Introduction

Italy is implementing several strategies to manage its budgetary constraints and address its long-standing debt challenges:

Structural Budget Plan (PSB)

Italy has unveiled an ambitious Structural Budget Plan aimed at stabilizing public finances and reducing its deficit:

The plan targets a deficit-to-GDP ratio of 3.8% in 2024, with the goal of falling below 3% by 2026.

A small primary surplus of 0.1% is projected for 2024, seen as a “moral target” after years of primary deficits.

The structural primary balance is forecasted to average 1.1% of GDP from 2025 to 2029.

Fiscal Consolidation

The government is pursuing aggressive fiscal tightening:

The general government deficit is expected to drop significantly from 7.2% in 2023 to 3.8% in 2024.

This reduction is driven by phasing out energy price mitigation measures and housing renovation tax credits.

The primary balance is projected to turn positive in 2024, reaching 0.1% of GDP.

Economic Growth Targets

Italy aims to support its budget through economic growth:

Real GDP growth is projected at 1.0% for 2024, with expectations of 1.0% in 2025 and 1.2% in 2026.

The government is relying on the National Recovery and Resilience Plan (PNRR) to boost GDP by 1.1% by 2031.

Public Investment and Reforms

The budget plan emphasizes public investment and structural reforms:

Focus on fully implementing the PNRR through 2026, targeting key sectors such as judicial reform, public administration efficiency, and digitalization.

Efforts to attract private capital for long-term investments in areas like green energy and infrastructure.

Debt Management

Despite fiscal tightening, Italy’s debt remains a significant challenge:

The debt-to-GDP ratio is estimated at 134.8% in 2023 and is expected to rise to 137.5% by 2027 before stabilizing at 134.9% by 2029.

Interest payments are forecast to reach 3.9% of GDP in 2024, consuming a large portion of public resources.

2024 Budget Measures

The government has announced a €24 billion budget for 2024, including:

Tax cuts and increased spending to support large families and low- to medium-wage earners.

€15.7 billion of extra borrowing to finance the budget.

€2.5 billion allocated to the health sector and wage increases for police and security service workers.

Conclusion

While Italy’s approach aims to balance fiscal discipline with economic reform, some economists warn that aggressive fiscal consolidation could potentially harm growth and risk recession.

The success of these measures will depend on Italy’s ability to navigate its fiscal challenges while maintaining economic stability and growth.