Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly-rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Kingdom of Spain (A-/Negative; S-1/Negative) on 4 February 2021, incorporating the update from the sovereign methodology. The review resulted in no action on the assigned ratings. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

The Kingdom of Span’s long-term ratings of A- are underpinned by the following credit strengths: i) Spain’s euro area membership, and in particular, the forceful European monetary and fiscal policy response to the Covid-19 shock; ii) the country’s large and diversified economy; and iii) the gradual reduction of external and financial imbalances. These factors increase the country’s resilience to economic shocks and allowed for the implementation of a countercyclical fiscal response to the current crisis. Challenges relate to: i) high public and external debt levels; ii) elevated structural unemployment and low productivity growth; and iii) political fragmentation obstructing the implementation of structural reforms. The Negative Outlook reflects Scope’s view that risks to the ratings are tilted to the downside over the next 12 to 18 months. The ratings could be downgraded if: i) the economic recovery is weaker than expected; ii) public finances are not placed on a firm downward trajectory once the recovery takes hold; and/or iii) reforms are introduced that adversely impact the economic and fiscal outlooks. Conversely, the Outlook could be revised back to Stable if: i) the economic recovery is faster than expected, and, in that context, a credible medium-term fiscal consolidation strategy is implemented; and/or ii) reforms addressing labour market and productivity challenges are introduced, that raise the country’s growth potential.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Alvise Lennkh, Executive Director.

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