Marches’ ICL primarily hinges on our view that, throughout our forecast horizon (2012-2014), the region will continue to apply cost containment measures; preserve its sound budgetary performance; and hence comply with the fiscal rules set out by the Italian stability pact.
We see downside risks on the region’s revenue side. Particularly, we estimate that central government transfers through the national health care budget will grow sluggishly. Health care is the Italian regions’ main responsibility. In the case of Marches, we anticipate a low compound annual growth rate of 1% in 2012-2014, far from the 2.5% average annual growth over 2007-2011.We also
anticipate that other revenues will fall, on the back of the ongoing national public spending review.
That said, we anticipate that Marches will continue to deploy cost containment measures and structural reforms that should partly offset slack revenue growth. Consequently, we forecast continuing balanced health care accounts and operating surplus over 2012-2014 (although dwindling to 4% on average during
2012-2014, from 8% in 2011).
Our assumption that the region will successfully buffer the impact of sluggish revenue growth is also based on our positive views on financial management. In the past, regional managers have effectively streamlined costs, so as to ensure a balanced budgetary performance in the regional health care sector since 2007. We assess Marches’ financial management as “strong,” as our criteria define the term.
Despite declining operating margins, we forecast limited deficits after
capital accounts on accrual terms–ranging from 0.7% to 1.1% of total revenues in 2012-2014; balanced after capital accounts in cash terms; and declining debt levels below 25% of consolidated operating revenues by 2014 (down from 40% in 2006). Our forecasts are based on the assumption that Marches would likely scale down annual new investments, in line with national fiscal rules.
Marches’ cautious debt management policy hinges on its good proportion of fixed-rate debt instruments–currently 65% including a share of debt hedged through derivatives–in its portfolio, which lessens the region’s exposure to interest rate fluctuations. Also, Marches’ ratio of debt to cash-based
operating balance at only three years strengthens debt sustainability,
particularly against a backdrop of reduced central government support for LRGs not fully offset by fiscal reforms…
See on in.reuters.com
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