Italian Economy Minister Giancarlo Giorgetti attends the 249th Anniversary of the Foundation of the Guardia di Finanza (Financial Police), in Rome, Italy, 21 June 2023. EPA-EFE/FABIO FRUSTACI


Italy won’t reduce vast debt pile anytime soon, IMF warns


Italy will now still be stuck with a debt burden above 140 per cent of gross domestic product even in five years’ time, according to the International Monetary Fund.

Predictions by the Washington-based lender for the eurozone’s third-biggest economy show its pile of borrowings barely shrinking over the next half-decade.

According to the numbers released by the IMF in the World Economic Outlook at its annual meetings in the Moroccan city of Marrakech, Italy’s debt ratio will be 140.1 per cent in 2028 — more than 8 percentage points worse than it foresaw in April. The projections don’t reveal the full path to reaching that point.

Even in the near term, the numbers are worse. For this year, the fund reckons the burden will come out at 143.7 per cent, more than 3 percentage points higher than figures released last month by Italian officials.

The IMF projections incorporate the “fiscal plans included in the government’s 2023 budget and amendments,” according to the WEO.

Italy’s large debt pile has long been a focus of investors, and a corresponding worry for officials in Brussels and Frankfurt who have been periodically called upon to help the country in moments of market turmoil. Just this week, a senior Bank of Italy official warned of the implications of the Meloni government’s borrowing plans.

“The high debt-to-GDP ratio is a serious element of vulnerability,” Sergio Nicoletti Altimari told lawmakers on Monday. “It reduces fiscal space to face possible future negative shocks, exposes the country to the risk of financial-market tensions, and raises the cost of debt for the state, and ultimately for families and companies.”

Italy’s challenge has long been in restoring its growth potential. The IMF cut its forecasts for expansion this year and next to 0.7 per cent for each year, down from 1.1 per cent and 0.9 per cent in July’s WEO.

“What is behind this is a relatively weak domestic demand as some of the incentives on home renovations had expired and we also observed a collapse in investment in construction,” Petya Koeva Brooks, the IMF’s deputy director for research, told reporters. “We also saw a weaker trade environment which contributed to this downgrade.”

The IMF’s worsening scenarios for Italy contrast with the new debt numbers for Germany and France, which both saw improvements.