Italy’s significant budget deficit and soaring debt, coupled with delays in post-COVID EU fund spending, could undermine investor confidence, the International Monetary Fund (IMF) cautioned on Monday. In its annual Article IV report on Italy’s economy, the IMF stressed the importance of achieving a primary surplus—excluding debt servicing costs—of around 3% of GDP to ensure a declining debt-to-GDP ratio. Currently, Italy plans to reduce its deficit below the EU’s 3% threshold by 2026, but the debt is projected to rise towards 140% of GDP by that time. This year, the government forecasts a primary deficit of 0.4% of GDP, down from 3.4% in 2023.
The IMF warned that domestic factors, such as failure to complete post-pandemic spending and implement reforms effectively, could hinder growth and erode investor confidence, further weakening public finances. Additionally, the IMF recommended raising the effective retirement age to manage the expensive pension bill. Despite these challenges, the IMF projects Italian GDP growth at 0.7% for 2024 and 2025, driven by EU funds offsetting the phase-out of renovation incentives. The IMF also highlighted the need for a faster fiscal adjustment to lower the debt ratio and reduce financing risks, while advising banks to use increased profits to bolster resilience against future shocks and diversify funding sources.