Andalusia’s debt ceiling is raised to help region with finances

The Finance Ministry has agreed to give some breathing space to Andalusia to help the region meet its debt goal for next year. Carmen Martínez Aguayo, the economic commissioner for the region, said that in the coming days the local government will reach a formal agreement with finance officials to allow Andalusia’s debt ceiling to be raised from 13.2 percent of GDP to between 15.1 and 15.3 percent, which will save some 2.7 billion euros from being axed from next year’s budget.

Martínez Aguayo said that the region will also ask the central government for a bailout of 4.906 billion, which will come out of a proposed emergency liquidity fund that is being set up to help cash-strapped regions to access funding. She said that the 2.7 billion the central government had asked Andalusia to return will now stay at the regional level.

Two years' grace

The principle on loans borrowed by the Spanish regions from the central government’s rescue fund can be repaid in 10 years, with a two-year grace period, the secretary of state for the public administrations, Antonio Beteta, said Monday.

Beteta said the interest rate the loans will carry will be 30 basis points above the yield paid by the Treasury for such loans. The benchmark 10-year government bond was trading at 5.7 percent in late trading on Monday.

The regions have been priced out of the wholesale debt markets by the sharp rise in Spain’s risk premium, with many lacking sufficient liquidity to pay suppliers.

The government’s Regional Financial Liquidity fund (FLA) has been set up with funding of 18 billion euros and is due to remain in existence until the end of this year. Of the total, six billion euros will come from the state lottery company, four billion from the Treasury and the rest from banks.

The Canary Islands last Friday became the sixth Spanish region to seek a bailout, asking for 756.8 million euros. Its petition brings total requests from the country’s cash-strapped regions to around 16.3 billion euros. Andalusia wants close to five billion euros, Catalonia has requested just over five billion and Valencia 4.5 billion. Castilla-La Mancha and Murcia are seeking 848 million euros and 600 million euros respectively.