Home » IMF: Italy country with spread focus, debt-GDP not only does not fall but rises. The appeal to Meloni

IMF: Italy country with spread focus, debt-GDP not only does not fall but rises. The appeal to Meloni

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IMF: Italy country with spread focus, debt-GDP not only does not fall but rises.  The appeal to Meloni

The IMF has launched a new alert on Italy’s public finances, in particular on the country’s excessively high public debt.

“Italy is an advanced economy characterized by high debt, it is a country where traditionally there is concern about the bond market (therefore BTPs) and about the spread”, the International Monetary Fund recalled, thus referring to the trend of the BTP-Bund spread, constantly monitored by international markets.

In presenting the Fiscal Monitor report, the IMF’s request to the Meloni government was clear, through the voice of Victor Gaspar. Italy launches a “credible adjustment” of public finances.

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GDP debt: new attention from the IMF. The appeal to the Meloni government

“A credible adjustment of accounts – underlined Victor Gaspar, director of the public and fiscal accounts department of the International Monetary Fund, – it would be important to put (Italian) debt on a downward trajectory in a sustainable way.”

The appeal was launched after yesterday, during the presentation of the World Economic Outlook (WEO), the IMF reeled off its estimates on the trend in the world‘s debt-to-GDP and deficit-to-GDP ratios, therefore also of Italy:

estimates that highlighted what the Def just announced by the Meloni government had already decreed, i.e. the upward trajectory of the debt. Debt, it must be said, which the IMF certainly does not see growing only in the case of Italy given that, as we read in the Fiscal Monitor, “four years after Covid-19, Deficits and debts remain above pre-pandemic levels, driven upward by high interest rates and continued stimulus measures.” which have been launched by various governments.

In this regard, the Fiscal Monitor referred to the burden on Italian public accounts of the Superbonus.

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“The path to normalization – we read in the document – it will require great efforts, especially in the big election year,” the IMF report continues.

The comparison between the debt-GDP outlook of the Def and the IMF

The IMF outlook must be compared with that on public finances issued by Economics and finance document which the Council of Ministers approved at the beginning of the month.

As regards the deficit, the Def states that, “in the trend scenario, net debt to GDP for the year 2024 is forecast at 4.3 percent, in line with that indicated by the Technical Explanatory Note (NTI) 2024, albeit with higher revenues and higher expenses of 0.4 pp”, while “for the years 2025 and 2026, the updated forecast is higher by 0.1. pp compared to the programmatic objectives, 3.7 percent in 2025 and 3.0 percent in 2026. In 2027, the general government account would record a deficit of 2.2 percent.”

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The GDP deficit is instead estimated by the International Monetary Fund at 4.6% for this year, therefore higher than that expected by the Def, and 3.2% for the next one, therefore lower than that expected by the Meloni government.

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As for the debt, the IMF instead forecasts Italy’s debt-to-GDP ratio to rise to 139.2% in 2024, 140.4% in 2025, and 144.9% in 2026.

Meloni’s Def estimates for 2024, 2025 and 2026 respectivelyand a public debt at 137.8%, 138.9% and 139.8% of GDPvalues ​​all below the 140% threshold which Italy, according to the latest estimates from the International Monetary Fund, it will exceed in the two-year period 2025-2026 and subsequently.

The IMF projections, which run until 2029, are of Italy’s debt-to-GDP at 143.1% in 2027, 144.7% in 2028 and 144.9% in 2029.

That is: Italy’s debt-GDP not only will it not decrease in the next few years, but it will continue to increase.

For Italy, the probability of debt stabilization is less than 50%

The trajectory of Italy’s debt-to-GDP ratio is therefore expected to grow by the institution of Washington in a more significant way than expected by the Meloni government in that Def which, despite only announcing the trend outlook, was more than sufficient to revive new questions about Italy’s ability to avoid a new erosion of its accounts in the long term.

The point is that the IMF did not limit itself to making its usual recommendations to Italy. Meanwhile, in its report, the Fund wrote that “global debt is expected to increase to a level close to 100% of GDP by 2029” and that “the increase will be led by some large economies (for example, China, ‘Italy, the United Kingdom and the United States)”: with these words the institution practically confirmed how Italy is among those big players in the global economy who will help inflame debt around the world, in relation to gross domestic product.

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It does not end here, given that Italy was also taken by the IMF as an example of an analysis, which goes so far as to predict that “the probability that Italy will be able to present a primary deficit needed to stabilize its debt level is less than 50%.”

A factor which indicates, precisely, as Victor Gaspar later underlined, “the need for further fiscal efforts in the next two years.”

Not good news for Meloni’s Italy, which has already received the bad news, again signed by the IMF, of an outlook that sees its GDP do worse than all the G7 countries during 2025, in the midst of a situation in which the saving intervention from Christine Lagarde’s ECB is still awaited, this time in the form of rate cuts.

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