Spain satisfied with curtailed public deficit

Spain's government trusts that it will end the year with a smaller public deficit than projected thanks to an increase in state revenues and fewer expenditures to November. That is why the executive will have a sufficient margin to compensate for any budget overruns by regional governments, city halls or Social Security, and still meet the overall 9.3-percent deficit target that Spain committed to in Brussels, said Secretary of State for Finance Carlos Ocaña.

According to financial data released on Tuesday, the central government deficit was 38.77 billion eurosin the first 11 months of the year, representing 3.68 percent of GDP. That is a 46-percent decrease from 71.53 billion eurosat this time last year, Ocaña noted. It is also three percentage points lower than the deficit target for the year.

It is important to bear in mind, however, that a major portion of annual expenditures take place toward the end of the year, meaning that by late December the deficit figure could grow.

A hike in value-added tax - which brought the state added revenues of5.65 billion eurosthis year compared with 2009 - together with government spending cuts, will allow Spain to reduce the public deficit from 11.1 percent last year to 9.3 percent in 2010. The central government is responsible for 6.7 percent of the public deficit, and Ocaña said that they will meet this year's target "easily."

Meanwhile, the 17 regional governments are on the right track to end the year with an aggregated deficit of 2.4 percent, and posted a 1.2-percent deficit in the first nine months of the year, according to Economy Ministry sources. That means that the overruns that Ocaña was referring to must be caused by local governments or by the Social Security system.

Third-quarter results show that the regions of Murcia and Castilla-La Mancha are so far not meeting their deficit targets, with others possibly joining them in the last quarter - but overall they are expected to manage the combined 2.4-percent goal.

Municipalities are expecting to end 2010 with a combined 0.4-percent deficit, while Social Security, which enjoyed a 11.1-billion-eurosurplus to November, should contribute a positive 0.2 percent to the overall figure.

Spain's deficit target for 2011 is 6 percent and 4.4 percent the following year. By 2013 it is expected to meet the EU's 3-percent upper limit.

Also on Tuesday, Spain managed to sell 3.877 billion eurosin three- and six-month Treasury bills in its last auction of the year, although borrowing costs were higher. The Treasury placed 3 billion euros in three-month bills at an average yield of 1.804 percent versus 1.743 percent in November, while the average yield for the six-month bills was 2.60 percent, up from 2.11 percent.

Amonth ago, when the last auction of three-month securities took place, the markets were in a state of great uncertainty due to Ireland's request for a rescue package. Even though the EU launched the rescue operation late that month, investor fears that the crisis might extend to Portugal and Spain have intensified.

Moody's Investors Service on Tuesday said it was reviewing Portuguese sovereign bonds with a possible downgrade of one or two points on the table.