Standard and Poor’s improves the outlook for the Valencian Community rating from stable to positive

Standard and Poor’s improves the outlook for the Valencian Community rating from stable to positive

Standard and Poor’s the outlook for the rating of the Valencian Communitywhich has taken into account the more “realistic” approach of the new regional Government when preparing the budget for 2024, which has eliminated the protest item that was included in the previous Government, and the spending control measures adopted and announced for the coming years, as reported by the Department of Finance.

The improvement implies that there is a high probability that the rating of the Valencian Community will improve within a maximum period of two years, although its rating still makes it unfeasible for it to go to the markets for financing.

Standard and Poor’s also highlights that the expected increase in income from the financing system for next year as a result of the forecast liquidation of the 2022 financial year and the payments on account for 2024 will compensate for the lower resources from own taxes such as Inheritance and Donations. and the ITPAJD, in addition to the six new social deductions in personal income tax.

The agency also plans a moderation in spending growth from 2024 derived from the application of the new tax rules that the European Commission will soon approvethe drop in inflation, the spending efficiency measures announced by the Consell or the forecast of more realistic budgets.

This is stated in the rating report of the Valencian Community that the rating agency has published after analyzing the regional debt, a credit rating report that is limited by the high structural deficits and the heavy debt load associated with them as a consequence. of underfinancing.

After learning about this report, the Minister of Finance, Economy and Public Administration, Ruth Merino, has indicated that the improvement of the perspective of the Valencian Community by Standard and Poor’s reflects that the Consell is going “in the right direction.” Merino has highlighted that the prudent and realistic approach when preparing the Generalitat’s Budget for 2024, together with the spending control measures, sends “a message of confidence about the rigorous management of public resources that will be carried out this Council”.

However, the head of the Treasury has insisted on the need to urgently address the reform of the regional financing system pending since 2014 because, as the Standard and Poor’s rating report highlights, only in this way will the weaknesses be resolved. structures of the Valencian Treasury.

Debt and deficit

The qualification for the coming years also takes into account other circumstances such as the expectation that additional recurring transfers may occur in favor of the worst-financed Autonomous Communities until the pending reform of the financing model occurs, and also the possibility of a partial “absorption” by the State, a measure that would alleviate the financial expenses they face the Valencian Community in the coming years.

The Valencian debt stood at 57,246 million euros at the end of the first half of this year after increasing by 2,213 million in just six months as a consequence, above all, of the need to finance the excess deficit in 2022, which in total stood at 3,860 millions of euros.

The Standard and Poor’s report predicts that the operating deficit in the near future will improve due to more prudent financial management and the expectation of additional recurring transfers until a change in the financing model occurs.

Regarding debt, the report on the Valencian Community explains that the fact that 84% of the debt stock is in the hands of the State mitigates the risk of refinancing. Furthermore, consider that debt ratio “could improve” If the central government decided forgive a “significant” part of that debt. Meanwhile, the need for financing and the high volume of debt will cause a significant increase in interest payments, the report highlights.

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