The Valencian Community remains the most indebted autonomous region in Spain by the end of 2023. A new update from the Bank of Spain places the Generalitat’s liabilities at 42.2% of Valencia’s GDP, nearing 58 billion euros. While the absolute debt rose, the debt-to-GDP ratio fell by 1.3 percentage points from 2022 (43.5%), a result of GDP growing faster than debt during the year.
The Carlos Mazón government quickly tied these figures to the legacy left by the Botànic administration. The Finance Ministry attributed the debt trend to a record deficit of 3.86 billion euros carried over from the previous government, which forced new borrowing through the Autonomic Liquidity Fund (FLA) and created fresh credit lines.
Following the Valencian Community, the regions with the largest debt relative to GDP at the end of the last year are Castile-La Mancha (31.9%), Murcia (31.2%), Catalonia (31%), Balearic Islands (22.3%), Extremadura (21.8%), and Aragon (20.3%). In absolute terms, Catalonia tops the chart with nearly 86 billion euros of debt. Only the Valencian Community approaches that level, with 57.993 billion euros. Together, these two regions account for about 44% of the nation’s liabilities.
This tight financial situation comes amid stalled reform of the financing system that has been awaited for a decade. The extension of the General State Budget also blocks the possibility of setting up a leveling fund to temporarily offset chronic model imbalances.
In a statement released by the Generalitat, the finance minister cited a direct link between underfunding and debt. An expert report from the Mixed Commission on financing, which analyzes Valencian finances, concludes that 78% of the 55.033 billion euros of Generalitat debt at the end of 2022 “derives from underfunding and the interest costs of the debt used to cope with it”.
“Botànic Irresponsibility”
But the responsibility is not attributed solely to the system. Merino adds that a substantial portion of the total debt, amounting to 11.755 billion euros, was generated largely by negligent management and reckless use of public resources during the Botànic period, which he says underestimated the consequences of spending freely.
“The data show Valencian residents will pay for the previous administration’s irresponsibility through interest payments that rise with the debt’s unchecked growth, especially evident in the latest months of the Generalitat,” stated the finance minister.
Merino also noted that although interest rates began to rise in the summer of 2022, and not accounting for the impact on new debt contracted to cover the deficit, “the Botànic partners did not end the spending spiral; they actually intensified it.”
In that vein, the minister recalled that during the two legislatures of the previous government, Generalitat debt increased by 42.8%, equivalent to 17.182 billion euros. Much of that debt was financed through FLA provisions to cover deficit overruns dating back to 2016.
Everyday Consequences
“The problem is that Valencians will pay higher interest on the 2.960 billion euros more debt recorded in 2023. That means the 870 million euros that could go to social policies or productive investments will instead go to interest payments this year”, explained the minister.
She highlighted that the Generalitat’s 2024 budget shows a 112% rise in debt interest, reaching 870 million euros.
Furthermore, Merino explained that most of the anticipated debt increase for 2024 will also finance FLA provisions to cover 2023’s deficit, the year the previous budget framework was executed.
Specifically, about 3,000 million of the total 3,358 million euros deficit for 2023 exceeds the 0.3% cap set as a reference for autonomous communities. “Regrettably, the spending inertia of the prior administration kept the deficit above 3.3 billion in 2023, which will significantly raise Generalitat debt again this year,” Merino noted.
p