OECD Network on Fiscal Relations across Levels of Government, 16th Annual Meeting, 3-4 December 2020 – Virtual Meeting

1. ANNUAL MEETING OF THE OECD NETWORK ON FISCAL
RELATIONS ACROSS LEVELS OF GOVERNMENT
Discussion of rising
subnational debt and the
role of subnational fiscal
rules. SPAIN
4 December 2021
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2. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
Context: Financial Crisis, 2012:
Spanish
Constitution
Article
135
Organic Law 2/2012 of 27
April 2012 on Fiscal
Stability and
Financial sustainability
(LOEPSF)
Fiscal rules:
- Budgetary
balance
- Debt rule
- Expenditure
rule
- Golden rules
- (administrative
controls of new
debt)
Extraordinary
loans mechanism
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EUROPEAN
UNION FISCAL
RESPONSIBILITY
FRAMEWORK

3. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
results: fiscal consolidation, high level of debt:
• Municipalities: evolution of Net lending (+) or net borrowing (-)
• Regional governments: evolution of Net lending (+) or net
borrowing (-):
-1
-0.5
0
0.5
1
2011 2012 2013 2014 2015 2016 2017 2018 2019
-6
-4
-2
0
2011 2012 2013 2014 2015 2016 2017 2018 2019
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4. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
Current situation (I):
• High level of debt at country level
• Different fiscal position of regional governments
and municipalities
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5. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
Current situation (II): debt in regional governments
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Mar-95
Dec-95
Sep-96
Jun-97
Mar-98
Dec-98
Sep-99
Jun-00
Mar-01
Dec-01
Sep-02
Jun-03
Mar-04
Dec-04
Sep-05
Jun-06
Mar-07
Dec-07
Sep-08
Jun-09
Mar-10
Dec-10
Sep-11
Jun-12
Mar-13
Dec-13
Sep-14
Jun-15
Mar-16
Dec-16
Sep-17
Jun-18
Mar-19
Dec-19
%
PIB
MILLIONS
€
Regional govenments DEBT EVOLUTION 1995-2020 (June)
Deuda en millones € % Deuda sobre PIB
2008 FINANCIAL CRISIS
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6. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
Current situation (III): debt in municipalities
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Municipalities debt/GDP
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7. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
Current situation (III):
• Central State’s action: COVID fund:
• - 29.000 M€ in 2020 and 2021
• - reporting obligations: questionnaires on COVID-
related expenditure
• Activation of escape clause: suspension of fiscal
rules in 2020 and 2021
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8. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
• How can fiscal rules be made more effective in dealing
with the impact of economic cycles and unexpected
shocks, such as the shock caused by the COVID-19
outbreak?
- Flexibility
- The case for escape clauses
• Should the standard rules be re-introduced
gradually?
- Rebalancing plans (depending on the impact of the crisis,
still to be fully estimated)
- Better rules
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9. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
In the context of COVID-19, are new rule mechanisms
being put to use?
- Significant elements of the fiscal responsibility
framework are still in place:
- Transparency
- Payments to suppliers
- Process of reflection for a revamped framework of fiscal
rules, in the context of the EU reform process
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10. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
What are the rules that are more effective in ensuring fiscal
discipline at the subnational level?
a) Municipalities:
- Expenditure rule
- Obligation to reduce debt if surplus (in cash terms)
- Golden rule
- Administrative controls
- b) Regional governments:
- Deficit targets
- expenditure rules
- However, some regions have structural difficulties.
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11. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
What are the main deficiencies of fiscal rule
frameworks, and are these related to the design of the
rules or to the monitoring and enforcement?
- Design:
- Long term objectives should be re-calibrated
realistically. There should be flexibility to
account for the phase of the economic cycle.
- Lack of methodology to set deficit targets:
Flexibility at the cost of transparency.
- Lack of internal coherence in the rules:
- expenditure rule can be more restrictive than
deficit target => differentiated deficit targets.
- Lack of explicit debt anchor: debt targets are
not set considering the long term debt limit.
- Expenditure rule allows for consolidation of
expenditure in non-compliance
- Monitoring and enforcement: some measures could
be more automatic.
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12. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
What elements should have a future framework of fiscal
rules?
- Focus on debt reduction: methodology to explicitly drive
targets towards debt anchor: debt brakes
- Institutional changes:
- Make the system less normative, increase
corresponsability, fix the current system of incentives
- Parallel reforms:
- Systems of Central State’s Transfers to SNGs
- System of extraordinary loans from Central State to
SNGs
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13. Discussion of rising subnational debt and
the role of subnational fiscal rules: SPAIN
THANK YOU
Contact: Fernando.Gonzalez@hacienda.gob.es
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