Italy budget watchdog casts doubt on government debt reduction pledges

By Giuseppe Fonte

ROME, April 28 (Reuters) - ‌Italy's budget watchdog, ​UPB, ​raised doubts on Tuesday over the government's pledge to put the country's massive debt on a downward path starting from 2027.

In its multi-year budget ‌plan unveiled this month, Italy saw its debt rising from 137.1% ⁠of GDP in 2025 to 138.6% in 2026, before marginally declining to 138.5% in 2027, to ‌137.9% in 2028 and to 136.3% ‌the following year.

"The debt reduction path could prove less successful, particularly if the downside risks associated with the international environment were to materialise," UPB chairperson Lilia ​Cavallari told lawmakers, referring to surging energy costs due to the U.S.-Israeli conflict with Iran.

UPB carried out 5,000 statistical simulations based on temporary shocks to ⁠key macro‑financial variables such as GDP growth, inflation and interest‑rate trends.

"Around half of the statistical simulations produce less ​favourable outcomes than those predicted by the government," Cavallari said.

Under a 'worst-case scenario', Italian debt-to-GDP ratio would rise to around 140% this year, ​she added.

UPB also warned the debt would rise ‌to 139.2% of national output in 2027, rather than fall to 138.5%, should the government fail to meet its asset sale ⁠programme.

The Treasury said projections for the debt-to-GDP ratio factored in asset sales worth 0.2 percentage points this year, 0.5 points in 2027 and 0.1 in 2028, totalling just under 20 ⁠billion euros ($23.39 billion) over the three-year period.

UPB has expressed scepticism about these estimates, noting that Italy ​failed to reach previous revenue goals from privatisations.

Since she took office in late 2022, Prime Minister Giorgia Meloni collected just above 4 billion euros by selling 52.5% of bailed out Monte ‌dei Paschi di Siena and 2.8% of energy group Eni, through several share placements.

Italy's independent audit court has said in recent ‌years that sell-off plans may be substantial "window dressing", aimed at painting a more promising budget ⁠picture.

Even assuming the government's forecasts ‌for the asset sales are ​achieved, Italy is set to become the euro zone's most indebted country this year, replacing Greece.

($1 = 0.8551 euros)

(Editing by Alvise Armellini and ‌Chizu Nomiyama )

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