’s entire public debt, the equivalent of 11.4% of Spain’s GDP. In absolute terms, the regional government debt in Spain totals 121.4 billion euros. The objective for 2011 is to reach a total deficit for all the administrations of 6% of Spain’s GDP (4.4% for 2012 and 3% for 2013); the Autonomous Communities deficit objective for 2011 is set at 1.3% of GDP, while they are managing around 40% of the public spending. Furthermore, some Governments such as the Catalan administration are managing even more, as they have more devolved powers, such as police and prisons.

Fuentes stressed that the Autonomous Communities “have the responsibility” to pay for essential public services, such as “healthcare and education” and this is why he thinks that a public debt of 11.4% of GDP is “relatively small”. “This can be explained because the spending decentralisation process”, power devolution (or competence transfers) towards the autonomous communities, “is quite recent and the autonomous communities did not have a lot of time to accumulate debt”, assures the analyst. In addition he said that “in the last ten years, economic growth [in Spain] has been high and the autonomous community deficit has been small”, he added.

The OECD recommends imposing a spending limitation to the Autonomous Communities

Despite having a “relatively small” public debt, the OECD has demanded that the Spanish Government introduce a law on public spending limitations for the Autonomous Community Governments. “Autonomous Community budget rules must be reformed to oblige them to have a budget surplus in good times and in this way avoid spending cuts when revenues drop due to a crisis”, recommends OECD’s Senior economic analyst on Spain. “The Spanish Government must use its powers to make sure” that the Autonomous Communities meet these obligations and set by law “a budget limitation”, he concludes.

The European Commission already recognised Catalonia’s efforts at cutting public spending

Last June, the European Commission already recognised that the Catalan Government “is undergoing a budget cut of unprecedented proportions” and is “making a great effort”. The European Commissioner for Economic Affairs Olli Rehn had asked Spanish Prime Minsiter Zapatero to make sure that the Autonoous Communities meet the deficit objectives this year. However, his spokesperson, Amadeu Altafaj, pointed out that the Catalan Government has already done its homework and that the message aimed at other Autonomous Communities. “All the Autonomous Communities have the same obligation to meet the agreed objectives [regarding public deficit], but efforts are different [from one autonomy to another]”, admitted the European Commission. Altafaj wanted to reassure the Catalan Government and emphasised that “the budget cuts are of unprecedented proportions” and that it is making “a great effort that is of course appreciated by Brussels”.


Further reading:

 The Spanish Government has 76% of Spain’s total public debt, while the Autonomous Community share is “only” 17%