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Central government to borrow in spite of budget surplus

  In consolidated terms, the 2005 central government budget shows a surplus of 0.3% of the GDP. This positive balance arises from the compensation between the surplus in Social Security and the respective deficits of the central government, autonomous bodies and other public bodies, such as the Nuclear Safety Council, the Economic and Social Council, the Central Government Taxation Agency, the Cervantes Institute, the Spanish Agency for Protection of Information, the Foreign Trade Institute, the National Intelligence Centre and the Prado Museum.

  In spite of this positive balance, the budget shows a net borrowing requirement, that is to say, a financial imbalance of 14.08 billion euros, equivalent to 1.5% of the GDP. This situation is not something new this year but rather is a normal recourse in the presentation of the public accounts. Year after year the central government net financial requirement has exceeded total revenues.

  Why does this discrepancy take place? Accounting regulations make possible, for example, that certain opening amounts are registered as financial investments which, because of their nature, would come closer to real investment spending. An example would be the provision of funds by the central government to the Railway Infrastructures Administrator which is more like a non-repayable investment (as are public investments in infrastructures) than a financially recoverable investment.

  Remaining recourse to an increase in financial assets is oriented along similar lines. In general, this involves the granting of loans or property allocations to companies forming part of the corporate public sector, to those institutions belonging to the public foundations sector and to a series of entities operating under public law which do not have their own legal entity, such as the Development Aid Fund, the Foreign Investment Fund, Micro-Credit Fund (social development programmes abroad), Tourist Infrastructure Modernization Fund and the Fund for Foreign Investment by Small and Medium-sized Businesses.

  Specifically, the most notable allocations in the 2006 budget, among other purposes, go into programmes of research and development under the Ministry of Industry (2.77 billion euros) and the Ministry of Education and Science (860 million euros), Railway Infrastructures Administrator (1.85 billion euros), Development Aid Fund (850 million euros), loans to highway infrastructures promoters (679 million euros), to RENFE operating company (404 million euros), the new central government corporation for Land Transport Infrastructures (400 million euros), to programmes for reindustrialization of depressed areas (215 million euros) and the Tourist Infrastructure Modernization Fund (70 million euros). These transactions would appear to be closer to spending than to financial investment.

  Apart from measures undertaken through financial accounts, the budget also contains authorization of guarantees which involve further government spending to the extent that they cover the losses of Spanish Radio and Television and government corporations showing losses. These guarantees, which show up as deficits in the figures for National Accounting, do not, however, appear in the financial accounts shown in the budget.

  The amounts guaranteed, on the other hand, are very large: 226.59 billion euros to cover losses attributed to Spanish Radio and Television (apart from an operating subsidy for an amount of 578.58 million euros) or 180.3 million for RENFE operating company. Of more significance is the amount of guarantees which may be applied by SEPI (Sociedad Estatal de Participaciones Industriales) for the benefit of companies in which it has holdings for certain credit or guarantee transactions. The maximum amount to be guaranteed is 1.21 billion euros, a figure higher than estimated net losses of the public corporate sector (1.02 billion euros).

  In spite of these high deficits, the fact is that in terms of the GDP they have lost relative importance, given that nominal growth of the economy has exceeded the volume of these public deficits. This explains the downward trend shown by the public debt in relation to the GDP, a trend which is indicative of the health of the government accounts in recent years which in 2006 are expected to drop to 43.0% as against 46.6% in 2004.

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