MILAN (Reuters) - A decision on Italy’s debt by Standard & Poor’s and Moody’s is approaching fast with both agencies due to review the country’s ratings this month.
Following is a summary of the main rating agencies’ stance
Moody’s S&P Fitch DBRS
Rating Baa2 BBB BBB BBB (high)
Outlook rating stable negative stable
Moody’s will decide by the end of October whether to cut Italy’s debt ratings after extending the review period to have more details on the government’s budget plans.
It had placed Italy’s “Baa2” rating on review for a possible downgrade in May, citing pledges in a government pact signed by the anti-establishment 5-Star Movement and the far-right League to increase spending, cut taxes and scrap a key 2011 pension reform.
A downgrade to “Baa3” would take Italy to just one notch
above junk status.
Moody’s had changed its outlook on Italy to “negative” in December 2016 after voters rejected a key constitutional reform, prompting then-Prime Minister Matteo Renzi to resign.
At the onset of the euro zone crisis in 2011, Moody’s rated Italy’s debt “Aa2”, which had remained unchanged since 2002 and stood six notches above the current rating.
S&P is scheduled to review its ratings on Italy on Oct. 26.
The agency rates Italy’s debt “BBB” with a stable outlook, following an upgrade from “BBB-“ in October last year.
The unexpected move was S&P’s first upgrade of Italy since it started rating the country in 1988. The agency cited a strengthening economy, diminishing risks to banks and expectations of improving public finances.
S&P affirmed Italy at “BBB” on April 27, warning that the rating would come under pressure if a new government strayed from the path of budgetary improvement or unwound past reforms.
Fitch on Aug. 31 cut its outlook on Italy’s “BBB” rating to “negative” saying it expected a degree of fiscal loosening from the new coalition government that would leave the country’s high debt more exposed to potential shocks.
The agency cited “the new and untested nature of the government, the sizeable policy differences between its coalition partners, and inconsistencies between the high cost of ... (electoral promises) .... and its stated objective to reduce public debt.”
Italy lost its last remaining “A” mark when DBRS downgraded the country to “BBB (high)” from “A (low)” in January 2017.
On Sept. 25 DBRS’s co-head of sovereign ratings Nichola James told Reuters Italy’s investment-grade credit rating could absorb a further rise in the country’s debt.
The agency had last affirmed Italy’s rating with a stable trend in July, saying a strengthening economy and banks’ improving health offset significant political risks.
DBRS expects Italy to run a higher budget deficit under the new government, but without putting at significant risk an expected decline in public debt as a share of gross domestic product.
DBRS plans to reassess the situation in the autumn after the 2019 budget.
Reporting by Valentina Za