Moody's cuts Spain's ratings
By Pan Pylas |
March 11, 2011, Friday
|
Print Edition
Print Edition
MOODY'S downgraded Spain's credit rating yesterday, citing worries over the cost of the banking sector's restructuring, the government's ability to achieve its borrowing reduction targets and grim economic growth prospects.
The agency reduced Spain's rating by one notch to Aa2 and warned that a further downgrade is possible if indications emerge that Spain's fiscal targets will be missed, and if the public debt ratio increases more rapidly than currently expected.
Moody's Investors Services also warned that concerns could rise if funding requirements for Spain's troubled savings banks - called cajas - end up greater than anticipated. They have been hit particularly hard by the nation's real estate bubble that burst, saddling them with billions of euros in bad loans. On the plus side, Moody's noted the government's resolve in dealing with its problems and added that Spain's debt sustainability is not under threat.
Spanish Finance Minister Elena Salgado said the government agrees that the nation must make a better effort to push debt-laden regional governments to reduce their deficits, but added that Moody's should have waited to issue its report until the Bank of Spain issues detailed breakdown on how much money the cajas need.
Spain's main stock index sank 1.3 percent after the report was released, and the yield on Spain's ten-year bonds rose 0.01 percentage point to 5.50 percent.
One of the main reasons for the downgrade was Moody's expectation that the eventual cost of recapitalizing the cajas will be much more than the government's current projections. While the government has previously estimated they need at most 20 billion euros (US$27.8 billion), or less than 2 percent of Spain's gross domestic product, Moody's predicted the cost could reach 40-50 billion euros and might eventually come in at a massive 100-120 billion euros.
The Spanish government is trying to get a handle on its borrowings by reducing spending and raising taxes, and reduced its budget deficit by around two percentage points last year to 9.2 percent of national income.
But unemployment has shot up to more than 20 percent amid predictions of gloomy economic growth, and Spain is also being clobbered by high oil prices sent skyrocketing by the unrest in Libya.
The agency reduced Spain's rating by one notch to Aa2 and warned that a further downgrade is possible if indications emerge that Spain's fiscal targets will be missed, and if the public debt ratio increases more rapidly than currently expected.
Moody's Investors Services also warned that concerns could rise if funding requirements for Spain's troubled savings banks - called cajas - end up greater than anticipated. They have been hit particularly hard by the nation's real estate bubble that burst, saddling them with billions of euros in bad loans. On the plus side, Moody's noted the government's resolve in dealing with its problems and added that Spain's debt sustainability is not under threat.
Spanish Finance Minister Elena Salgado said the government agrees that the nation must make a better effort to push debt-laden regional governments to reduce their deficits, but added that Moody's should have waited to issue its report until the Bank of Spain issues detailed breakdown on how much money the cajas need.
Spain's main stock index sank 1.3 percent after the report was released, and the yield on Spain's ten-year bonds rose 0.01 percentage point to 5.50 percent.
One of the main reasons for the downgrade was Moody's expectation that the eventual cost of recapitalizing the cajas will be much more than the government's current projections. While the government has previously estimated they need at most 20 billion euros (US$27.8 billion), or less than 2 percent of Spain's gross domestic product, Moody's predicted the cost could reach 40-50 billion euros and might eventually come in at a massive 100-120 billion euros.
The Spanish government is trying to get a handle on its borrowings by reducing spending and raising taxes, and reduced its budget deficit by around two percentage points last year to 9.2 percent of national income.
But unemployment has shot up to more than 20 percent amid predictions of gloomy economic growth, and Spain is also being clobbered by high oil prices sent skyrocketing by the unrest in Libya.
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