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Italy could need 10 years to return debt to pre-pandemic levels, Fitch says
George Steer
It could take a decade for Italy’s debt burden to return to pre-pandemic levels and the country is likely to remain in the red until 2040 “even in optimistic scenarios,” ratings agency Fitch has said
Italy’s government debt is expected to rise from 135 per cent of GDP in 2019 to almost 160 per cent in 2021, largely as a result of a pandemic-induced hike in borrowing.
Fitch said Italy’s debt-to-GDP ratio, a key measure of indebtedness, could return to 2019 levels by 2030 if the country keeps to a balanced budget and the economy grows by 4 per cent each year.
In a more pessimistic scenario, in which the southern European country’s economy grows by 1 per cent each year, debt levels are expected to return to pre-pandemic levels by 2086. That is even if the government runs a budget surplus of 2 per cent of GDP.
“The calculations indicate that at least 3 per cent nominal growth rate and primary budget surpluses are required to have a meaningful debt decline,” Fitch said.
The European Central Bank was in December urged by senior Italian officials to consider easing debt burdens by forgiving sovereign bonds it owns. Several countries, including France and Spain, are running budget deficits above 10 per cent of gross domestic product.
The EU’s fiscal rules, which oblige member states to work towards the eurozone’s debt and deficit targets, were suspended for 2020 to 2022 in recognition of the need for large-scale fiscal stimulus to offset the pandemic’s impact.