29/07/2011
By Matt Ritchie
Moody’s Investors Services has announced it has placed Spain’s Aa2 government bond ratings on review for possible downgrade, due to the continued funding pressures facing the government and the challenges to its fiscal consolidation posed by the weak growth environment.
In a statement announcing the decision, Moody’s said funding costs for the Spanish government and many related debt issuers, such as domestic banks and regional governments, have been rising for some time.
These pressures are likely to increase further following the announcement of the official funding package for Greece, Moody’s said.
The ratings agency said it takes a positive view on the fact the Spanish government has been successful in meeting its near-term fiscal consolidation targets, though notes that challenges to long-term budget balance remain due to Spain’s “subdued” economic growth and “fiscal slippage” within parts of its regional and local government sector.
Moody’s review will weigh those risks, and take into account Spain’s relatively low public debt ratio, its success in achieving budget targets for 2010, and its implementation of key structural reforms.
The agency said Spain's Prime-1 short-term ratings are unaffected by the action.
Moody's has also placed the Aa2 rating of Spain's Fondo de Reestructuración Ordenada Bancaria (FROB) on review for possible downgrade, as the FROB's debt is fully and unconditionally guaranteed by the government of Spain.
“In the absence of any unexpected development, Moody's expects that any change in the rating following the review is most likely to be limited to one notch.”
