Fitch issues positive progress report on Italy
The Italian austerity package outlined by Prime Minister Mario Monti has eased the near-term pressure on the country’s rating by strengthening the credibility of its attempt to balance its budget in 2013, says Fitch Ratings.
Its outlook on the country’s A+ rating remains Negative, reflecting the need for Italy to deliver substantive structural reforms to enhance growth, and to demonstrate that it still has access to the bond market ahead of a heavy redemption schedule next year.
The Negative outlook is also in part due to the continuing eurozone sovereign debt crisis, says Fitch. But as the agency noted in October, “meeting its fiscal targets could help Italy address the crisis of confidence in the country’s debt sustainability and therefore help stabilize its rating.”
The new measures include the re-introduction of a property tax, cuts in pension liabilities, increases in the minimum retirement age, cuts in subsidies to local authorities, and a planned increase of two percentage points in VAT from October 2012.
Fitch says the Italian Treasury expects to make additional net savings of €20bn annually, or about 1.3% of GDP.
This should offset the expected mild decline in Italian GDP next year and deliver the “additional fiscal measures of at least €12bn” that Fitch said in November were needed to balance the budget in 2013.
Fitch concludes: “The overall message that the package conveys – that the Italian government is seeking to deliver a credible fiscal consolidation programme over and above that already outlined this summer – is encouraging.”