Public sector contingent liabilities in Spanish toll roads

Abstract

A number of the Spanish motorways are facing serious financial distress due to cost overruns and revenue shortfalls caused by low-traffic. The traffic deficit is explained by both the economic crisis and the overestimation of the expected roads usage. The government has granted them guarantees that should be characterized as contingent liabilities. Do they represent a threat to the Spanish public debt goal? The paper finds that the potential impact is limited. The estimated net present value of contingent liabilities ranges between 0.09% and 0.18% of nominal GDP. The extension of the term needed to economically re-balance the concessions implies an opportunity cost to the government ranging from 0.23% to 0.32% nominal GDP. However, a failure in solving the problems of insolvency of toll roads could generate a greater impact on the level of public debt, since a permanent increase between 2 and 4 basis points in the risk premium would have the same impact that assuming all the contingent liabilities.