Meloni Gets Italian Budget Boost With 2023 Debt Revised Down

Alessandra Migliaccio, Giovanni Salzano and Alice Gledhill
·3-min read

(Bloomberg) -- A multi-year revision of Italy’s data removed almost three percentage points off its debt ratio, offering a boost to premier Giorgia Meloni’s government as it prepares to unveil new budget targets.

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Nominal gross domestic product is now judged to have been €42.6 billion ($47.2 billion) higher in 2023 than previously estimated, according to Istat, the Rome-based statistics agency. That means that debt as a percentage of output was only 134.6%, instead of 137.3%.

The revisions arrive just in time for Meloni’s government, which is set to unveil fiscal targets this week and present them to Brussels, whose officials have placed the country in a special monitoring regime because of a budget shortfall far in excess of the European Union’s 3% limit.

A bigger measurement of nominal GDP in the euro zone’s third-biggest economy automatically changes the proportional calculations behind its debt and deficit numbers, meaning that the coalition may have a few billion euros more available to fund its plans than before.

“The revisions communicated by Istat today are small and don’t change the principles of the fiscal plan already reviewed by the cabinet” last week, Finance Minister Giancarlo Giorgetti said in a statement on Monday, adding that the proposal will be tweaked accordingly.

Giorgetti is also due to present a 2025 budget in the coming weeks, and the accounting adjustment may offer some help as ministers look for about €25 billion to meet generous election promises.

They include a costly 10 billion euro wage tax cut pledged to voters, that Meloni and her coalition ally and League leader Matteo Salvini don’t want to give up on.

Ministers have been looking at asset sales, intensified cost cuts and delayed retirement measures as options to balance the books, according to people familiar with the matter.

Some form of levy on banks is also being considered although the failure of a similar measure last year aimed at taxing lenders has made the government cautious.

Meloni ally and Forza Italia leader Antonio Tajani has been particularly vocal in opposing such a measure unless it is done with the agreement of banks.

For its part, the market is not unduly concerned over the fiscal outlook, and investors remain confident that Meloni will continue to appease Brussels by working to reduce the government’s deficit.

As a result, the extra yield on Italian 10-year bonds over equivalent German paper — a closely-watched gauge of Italian risk — has been relatively stable this year, holding at around 135 basis points.

Mauro Valle, head of fixed income at Generali Asset Management, said the firm recently increased its long position in Italian bonds, citing the government’s intentions to manage the country’s debt level over the long term, as requested by the EU. He sees the Italian-German bond spread remaining between 120 to 150 basis points.

That’s a far cry from the 250 basis points seen two years ago, when the ECB was raising rates. And with the central bank now unwinding that tightening, concern over debt affordability should ease further.

One less rosy outcome in the data released on Monday was a weaker overall growth performance in 2023 than previously reported. The economy expanded 0.7% instead of 0.9%, the data show.

The multi-year reassessments reflect the inclusion of new data to improve measurement of output for the exceptionally volatile period when Covid-19 shuttered economies before a rebound took hold. The numbers had already been tweaked upwards, and both Spain and the UK revised up output for prior years too.

(Updates with markets starting in 11th paragraph)

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