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Spanish Elections: Main Implications Under the Most Likely Political Outcomes

This commentary explores how the potential election outcomes might affect credit analysis of the Kingdom of Spain, which DBRS Morningstar confirmed at "A" with Stable trends on 9 June 2023. Following an electoral defeat in the regional and municipal elections on 28 May 2023, Prime Minister Pedro Sánchez called snap elections for 23 July 2023. We assess some of the potential implications in three key dimensions:(1) public finances and fiscal policy, (2) economic performance and policies, and (3) political environment.

• We do not expect material differences in terms of fiscal trajectories during the upcoming legislature, although the government's priorities could differ greatly.
• While there could be delays in the implementation of Next Generation EU funds regardless of who is in power, we see limited risks of a reversal of key reforms and commitments outlined in Spain’s recovery plan.
• While a PP-Vox government could be less willing to engage in dialogue with the region of Catalonia, we do not expect this to lead to a significant deterioration in their financial and economic relationship.

“While the priorities of the government could change significantly after the next elections, we anticipate that Spain's fiscal and economic paths will remain broadly similar at least in the next couple of years. The fiscal and economic challenges remain largely structural and unlikely to change dramatically in the near term,” said Javier Rouillet, Vice President, Global Sovereign Ratings at DBRS Morningstar. “We consider that the risk of a disruptive change in policy making is mitigated by several factors, including the expected reactivation of fiscal rules starting in 2024, Spain’s main political parties' commitment to fiscal sustainability, and the incentives provided by the NextGen EU funds,” added Javier Rouillet.