MADRID - Spain's government will on Friday approve the issuing of joint bonds by regional governments to make it easier for them to raise capital, a spokeswoman for the economy ministry said.
The government hopes the creation of "hispanobonos", to be guaranteed by the state, will help reduce financing costs for Spain's 17 autonomous communities, which now vary sharply.
"I can confirm that this will be approved Friday. The goal is to reduce the pressure on the regions, which is often greater than the pressure on the state in general, with some regions not able to borrow on the market," she said.
Spain's 17 regional governments have seen their tax revenues plunge and their debt levels soar following the collapse of a decade-long property boom in 2008, and they are struggling to pay suppliers.
The central government earlier this month secured a five-year syndicated loan of 30 billion euros (S$48 billion) with 26 banks that will allow regional governments and city halls to refinance their debt and pay suppliers.
The massive loan will allow city halls to start paying their suppliers as of May 31 while regions will be able to begin payments as of June 30.
The regional governments are considered crucial for Spain to fulfill its promise to cut its overall deficit from 8.9 per cent of output in 2011 to an EU limit of 3.0 per cent next year.
Moody's Investors Service last week warned of the deficit challenges ahead as it downgraded its credit rating for economic powerhouse Catalonia and three other regions, Murcia, Andalucia and Extremadura.
The New York-based agency cited a "poor fiscal performance in 2011 and the low probability that the regional governments will be able to meet the 2012 deficit target."
Catalonia had its credit rating cut by one notch to Ba1, Murcia by two notches to Ba1, Andalucia by two notches to Baa2, and Extremadura by one notch to Baa1.
The regions remain under surveillance for a possible further downgrade, as does Spain's sovereign A3 rating, said Moody's.