Catalan Business
Circle forecasts investment grade rating for Catalonia on becoming a sovereign
state.
Catalan sovereign
debt is credit the Government of Catalonia negotiates directly with banks and
which it is directly responsible for. Hence, it does not include debt issued
and negotiated by Spain and which the Spanish state is solely responsible for.
The ability to
obtain loans, as well as the interest on them, is directly dependent on the
evaluation by the credit markets of Catalonia and its government. Specifically,
there are five key factors in the analysis of sovereign creditworthiness:
institutional effectiveness and political risk, economic structure and growth
prospects, external liquidity and international investment position, fiscal
diligence and flexibility, along with the debt burden, and finally monetary
flexibility.
Catalonia, as a
sovereign state, would hold a very different credit rating than as a Spanish “Autonomous
Community”. In order to calculate it, the Cercle Català de Negocis (Catalan
Business Circle) has taken previous indicators and compared them with other
sovereign nations of a similar nature to a future Catalan State. The comparison
would assign Catalonia with a rating somewhere between AA and AAA. Countries
with ratings from AA to AAA+ paid interest, as at mid-2012, at an average of
2.5%, well below the mean rate of 4% and up to 6% currently paid by Catalonia.
If we look at
eight European countries with similar populations and GDP per capita to
Catalonia's (Norway, Switzerland, Holland, Austria, Sweden, Denmark, Belgium
and Finland), all have ratings between AA and AAA (mostly AAA) as awarded by
the Big Three rating agencies, S&P, Fitch and Moody's. Instead, Catalonia
currently has, as an “Autonomous Community” and therefore hardly any direct tax
collection, a BBB- rating —almost junk— and Spain, which collects 95% of
Catalan taxes, holds a BBB rating.
Catalan GDP per
capita is 17 points above the European average and above that of Finland, which
has a rating of AA+. Rid of its current oversized fiscal deficit with Spain,
the Catalan State's GDP per capita will exceed that of Denmark, Sweden and
Austria, and will be just below that of the Netherlands.
Catalan
legislation regarding ownership, anti-fraud and other elements of legal
certainty and corporate control is either directly subsidiary to that of the
European Union or comparable to the advanced Western countries.
Catalonia's
government has very little direct debt liability and thus has cogent financial
solidity. In 2011, Catalonia had tax income from the public sector of a
relatively low 31.2% and therefore with room for further tax pressure. By
contrast, consumption of goods and services by the government only represents a
small part of GDP, so reducing expenditure on these items will not be easy.
Upon becoming a
sovereign state, Catalonia may have to take on part of Spain's debt liabilities
but would still find itself in a better position than, say, Austria and Belgium
(AAA and AA+). Furthermore, consider that the recovery from the fiscal deficit
with Spain would reduce this debt in Catalonia with some speed.
Between 2001 and
2009, Catalonia had steadier growth than Denmark, Sweden or Finland (AAA). When
in 2009 all economies showed a downturn, Catalonia still had a more favourable
progression than Finland, Denmark or Austria (AAA). Therefore, before
continuing threats, it is to be expected the Catalan economy will continue
generating wealth. The growth of exports and industry in recent years, with
similar figures to Germany's, confirms globalisation and competitiveness of the
Catalan economy.
Catalonia has a
very high level of unemployment, but the CCN has calculated that as an
independent sovereign nation this could drop to below 7%, better than most
countries in the comparison. This transition may be slow, up to 5 years, and
therefore would be an impediment to an immediate improvement in its rating. But
the elimination of fiscal plundering by Spain would yield additional beneficial
effects on GDP and would thus reduce unemployment.
The primary
financial problem however is private debt. Catalonia has one of the highest ratios of private debt to GDP among
the European nations. The Catalan state's public debt might be increased if it
takes on a part of Spanish sovereign debt, reaching about 66% of GDP.
As for prices,
Catalonia has presented a relatively low rate of inflation, though unstable
which is not good news for the country's credit rating.
In terms of
openness (exports), the Catalan state will incorporate trade with Spain right
from the start. These currently account for half of non-domestic sales, making
Catalonia's economy one of the most open, in addition to showing a clearly
positive balance of payments.
Considering all
these factors, the CCN projects a fairly positive investment grade rating for
Catalonia, somewhere between AA an AAA, on becoming a sovereign state.
Mr. Joan Cabanas
The Catalan Business Circle is a pro-independence employers
organisation uniting 700 small and medium-sized firms. SMEs generate 70% of employment and contribute almost 60% of GVA of all
trade in Catalonia.
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