FREE

Spanish Autonomous Communities' Creditworthiness Supported by Budget Stability Law

In 2012, conscious of the rapid growth in debt at the autonomous community (ACs) level, the Spanish central government implemented the Budget Stability Law (BSL). The aim of the law was to foster cohesion and fiscal discipline in Spain's regional and local public finances on a forward-looking basis, with the ultimate aim of rebalancing the budget. Notwithstanding temporary episodes of compliance breaches, the regulation has positively influenced the Spanish regional sector's ability to improve its budgetary performance and explicitly reversed the previously unfavourable wider deficit trend.

This regulation redefined the financial factors that should drive public policy by including balanced budgets as a priority in accordance with the European Union's (EU) directives. Since 2020, the regulation has not been binding as a response to the Coronavirus Disease (COVID-19) and this has continued beyond the pandemic due to the economic impact of Russia's invasion of Ukraine. The regulation is likely to return at the end of this year.

Key Highlights include:
• Central Government's Past Reforms Positively Conditioned the Regions' Budgetary Performance
• Expenditure Control is the Selected Angle Towards Budget Balance
• Enhanced Oversight Coming from 'Compelled Transparency' Paves Way to Results
• Budget Stability Law Will Be Back in Force and EU May Drive Further Improvements

“We expect the Budget Stability Law to come back in force at the end of the year, perhaps with further improvement coming from EU,” said Jorge Espinosa, Assistant Vice President in the Global Sovereign Ratings Group. “Even with some compliance breaches, the Budget Stability Law has proven effective towards narrowing Autonomous Communities’ deficits”.