ROME: Italy's public debt will only start falling as a proportion of economic output from 2027 despite a more positive trend in addressing its significant budget deficit, the Treasury said in its multi-year fiscal plan published on Saturday.
The euro zone's third largest economy has a level of debt that is the second largest in the monetary zone as a share of GDP and under close scrutiny from rating agencies and markets.
The debt is targeted at 135.8 per cent of GDP this year from 134.8 in 2023, and seen rising to 136.9 per cent in 2025 and 137.8 per cent in 2026, before marginally declining to 137.5 per cent in 2027.
The Treasury said the increase was due to costly home renovation incentives adopted in the wake of the COVID pandemic – the so-called Superbonus.
Economy Minister Giancarlo Giorgetti said in the document that a prudent and credible fiscal policy was crucial to attacking the burden of debt and interest expenditure.
The multi-year budget plan, to be presented to the European Commission next month after parliamentary approval, forecasts gross domestic product will grow by 1.0 per cent in 2024, 1.2 per cent in 2025 and 1.1 per cent the following year, in line with previous estimates made in April.
The Treasury targets this year's budget deficit at 3.8 per cent of national output, below the 4.3 per cent estimated in April.
After declining to a projected 3.3 per cent of GDP next year, below a previous 3.6 per cent goal agreed with the EU, the deficit is seen at 2.8 per cent in 2026, below the EU's 3.0 per cent ceiling, according to the latest estimates.
All figures factor in revisions to economic growth data for 1995-2023 unveiled this week, which gave a modest boost to Prime Minister Giorgia Meloni's government.
The EU put Italy under an "excessive deficit procedure" this year after the 2023 deficit reached 7.2 per cent of GDP.
The government also needs to comply with the latest reform of the bloc's fiscal rules, which requires slow but steady cuts in the headline deficit and debt from 2025 over four to seven years, depending on reform commitments and strategic investments.
To this end, the Treasury said it planned to limit the average annual increase in Italy's net primary expenditure, an indicator that measures spending components under the government's direct control, to close to 1.5 per cent.
"From 2027, debt will begin to fall in line with new EU rules that call for an average reduction of 1 percentage point of GDP following the exit from the excessive deficit procedure," the Treasury said.