The credit rating agencies Moody’s and Standard & Poors (S&P) consider that the recovery after DANA will be slow and will cause a cost that will put pressure on the public accounts of Spain and the Valencian Community. When quantifying the impact, they also believe that it will be contained for the banks and will instead reach 3.5 billion euros for insurers, in line with the forecasts of the Insurance Compensation Consortium (CCS).
“Economic recovery in the affected regions will be a slow and costly process,” Moody’s warns in a note. “The situation will reduce tax revenue for regional and local governments, and will cause an increase in social and financial spending, which will put further pressure on public finances,” he says.
Moody’s expects “significant losses for local economies” and recalls that Valencia is one of the autonomous communities with the most debt, equivalent to 42% of its GDP, compared to 22% of the national average. Its “weak fiscal position leaves it with little capacity to assume new obligations.”
EU aid and FLA assistance for recovery
For this reason, the rating agency understands that the central government will assume the financial cost with the help of the EU. It will do so in part by resorting to the Autonomous Liquidity Fund (FLA), indicates the rating agency. “The region may have to reimburse the central government for any deficit resulting from the expected contraction,” but at the same time it could enjoy compensation, he adds.
The central government, he points out, must bear the emergency costs and about 50% of those related to the recovery of infrastructure, facilities and services such as roads, sports centers or public centers. You must also compensate for local taxes that are not collected.
S&P believes that insurers and the central government will bear the lion’s share
S&P believes that reconstruction efforts “will take time” and believes that, ultimately, the Insurance Compensation Consortium and the central government will end up assuming the main costs of the catastrophe.
On the other hand, the impact on the country’s banks “will be contained,” he says. “The proportion differs for each bank, but it will not exceed 4% of the total credit for any of them,” he explains. Of the banking exposure, 65% corresponds to mortgages.
The public deficit will exceed 3% for two years, although Brussels will be flexible
The agency predicts that DANA will place the Spanish public deficit above 3% over the next two years, although the European Commission has already announced that it will make fiscal rules more flexible. “The extraordinary costs” will put “some pressure on the Government’s budget”, although “the impact could be somewhat diluted with EU support”.
The 10.6 billion in aid already announced by the Government will be injected this year, but the forecast is that subsequent efforts will be applied “gradually.” S&P also believes that part of the Next Generation funds will be used to rebuild the area.
Source: www.lavanguardia.com
