Moody’s rating agency said yesterday it could cut Spain’s credit rating again because of the country’s heavy refinancing schedule and problems in meeting its borrowing needs next year.
Moody’s cut Spain’s sovereign debt rating from “Aaa” to “Aa1” in September, adding to the pressures on Madrid and the wider eurozone, and said yesterday that it could now further reduce the rating.
NOT IN QUESTION
It said in a statement that Spain’s solvency was not in question and it would not need external help, but heavy financing requirements would likely create fresh tensions on the money markets.
Additionally, it cited the possibility that higher costs to recapitalize the banking system could increase the public debt and noted concerns over whether the central government can push through reforms given the high degree of autonomy enjoyed by the regions.
“Moody’s believes that the ... downside risks warrant putting Spain’s rating under review for downgrade,” top Spain analyst Kathrin Muehlbronner said in a statement. “However, Moody’s also wants to stress that it continues to view Spain as a much stronger credit than other stressed eurozone countries ... Moody’s review will therefore most likely conclude that Spain’s rating will remain in the ‘Aa’ range.”
Moody’s estimated that the central government needs to raise 170 billion euros (US$225 billion) next year, with the regions needing another 30 billion euros and the banks 90 billion euros.
Raising this money is “now rendered more challenging by the fragile confidence of international capital markets,” it said, noting recent speculation that Spain might have to seek help from the EU and IMF.
Debt-stricken Greece got a 110 billion euro EU-IMF rescue in May when the markets turned against it, meaning it could no longer raise fresh funds at sustainable rates and was faced with the prospect of default.
Ireland was bailed out similarly earlier this month, with Portugal tipped as the next eurozone casualty on a list including Spain and possibly Italy as the eurozone debt and deficit crisis spreads.
Moody’s said it expected Spain to be “able to raise the necessary financing.”
“However, ongoing higher funding costs would strain Spain’s debt affordability further beyond current expectations and could also negatively impact the availability and cost of credit to the wider economy, which remains vulnerable,” Moody’s said.