KBRA Affirms A-/K1 Ratings for the Kingdom of Spain; Stable Outlook

KBRA Europe (KBRA) affirms the Kingdom of Spain’s long-term issuer ratings of A-. KBRA also affirms the short-term issuer ratings of K1. The Outlook on the long-term ratings is Stable.

KBRA's affirmation of the ratings reflects Spain’s enhanced economic resiliency since the European debt crisis, driven by competitiveness gains, public sector reforms, increased importance of exports, and widespread private sector deleveraging, that underpins solid pre- and post-pandemic growth. Recent growth has also been supported by energy security and a buoyant tourism sector. The pandemic has contributed to a large-scale deterioration in fiscal metrics, albeit the headline budget deficit and the government debt-to-GDP ratio have since considerably improved. That said, tackling the structural deficit as well as further debt consolidation will be more challenging. In addition, while contained in historical terms, financing costs are elevated compared to some peers and the ECB has had to support Spanish debt. The Stable Outlook balances Spain’s strong post-pandemic economic performance, constructive labour market improvements and consolidating fiscal metrics against political uncertainty that could delay necessary reforms and investments needed to tackle some medium-term growth challenges, such as subdued productivity, high structural unemployment, and demographic pressures. European Union recovery funds should help to put the economy on a path towards improved longer-term fiscal health, although government debt ratios will remain elevated over the medium term. The Outlook also considers relative resilience to energy security, as well as inflationary pressures and tighter monetary policy that weigh on economic growth and public finances. KBRA acknowledges that conflict in the Red Sea adds to the risks, however Spain is not overly exposed.

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