Bloomberg News

Spanish Central Deficit Narrows as Welfare System Shows Surplus

November 30, 2011

Nov. 29 (Bloomberg) -- Spain is set to meet its central government budget deficit target this year, the finance ministry said, after the social-security system posted a surplus and regional governments’ shortfalls narrowed.

The deficit for the 10 months through October narrowed to 3.7 percent of gross domestic product from 4.58 percent a year earlier, putting it “on the right track” to meet the 4.8 percent target, Deputy Finance Minister Juan Manuel Lopez Carbajo said in Madrid.

Budget cutting by regions, whose deficit narrowed in the third quarter, is expected to continue in the rest of the year, he said, while the Labor Ministry reported a social-security surplus of 0.52 percent of GDP through October, compared with the full-year estimate of 0.4 percent. The overall deficit, targeted at 6 percent of GDP, is made up of the central government, the regions, town halls, and social security.

Spain is struggling to convince investors it can meet that target. A Bloomberg survey of 11 economists points to a shortfall of 6.4 percent. Prime Minister-elect Mariano Rajoy, who is set to take over on Dec. 22 amid a surge in bond yields, has pledged to slash the deficit to meet next year’s target of 4.4 percent of GDP, without giving details on where he may cut.

The extra yield on Spanish 10-year bonds compared with German equivalents narrowed today to 413 basis points from 427 basis points yesterday. The yield fell to 6.45 percent, compared with a euro-era high of 6.781 percent on Nov. 17.

Regions’ Deficit

The 17 regions posted a deficit of 1.19 percent of GDP in the nine months through September, narrower than the 1.2 percent in the first half, the finance ministry said yesterday. The methodology used isn’t directly comparable with the data employed for the final calculations or the 1.3 percent target for the regions. Those administrations are crucial to efforts to cut the overall deficit as they control more than a third of public spending, including health and education, and employ half the country’s public workers.

Budget data was poor in the first half because of regional elections on May 22, which handed control of most states to Rajoy’s PP, and improved in the third quarter as budget plans were implemented, Lopez Carbajo said. “It is to be expected” that the trend continues for the rest of the year, he said.

--Editors: James Hertling, Jeffrey Donovan

To contact the reporter on this story: Emma Ross-Thomas in Madrid at

To contact the editor responsible for this story: Craig Stirling at

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