Going to finance with the State via FLA (Autonomous Liquidity Fund) can have negative consequences for the autonomous communities, according to research published by BBVA Research. In the short term, the autonomies that opted for the FLA have grown less than those that financed themselves autonomously. In the long term, the study warns that since “the design of the FLA encourages dependence on the State, it may weaken fiscal discipline in the future and discourage the implementation of reforms.”
The communities that have been left out of the FLA (or have requested very small quantities) include Asturias, the Canary Islands, Castilla y León, Galicia, Madrid, Navarra and the Basque Country; while those that requested public support are Catalonia, Comunitat Valenciana, Castilla-La Mancha, Murcia and Andalusia.
Between 2017 and 2022, the Balearic Islands and Murcia had negative GDP per capita growth while the Canary Islands and Catalonia approached zero growth. On the other hand, Madrid, which has hardly asked the FLA for money, is one of those that is growing the most with almost 5%.
The report justifies this greater dynamism in that “access to capital markets by the autonomous communities that barely resorted to the FLA would have encouraged these regions to introduce spending efficiency measures or reforms that have increased their collection capacity by generating economic growth”. And he also adds that perhaps these communities have been stricter with public finances.
BBVA Research highlighted that “the FLA allowed access to financing in an adverse economic situation where there was a closure of the financial markets and with very favorable conditions for the autonomous communities with the highest debt.” The problem is that some of the most dependent communities like Catalonia, once the financial crisis is over, are still not able to go to the markets again.
BBVA highlights that the fact that several autonomies were left out of the FLA allowed the Spanish risk premium to be reduced and made it easier for them to “enjoy better financing conditions in the medium and long term than the rest.”
The importance that the FLA has had in the sustainability of public accounts is that without it, the debt between 2015 and 2022 would have been two percentage points higher.
