Communities spent more than ever last year to cope with the pandemic, but their budget balance paradoxically improved: the deficit was just 0.2% of GDP, the lowest mark since 2006, compared to 0.6%. from the previous year. This result has been possible thanks to the role that the State has played, which has borne the imbalances of the other administrations and has provided extra liquidity to the communities. But a good part of these resources must be returned in 2022, as the Fedea study recalls Regional finances in 2020 and between 2003 and 2020, published this Monday. “At least part of the crisis bill has only been postponed and will come in the coming years, in the form of large negative settlements of the financing system and a cut in state transfers,” warns the analysis prepared by Ángel de la Source, director of the agency.
The study analyzes the evolution of the regional budget balance since 2003 ―the first in which all the communities were responsible for health management during the entire fiscal year―, using data from the General Intervention of the State Administration (IGAE ). And it highlights that the regional accounts have behaved differently in this crisis: despite the strong increase in regional spending – about three percentage points of GDP – and the halt in activity, income grew more intensely thanks to the buffer. offered by the state.
“The situation is similar to that registered in 2008-2009 in terms of spending growth, but while then revenues fell slightly in 2008 and grew by around one point in 2009, now income growth (via transfers state) has been greater than that of expenditures, with which the apparent situation of regional finances has improved despite the covid, “says the analysis. The study estimates that the underlying deficit of the communities that would result from normalizing the income of the financing system and correcting some outliers would have been 1.71% in 2020.
The budget closure data presented a week ago by the Ministry of Finance make clear the effort of the State. The deficit of the Public Administrations closed at 11% of GDP – including the losses of the bad bank, some 10,000 million that Eurostat has forced to account – but the bulk of this gap was assumed by the central Administration.
The components of regional non-financial expenditure had a different evolution throughout the period analyzed. Investment fell after the Great Recession; Interest expense grew due to the increase in debt and the risk premium, although it decreased as of 2014 thanks to better financing conditions. Current spending, on the other hand, fell after the financial crisis and returned to its highest levels in recent years, but in the final part of the period only personal spending accelerated its growth, while the purchase of intermediate consumption and social benefits other than benefits in kind stagnated.
This evolution has been reflected in the regional accounts. Between 2003 and 2009 they were close to budgetary balance, but the financial crisis was a turning point: balances deteriorated between 2010 and 2011, and improved in the next two years due to cuts and a partial recovery in revenues. In 2014 and 2015, regional deficits stagnated and fell again between 2016 and 2018 thanks to strong economic growth – in 2018 the regional deficit stood at 0.23% of GDP. The following year, the improvement in the regional accounts was interrupted – partly due to technical issues related to the VAT revenue schedule.
With the pandemic, the Government decided to maintain the installments calculated before the crisis -according to a growth of 1.6% of GDP- and to grant extraordinary transfers to regional governments, such as the covid-19 fund of 16,000 million. “As in 2008-2009, the Government has chosen to protect the autonomous communities as much as possible from the immediate effects of the crisis, which is not necessarily a good idea if it delays their reaction excessively,” the Fedea study warns. which points out that when the financing system is liquidated in 2022 it is likely that the same solution used after the Great Recession will be adopted: extend the repayment period “as much as necessary”.
Community debt grew substantially after the previous financial crisis. To date, the autonomous regions with the lowest proportion of liabilities over GDP are the Canary Islands, Madrid, the Basque Country and Navarra. The communities with the highest debt rates are Murcia, Catalonia, Castilla la Mancha and, above all, the Valencian Community, with a debt that is close to 50% of GDP.
The analysis concludes that regional income and expenditures have followed a pro-cyclical pattern, with significant increases in expansionary periods and strong cuts after the Great Recession, which have allowed a return in 2019 to a situation similar to that of 2003, although “much more fragile before a possible change of cycle ”. According to the study, the main elements of concern are the high levels of debt in many autonomous regions and that the improvement in the regional budget balance in recent years is due in part “to anomalous and difficultly sustainable factors”, which include a ” atypically low investment ”and“ strong interest subsidies ”through extraordinary liquidity mechanisms.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.