IMF: “Italy will have to make further budgetary efforts in the next two years. The debt must be put on a sustainable decline trajectory”

The Meloni government cannot count on an increase in the deficit to finance the next budget law. The challenge comes from the International Monetary Fund, which on Tuesday had released worsening estimates on Italian growth. Today in its Fiscal monitor it predicts an increase in debt/GDP much higher than that foreseen in the Economic and Financial Document […]

The Meloni government cannot count on an increase in the deficit to finance the next budget law. The high comes from International Monetary Fund, which on Tuesday had released worsening estimates on Italian growth. Today in his Fiscal monitor predicts an increase in debt/gdp much higher than expected in Economics and finance document and therefore prescribes to Italy “further budgetary efforts in the next two years.”

The debt trajectory in 2023 has improved complicitly inflation and a higher-than-expected increase in GDP, but in 2024 it began to rise again and will continue to do so. “In recent years Italy has grown, but going forward the dynamics are not favourable: growth is expected to slow down financing costs debt will rise” he warns Vitor Gaspar, director of the Fiscal Affairs Department of the International Monetary Fund. “There are spending pressures. Our recommendation is that a credible would be important adjustment budget to put debt on a sustainable downward trajectory.”

In fact, the Fund estimates that this year the debt will rise from 137.3% of GDP to 139.3%, well above the 137.8 estimated by the Ministry of Economy, and the trend should proceed upwards, to 140.4% for 2025, 142.6% for 2026, 143.1% in 2028 and 144.9% in 2029. While the Def hypothesizes that in the coming years it will never exceed 140% of GDP. Even the deficit, according to the Fiscal monitor, is higher than the government’s trend estimates: this year it would stand at 4.6%. Then it would reduce to 3.2% in 2025, 3% in 2026 and 2.9% in 2027.

At the moment the probability that Italy will reach the primary deficit necessary to stabilize its debt levels (estimated at more than 0.5% of GDP for 2024) is less than 50%, which indicates “the need for further fiscal efforts over the next two years,” notes the IMF. The Peninsula is among the countries that are pushing global debt towards 100% of GDP, a figure that could be reached by 2029, and therefore “need to Act to address fundamental imbalances between spending and revenues”.

However, a brake could come from the fact that “2024 is what is defined as the ‘great election year‘: 88 economies or economic areas representing more than half of the world’s population and GDP have already held or will hold elections during the year. Support for increasing government spending has grown across the political spectrum in recent decades, making this year particularly so demandingas empirical evidence shows that fiscal policy tends to be more loose and the largest deviations during election years.”