Domain ratings: “Pnrr key to Italian debt sustainability”

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2024 will be the year in which European governments committed to raising resources through debt issuance will be on a tightrope: the year in which they will have to confront what Scope Ratings describes as “a game of delicate balances.” The agency – which the European Central Bank listed last November 10 among the appropriate agencies to act as an external credit assessment institute in the European system (Credit assessment framework of the European systemEcaf) along with Dbrs, Fitch, Moody's and S&P – in effect contrasting the benefits that government bonds will gain from the direction of monetary policies and the continued reduction of the balance sheet by the Euro Tower: two factors expected during the year that will contribute to “increasing the steepening of the yield curve” and in this way “will limit emissions “It will have an impact on investor behavior.”

Italian debt

The most anticipated champion in this field is Italy, which Scoop currently rates as “Bbb+” with a “stable” outlook, with its debt of unenviable proportions and rates higher than any other country in the region for a long time, including Greece. “Implementing the investment and reform plan The next generation of the European Union “It is fundamental to the country's growth trajectory and therefore to the sustainability of its public finances,” notes Without Half Measures Alvis Linkh Yunus, head of the team that tracks sovereign issuers for Scope Ratings.

According to the expert, the need to fully exploit the potential direction of monetary policy becomes more important “given the increase in the interest burden, which according to our expectations will exceed 4% of GDP, and the financial pressures resulting from the associated expenses.” Population aging is virtually inevitable in the coming years. The two elements just mentioned ultimately lead to “a reduction in the fiscal space available to Italy, which is also limited to necessary investments.” green “It is linked to the energy transition and increased defense spending.”

Growth and debt

For 2024, Scope Ratings forecasts a growth of 0.8% in our country, which is then expected to be close to 1% in the three-year period 2025-2028. All this was on the condition that there were no further external shocks, that interest rates had already reached their maximum levels, but above all “that the implementation of the National Action Plan, as recently reviewed and approved by the European Commission, continues.” Meanwhile, the budget deficit can only fall gradually to around 3% in 2027-2028. The primary balance is also expected to improve and turn into a surplus of 0.25% of GDP in 2025, then rise to about 1.5% by 2028.

As a result of the dynamics identified so far and due to a higher interest burden than in the past, the Italian deficit is expected to remain at a level close to or above the “fateful” 3% of GDP in the medium term and, on this basis, The debt-to-GDP ratio is expected to remain essentially stable at around 141% in the coming years. It is precisely at this point that the issue of the new Stability Pact comes into play, which attracts our attention To countries with high debt (and therefore also to Italy) when determining the expected fiscal correction for the three-year period 2025-2027, it is allowed to apply a “discount” to take into account the increase in interest expenses that occurred in this period.