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Spanish regions improved their budgetary performance in 2024. Data released by the Spanish Ministry of Finance on March 31, 2025, show an improvement in Spanish regions' budgetary performance compared to the previous year. Although we had anticipated this outcome, the results were stronger than we had expected in many cases. This was mostly due to continuous economic growth, including a booming real estate sector and lower investments than we had expected.
What's Happening
Spanish regions have enjoyed a recent cycle of revenue growth, with operating revenue 43% higher in 2024 than in 2019. Fueling the revenue growth was the expansion of the Spanish economy, both in real and nominal terms; central government support during the COVID-19 pandemic; and large transfers from the EU.
Higher revenue, along with the suspension of fiscal rules, have allowed regions to expand their operating expenditure materially without cutting back significantly, for example, on health care spending, which rose considerably during the pandemic. At the same time, regions generally show improved budgetary outcomes and lower debt ratios.
The availability of funds through the EU's Recovery and Resilience Facility (RRF) has allowed regions to pursue ambitious investment plans without jeopardizing their budgetary performance.
Nevertheless, differences between regions’ budgetary outcomes remain wide. These range from a surplus of over 12% of operating revenue in Cantabria to a deficit of 7% of operating revenue in Valencia and Murcia. Budgetary outcomes after investments also diverge greatly, ranging from a surplus after investments of around 5% of total revenue in Navarre and the Canary Islands, to deficits of close to 10% of total revenue in Valencia and about 8% in Murcia.
Why It Matters
We now see Spain as entering a new phase, in which economic growth will remain solid but slow down. Consequently, revenue will also grow more slowly. We forecast that the revenue growth that normal-status regions derive from the regional financing system will generally be flat in 2025 versus 2024, and in fact negative for some regions. Moreover, regions have already cashed in their RRF funds and will have to spend them before mid-2026. Regions wishing to continue investing after this date will need to rely on either the traditional EU structural and cohesion funds or their own resources.
Spanish regions are now subject to new fiscal rules that limit expenditure growth. In our view, budgetary outcomes in 2025-2027 will primarily depend on the regions' ability to enforce cost control, as well as on the nature of the expense they have financed with the extraordinary revenue of 2024. Some regions have used the extraordinary revenue for one-off capital expenditure or spending programs, while others have spent them on recurring items, thus compromising their future budgetary flexibility.
What Comes Next
Spain is subject to the same uncertain macroeconomic environment as the rest of Europe. The most recent headwinds include the imposition of tariffs by the U.S. and pressure to increase defense spending. Longer-term challenges are linked to demographic trends and health care expenditure.
We expect Spain's economic growth to moderate, although it should outpace that of other eurozone countries. We believe that the Spanish central government will face increasing budgetary constraints and may decide to share the burden with the sub-sovereign tier, leading to lower regional revenue growth than in recent years. Budgetary consolidation and debt stabilization or reduction will therefore increasingly depend on each regional government's policy decisions.
The central government has proposed to absorb a large proportion of normal-status regions' debt. If enacted, the absorption may range from about 19% of total debt for Valencia to about 50% of total debt for the Canary Islands. This measure would have a positive impact on the regions' debt figures and interest expenditures, but in our view, it does not address any structural weaknesses in the regional financing system. It may also reduce regions' incentives to keep a lid on debt growth (see "Bulletin: Spanish State Lays Out Proposal For Regional Debt Absorption," published Feb. 26, 2025). However, as the measure is still to be enacted, we do not take it into account in our current forecasts for the Spanish regional sector.
Related Research
- Bulletin: Spanish State Lays Out Proposal for Regional Debt Absorption, Feb. 26, 2025
- Local And Regional Government Outlook 2025: For Spanish Regions, Budgetary Improvement Will Need Regional Restraint Or Government Action, Jan. 16, 2025
- Subnational Government Outlook 2025: Spain's Debt Ratios Are Reducing As Revenue Rises, Jan. 16, 2025
- Institutional Framework Assessment For Spanish Normal Status Regions: Strong Government Support, Weakening Predictability, Aug. 1, 2024
- Institutional Framework Assessment: Spanish Special Status Regions, July 26, 2024
| Primary Contacts: | Alejandro Rodriguez Anglada, Madrid 34-91-788-7233; alejandro.rodriguez.anglada@spglobal.com |
| Marta Saenz, Madrid 34-91-788-7231; marta.saenz@spglobal.com | |
| Secondary Contact: | Manuel Becerra, Madrid 34-914233220; manuel.becerra@spglobal.com |
| Analytical Group Contact: | Sovereign and IPF EMEA, ; SOVIPF@spglobal.com |
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