The Generalitat will refinance €3.5 billion with banks

BarcelonaThe Catalan government will refinance €3.5 billion of its debt with private banks. This will be the first time in 13 years that the Catalan government has turned to the private sector for financing, taking advantage of the drop in interest rates. This will allow for financial cost savings that the government estimates at around €24 million. In 2023, the average cost of resources obtained through the regional liquidity fund (FLA)) was 3.497%, and last year it had already dropped to 3.159%. The Department of Economy states that currently, the Spanish Treasury interest rate differential with respect to the FLA ranges between 60 and 75 basis points.

With this operation authorized by the Executive Council this Tuesday, the Government expects to receive offers from various banks, as it is convinced it can obtain lower interest rates than with the FLA. Therefore, it hopes to reduce financial costs, but also to diversify financing sources, which are highly concentrated in instruments that have the State as a creditor. The total liabilities of the Generalitat as of December 31 of last year were €89.035 billion. And of that amount, around 88% had the State as a creditor.

Margin for borrowing

The regulations allow the autonomous communities adhering to the FLA to borrow outside of this mechanism, provided that it is used to carry out refinancing operations (i.e., no new liabilities are generated) and this serves to reduce the cost of debt, as is the case here. The Department of Economy, headed by Alícia Romero, believes that the current context of lower interest rates and "the good financial health of the Generalitat" allow it to once again seek credit from private banks and obtain better terms. In any case, the government has not yet set a date for financing itself through the markets as it did before 2012, when it even resorted to so-called patriotic bonds, i.e., debt sold to individuals.

The debt crisis in Europe caused the markets to close to the autonomous communities seeking financing. In this context, various instruments emerged through which the State provided territorial liquidity, which culminated in the FLA. This year, the Generalitat (Catalan Government) requested €8.481 billion from the FLA, of which €8.048 billion is to cover debt maturities, €308 billion to meet the deficit target of 0.1% of gross domestic product (GDP), and €125 billion for other purposes.