Italy’s debt and deficit levels are falling, according to new data from the Italian government and the International Monetary Fund (IMF). However, the two authorities hold differing views on the rate of change.
The Italian government predicted this week that the country’s public debt would fall to 142 per cent of its gross domestic product (GDP) this year. Next year, it will decrease further to 141.2 per cent, before falling to 140.4 per cent in 2026, according to the government’s budget outline.
The IMF was more optimistic, predicting debt would be 140.3 per cent of GDP this year, 140 per cent next year, and 136.9 per cent in 2026.
According to the Italian government, its budget deficit will be 4.5 per cent of GDP this year, falling to 3.7 per cent, 3 per cent, and 2.5 per cent respectively over the next three years.
These are the first full-year economic estimates released since the government of Prime Minister Giorgia Meloni came to power last October.
Last year, Italy’s public debt was 144.4 per cent of its GDP, and the government’s budget deficit was 8 per cent of the size of the overall economy.
Italy is one of the world’s most indebted countries in terms of debt as a percentage of GDP. Both debt and deficit levels shot up during the COVID-19 pandemic due to a spike in government spending and a slowdown in economic activity, and a corresponding reduction in tax revenue.
Italy’s debt and deficit levels are both well above the guidelines given under the European Stability and Growth Pact, which limits debt to 60 per cent of GDP, and budget deficits to 3 per cent of GDP, in order to maintain the stability of the euro currency. However, the terms of the pact were temporarily relaxed during the pandemic.
Italy has called for the pact to be updated, with Meloni stating last month it should be focused more on incentivizing policies aimed at increasing economic growth, and less on macroeconomic data.
This is expected to be a topic of conversation at next week’s European Council budget committee preparatory meeting, and at the next European Council summit, scheduled to take place in June.
Italy is also among the European Union member states calling for a reform of the European Stability Mechanism, established to boost stability in the eurozone by providing financial assistance to countries during economic crises. Italy was the largest beneficiary of the mechanism during the pandemic, receiving more than 200 billion euros (220 billion U.S. dollars) in grants and loans which were paid out in tranches dependent on Italy reaching certain reform targets.
On Wednesday, European Commissioner for Economy Paolo Gentiloni said in a televised interview that Italy’s third payment from the mechanism would be delayed by “a few weeks”.
