Moody’s threaten to cut Italy’s sovereign debt
MILAN: Moody’s on Friday threatened to cut Italy’s debt ratings, citing risks that a new government will weaken its public finances and retreat from previous reforms.
Italy holds the world’s thirdlargest public debt, totaling 2.3 trillion euros ($2.7 trillion) at the end of March, and is vulnerable to a rise in refinancing costs.
The Rome Treasury plans to issue 240 billion to 250 billion euros in bonds this year, rising to 400 billion euros when short-term bills are included.
The agencies see Italy’s membership of the single currency a key factor supporting its rating.
Rating on review
Moody’s has placed Italy’s “Baa2” rating on review for a possible downgrade, citing pledges in a government pact signed by the anti-establishment 5-Star Movement and the far-right League to increase spending, cut taxes and scrap a key 2011 pension reform. A downgrade to “Baa3” would take Italy to just one notch above junk status. Moody’s had changed its outlook on Italy to “negative” in December 2016 after voters rejected a key constitutional reform, prompting then-Prime Minister Matteo Renzi to resign.
In October 2017, the agency affirmed Italy’s rating with a negative outlook, citing the government’s success in stabilizing Italy’s banks and a stronger-thanexpected economic recovery.
At the onset of the euro zone crisis in 2011, Moody’s rated Italy’s debt “Aa2”, which had remained unchanged since 2002 and stood six notches above the current rating.
S&P’s rates Italy’s debt “BBB” with a stable outlook, following an upgrade from “BBB-“in October last year.
The unexpected move was S&P’s first upgrade of Italy since it started rating the country in 1988. The agency cited a strengthening economy, diminishing risks to banks and expectations of improving public finances.
S&P’s affirmed Italy at “BBB” on April 27, warning that the rating would come under pressure if a new government strayed from the path of budgetary improvement or unwound past reforms.
S&P’s next assessment of Italy’s debt is scheduled on Oct. 26.
Fitch confirmed Italy’s rating at “BBB” with a stable outlook on March 16, shortly after an inconclusive election, which the agency said increased the risk of budgetary slippage and weakened the outlook for reforms.
Fitch expects Italy’s public debt to decline gradually and monitors political developments that may damage Rome’s economic and fiscal policies.
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