Spanish regions' debt rises sharply in third quarter

The debt of Spain's cash-strapped regions jumped in the third quarter of the year, highlighting one of the concerns of the financial markets, according to figures published Friday by the Bank of Spain.

The central bank said regional borrowing as of the end of September rose 27.3 percent from a year earlier to 107.624 billion euros, equivalent to 10.2 percent of GDP. This is the first time the regions' debt has exceeded a 10th of the country's output.

Moody's Investors Service on Wednesday threatened to cut Spain's Aa1 rating as it questioned the government's ability to force the regions to do their part in trimming the country's public deficit. The agency estimates the regions will have to refinance about 30 billion euros worth of debt next year, which on top of the 170 billion euros the central government needs to roll over, makes the administration exposed to "funding stress."

Total borrowing of all the public administrations at the end of September climbed 16.3 percent from a year earlier to 611.198 billion euros, equivalent to 57.7 percent of GDP, up 8.1 percentage points on a year earlier but still below the average in the euro zone. The central government accounted for 467.348 billion euros of the total, an increase of just under 15 percent on a year earlier. This reflected the impact of a series of stimulus packages aimed at pulling the country out of what turned out to be its worst recession in over half a century. A surge in the number of people out of work also pushed up spending on unemployment benefits.

The debt of the country's municipalities rose by only 4.6 percent from a year earlier.

The government has pledged to reduce its public deficit from 11.1 percent last year to a projected 9.3 percent this year and 6 percent next year.

In response to the Moody's report, Economy Minister Elena Salgado said the government would bring forward plans to have the regions report their budget position on a quarterly basis to the third quarter of this year. The government initially intended this exercise in transparency to start with the first quarter of next year.

The government expects public debt to end this year at 62.8 percent of GDP before rising to 68.7 percent, figures still below the euro-zone average.