Moody's: French regional and local governments' pressured finances drive negative 2016 outlook

Reduced central government grants and sluggish economic growth drive the 2016 negative outlook for France's regional and local governments (RLGs), Moody's Public Sector Europe has said today.

"Cuts in government grants will continue at least until end-2017, pressuring RLGs' operating balances, while low economic growth will continue to weigh on their tax proceeds, further squeezing operating margins", says Nicolas Fintzel, a Moody's Analyst and author of the report.

Moody's report, entitled "2016 Outlook -- Reduced Central Government Grants, Low Growth Drive Our Negative Outlook" is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.

"Curbing operating expenses and reducing capital expenditure will be critical for RLGs to prevent their financing deficits from widening. However, we continue to expect their debt stock to increase at a moderate pace going forward", he adds.

The rating agency forecasts that RLGs' gross operating balance will fall to 12% of operating revenues in 2016, from 19% in 2006. Debt issuance will continue to grow as a result, as French RLGs seek to cover their estimated annual financing requirement of EUR18-20 billion. Despite the extensive availability of diverse funding sources (e.g. public sector lenders, commercial banks and capital markets), the low interest rate environment will increasingly support debt issuance in the medium term, says Moody's.

Regions will continue to drive RLG sector debt growth, reflecting their limited operating flexibility and lower willingness to scale back capital expenditure. Meanwhile, Moody's expects debt increases for municipalities and departments to be marginal