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marginal privatizations to reduce debt

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marginal privatizations to reduce debt

Italy is facing high and rising interest costs e structural pressures on spending – on healthcare, welfare and pensions due to the aging population – which put a strain on its debt trajectory given the economy’s weak growth prospects. In this context, the partial privatizations announced by the Government would reduce the debt/GDP ratio “only marginally” and are “deeper reforms are needed“. Scope Ratings states this in a report on the topic, estimating growth of around 1% per year in 2024-28 for Italy, in a context of low inflation.

It is recalled that Giorgia Meloni’s government has focused on measures to support growth supported by PNRR funding and plans to partially privatize some companiesincluding those providing public services.

“Actually, the piano to raise 20 billion euros (1% of GDP) in privatization proceeds modest in the context of Italian public debt and associated interest expenses of over 70 billion euros in 2023, expected to rise to around 90-100 billion euros in the coming years,” is the report.

Privatizations will not affect debt/GDP

“Although the proceeds may support the government’s short-term spending prioritieslike the 24 billion euros of tax cuts announced in the 2024 Budget, will not substantially lower the debt/GDP trajectory – write the authors Eiko Sievert and Alessandra Poli – To achieve this goal a credible medium-term plan for fiscal consolidation will be needed, as well as the effective implementation of reforms and investments to support growth under the recovery and resilience plan”.

According to Scope Ratings, the Fiscal consolidation will remain crucial in the coming years as continued containment of public sector spending is needed to offset high interest expenses, while the planned partial privatisations, assuming they go ahead successfully, make only a small contribution.

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Inflation was good for public finances

Il debt/GDP ratio fell from 147.1% in 2021 to 137.3% in 2023, supported primarily by high inflation, but upward pressure on the ratio will come from high interest spending in coming years as inflation eases. The ratings agency expects the headline budget deficit to narrow to 4.5% of GDP this year from 7.2% in 2023 – significantly higher than the 5.3% of GDP previously forecast – and fall to around 3 % by 2027-28. The primary balance it is expected to gradually improve and turn into a surplus of 0.3% in 2025 and rise steadily to around 1.5% in 2028.

Previous Italian governments have sought to raise revenue by selling shares of public companies, raising proceeds of €156 billion between the late 1980s and early 2000s. Such privatization plans, however, reflect one-off revenues that cannot cope with structural pressures on spending.

Goodbye future dividends

The list of companies potentially involved in the latest privatization plans aiming for 20 billion euros in revenues includes some that provide important public services such as Poste Italiane, Scope Ratings notes. Although the State would retain control directly or indirectly through its combined participation via CDP, it would also give up a share of its future dividend incomeworth almost €250 million in 2022, which it has typically reinvested to support economic development and infrastructure investment


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