Italy: Partial Privatisations Would Reduce Debt-to-GDP Only at the Margin; Deeper Reforms Required

The list of companies potentially involved in the latest privatisation plans targeting EUR 20bn in proceeds includes some that provide important public services such as Poste Italiane (rated by Scope Ratings BBB+/Stable). The Italian universal postal provider also operates the country’s largest network for distribution, insurance and financial services.

The government, through the Ministry of Economy and Finance, directly holds 29.3% of Poste’s capital, in addition to 35% owned indirectly through Cassa Depositi e Prestiti (CDP, rated by Scope BBB+/Stable), with the remaining 35.7% in free float. At the end of January, the government approved a decree to sell part of Poste’s state-owned capital.

While the state would retain control directly or indirectly through its combined stake via CDP, it would also forego a share of its future dividend income, worth almost EUR 250m in 2022, which it has usually reinvested to support economic development and infrastructure investment.

Successful Investment Of NGEU Funds Crucial For Improving Italy’s Growth Prospects

As the largest recipient of NGEU funds, Italy has achieved 34% of its milestones and targets under the Recovery and Resilience Facility, with payouts to date of EUR 41.5bn in grants (EUR 68.9bn allocated) and EUR 60.9bn in loans (EUR 122.6bn allocated). The government estimates that planned structural reforms could raise GDP by 10% in the long term, with the biggest gains from labour market, education and public administration reforms.

All bonds used to finance NGEU must be issued before end-2026. This could pose a challenge for the government for allocating funds efficiently given Italy’s past record of a low absorption rate of EU funds compared with other member states.

Tackling high public debt remains important for Italy’s sovereign rating, which could come under pressure if the fiscal outlook were to deteriorate or if medium-term economic growth weakens, resulting in higher debt-to-GDP.

In this context, continued support from European institutions remains crucial. This includes eligibility of Italian bonds for European Central Bank programmes such as the Transmission Protection Instrument, and in turn compliance with the EU’s revised fiscal rules, as well as Italy’s successful implementation of the Recovery and Resilience Plan.

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Alessandra Poli is an Analyst in Sovereign and Public Sector ratings at Scope Ratings GmbH. Eiko Sievert, Director at Scope and lead analyst on Italy, contributed to writing this article.