ITALY - Fitch, the ratings agency, today warned that the Italian pension reforms were not "drastic enough" and would still not solve the problem of rapidly escalating fiscal costs.
Affirming Italy’s long-term foreign currency and local currency ratings at ‘AA’ with a stable outlook, Fitch warned of a fiscal slippage.
Nick Eisinger (pictured), a director in Fitch's Sovereign Group said: “The pension reform in not drastic enough and it won’t really solve the problem of rising costs.
“The huge political resistance has resulted in a dilution of the whole reform process. And despite reforms, it’s still a very generous system.”
In its ratings report, Fitch said fiscal consolidation and reducing the public debt burden was necessary if public finances were to absorb the medium and long-term fiscal pressures associated with an ageing population.
Starting from 2015, the fiscal costs of the state pension and healthcare schemes are expected to rise steadily and peak around 2040.
“If the bill is approved by parliament, it will go some way to curbing these future costs, but will still not prevent additional costs (per annum) of perhaps 2%-3% of GDP at the peak,” said the ratings agency.
Eisinger added that the implementation of further pension reform would help “underpin” Italy’s sovereign ratings.
Fitch said that public finances, a key driver of Italy's sovereign rating, had deteriorated in the face of weak economic growth and an easing of fiscal policy.
And even with the use of one-off temporary measures such as securitisation of real estate assets and tax amnesties, the 'headline' budget deficit will also come close to 3% of GDP this year.
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