Madrid shows the lowest debt level relative to its regional GDP among Spain’s communities.
Its debt amounts to 13.5 percent of its regional GDP, roughly a third of the nation’s total. By contrast, the Valencian Community stands around 44 percent and Catalonia about 33.4 percent. Yet Madrid bears an interest load on public debt of 0.29 percent of GDP, a burden Valencia shares and Catalonia nearly matches at 0.40 percent of GDP.
National Accounts data on regional finances for 2022, released on March 30 by General Government Intervention, were followed by updates from the IGAE and the Bank of Spain the next day. These sources illuminate the interest burden carried by the different communities. The financial recovery mechanism created by the government at the end of 2012, known as the Autonomous Liquidity Fund (FLA), has reached its tenth year. Freedom in regional finances comes with a price, shaped by how each region finances itself.
Freedom has a price…
Analysts note that Madrid carries the same interest burden as Valencia despite having about one third of Valencia’s public debt. This outcome reflects the policy choice Madrid made during the 2012 crisis: to keep funding itself in the financial markets rather than lean on state aid through the FLA. The FLA offered cheaper financing than the Treasury but came with stricter oversight. The Treasury estimated potential savings in interest payments of around €22,000 million for the first five years if the mechanism had been used by these communities.
Many regions faced volatile budgets and remained tied to Treasury funding. Catalonia, Valencia, and Murcia faced such pressure. Yet in the initial five years of the mechanism, the Treasury recorded notable reductions in interest costs for the participating regions.
Madrid, the Basque Country, and Navarra could finance themselves without joining the program from the start. Later, funding gaps affected regions like Galicia, Castilla y León, the Canary Islands, and Asturias, as explained by Cesar Cantalapiedra, a partner at AFI Consultores de Administraciones Públicas.
That ongoing financial independence under the shadow of higher issuance costs helps explain why Madrid bears a similar interest load to Valencia in relation to GDP, despite triple the overall debt.
A related takeaway comes from how much of each community’s annual income goes toward interest. A recent Scope Ratings study using IGAE data at the end of 2022 shows Madrid as the least indebted region but with the second highest share of current income earmarked for interest payments at 2.5 percent. Catalonia dedicates 2.8 percent. Valencia, with debt triple Madrid’s, allocates 1.8 percent of its current income to interest.
Financial autonomy from the FLA
The analysis highlights Madrid’s greater financial autonomy. Along with the Basque Country, Madrid stands among the few Spanish regions that do not rely on central government liquidity lines. Higher financing costs accompany this freedom, yet it remains preferable to regions that depend most on public debt financing, such as Catalonia and Valencia, which account for more than 80 percent of the total debt, according to the Scope Ratings analyst report.
Flight-like numbers show that 84.5 percent of Catalonia’s liabilities are in state hands through instruments like the FLA. For Valencia, the rate is 83.5 percent. Nearly 92 percent of Cantabria’s debt is state-owned, with Murcia at 86 percent. Regions with lower dependence on the FLA include Madrid, the Basque Country, Navarra, Castile and Leon, the Canary Islands, Asturias, and Galicia, each with smaller shares of FLA-linked debt.
The data point to a clear conclusion: Madrid, the Basque Country, and Navarra have enjoyed steadier income because they did not participate in the FLA. In contrast, regions with higher debt that benefited from Treasury financing sometimes paid a lower interest rate in certain years but faced higher exposure to market shifts over time, a long-term consequence noted by analysts.
Another finding places the Balearic Islands as the fifth-highest debt level among regions, at 26.6 percent of GDP. Their debt is twice that of the Basque Country and higher than Madrid, yet their annual interest payments run close to the Basque rate and about half of Madrid’s commitment to interest.
…the last laugh
The story closes with the familiar refrain that freedom carries a price. The twist is this: a sustainable path exists for districts that choose self-financing and longer-term debt management. Cesar Cantalapiedra notes that the Treasury remains the cheapest financing option for many communities, and the FLA previously offered near-zero interest with a short term. The choices made in different years shape how communities weather rising rates and shifting economic conditions. The idea that the best outcome goes to those who plan well echoes through the numbers as markets adapt and regions reassess their financing strategies. (Source: General Government Intervention; IGAE; Bank of Spain; Scope Ratings.)