OREANDA-NEWS. Fitch Ratings says the weak liquidity of the Autonomous Community of Catalonia (Catalonia, BB/B/Negative) as well its large short-term (ST) debt redemptions due in 2016 call for proactive debt management and a collaborative relationship with the central government.

Catalonia has to redeem EUR4,627m in short-term debt in 2016, representing close to 7.5% of total debt, and roughly 25% of its current revenue), from EUR5,173m in 2015. Catalonia at end-2015 had over 49.4% of the total ST debt of the autonomous communities of EUR9.9bn. Catalonia's weak budgetary performance means the region is likely to roll over the ST debt.

The region is seeking to convert part of these ST liabilities into longer-term debt, which according to the Budgetary Stability Law requires approval from the Council of Ministers of Spain since Catalonia did not meet its fiscal objective. The Catalonian administration had planned to convert into longer-term debt three redemptions maturing in November and December 2015 and January 2016 with a financial institution. As approval for this was still pending from the central government, these maturities were refinanced as ST debt until August 2016.

The long-term liabilities of Catalonia are currently reimbursed and controlled by the central government via the liquidity mechanisms supporting autonomous communities. Liquidity assistance includes treasury advances to autonomous communities, on request, to alleviate peak liquidity demands, and Catalonia will receive a EUR350m treasury advance soon for such purpose.

However, even if not explicitly excluded from support, the current liquidity mechanism does not specifically cover ST liabilities, which means that autonomous communities will still rely on the continued willingness of financial institutions to roll over debt.

Fitch has been informed by government officials that the central government is considering an extension of the liquidity support programme for autonomous communities to include ST debt. This will reduce potential delays to receiving approval and reinforce the government's intention to ensure that regions fully meet all financial liabilities when due.

Fitch will continue to closely monitor the liquidity position of Catalonia and the rest of autonomous communities with significant ST refinancing risk. If the liquidity support is not strengthened, Fitch will assess the rating impact on affected regions.