Açoriano Oriental
CA warns of sustainability risks of regional finances

The Court of Auditors (CA) identifies risks of sustainability of regional public finances as a result of its structurally deficient position, and states that the situation may worsen with the pandemic, in its Opinion on the Accounts of the Autonomous Region of the Azores, which includes reservations and emphasis on the lawfulness, financial correction and omissions of the Accounts.

Autor: Paula Gouveia

In the Opinion on the Region Accounts, handed yesterday by the President of the AC, José Tavares, to the President of the Legislative Assembly, Luís Garcia, the court warns of budget deficits, the worsening of public debt, exceeding the legally fixed debt capacity and negative primary balances, which add up to high future contractual obligations and financing needs for the coming years.

For the CA, this situation could be aggravated by the Covid-19 pandemic, given the lack of budgetary margin to accommodate the exceptional measures adopted in the fight against the crisis that followed it, particularly the case of the civil aviation sector and the SATA group.

According to the Accounts data, revenue from the entire regional administrative public sector reached EUR 1 847.6 million, 282 million euros more than in 2018, with 794.7 million of its own revenue, 425 million of transfers and 627.9 million euros of financial liabilities.

Expenditure, in turn, was EUR 1 793 million, 242 million euros more than in 2018, of which 920.7 million in current expenditure, 368 million in redistribution of funds, 424.5 million in financial liabilities and 79.8 million in capital expenditure.

For the CA, the rule of budgetary balance, in view of the Budget Framework Law of the Autonomous Region of the Azores, was not observed. Therefore, the Region presents a negative overall or effective balance of 82.9 million euros, reflecting, nevertheless, an improvement of 2.3 million euros, compared to 2018.

The numerical rules of budgetary balance and regional debt limits laid down in the Finance Act of the Autonomous Regions have also not been respected, the Court of Auditors says. This is because the current balance, deducted from average loan repayments, was negative in EUR 329.8 million, exceeding the annual legal current deficit limit by EUR 279.1 million, and the total debt of the regional administrative public sector may have exceeded at least in EUR 646.6 million (43.9%) the limit set for that purpose.

According to the CA, the total debt of the regional administrative public sector has maintained the growth trajectory observed in recent years, with an increase of EUR 208.5 million (+10.9%), reaching at least 2120.6 million (48% of the GDP of the Autonomous Region of the Azores in 2019), of which EUR 1850.1 million is related to financial debt.

The debt of regional public authorities outside the budgetary perimeter also continued on the upward trajectory of previous years, with an increase of EUR 91 million, stopping at 838.5 million at the end of 2019. Of these, EUR 391 million (46.6%) concern the SATA group.

The need for a multiannual programming framework
Among other aspects, the Court reinforces, in its opinion, the need for the budgetary procedure to be supported in a multiannual budgetary programming framework, drawn up in line with the Finance Act of the Autonomous Regions, and highlights the lack of foreseen budgetary and financial statements reported over the same time period and prepared in accordance with the Accounting Standardization System of Public Administrations (SNC-AP).

It also stresses the importance of accountability by de facto treasury entities.

For the Court of Auditors, the region's main challenge is debt sustainability, considering that the ongoing restructuring of the regional public sector may not be sufficient, "in view of the deteriorating situation of those entities and their dependence on transfers and bank credit".

The Court of Auditors provides several recommendations to the Regional Government, with a view to improving the areas of budgetary programming and its implementation, account consolidation, treasury and information provided in the Accounts.

Among the recommendations to the Regional Government is presenting to the parliament a proposal for a multiannual budgetary programming framework; presenting consolidated fiscal and financial statements in accordance with the SNC-AP; demonstrating in the Accounts, as a reference to the entire regional administrative public sector, the degree of compliance with the legal limits applicable to debt and the execution of active operations; as well as organizing entities with treasury functions in order to fulfil the accountability obligation for all the funds used.

Positive points
The Court highlights as positive aspects: the improvement of transparency and the quality of the information provided, exemplifying with the fact that the Accounts present, for the first time, information on the limits set in the Finance Act of the Autonomous Regions for the total debt of the regional administrative public sector, as well as the use of short-term debt of entities integrated into the budgetary perimeter.

Other improvements pointed out are the elimination of an exceptional extension of the complementary period of budgetary implementation and the progressive transition to the SNC-AP (which 40% of entities already have); as well as the inclusion, for the first time, in the consolidated account, of information on opening and closing balances and on extra-budgetary transactions.

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