Public Debt in Italy

Overview

Public debt represents the total outstanding debt (bonds and other securities) of a country’s central government. It is often expressed as a ratio of Gross Domestic Product (GDP). Public debt as a percentage of GDP is usually used as an indicator of the ability of a government to meet its future obligations.

Public debt data are collected by the Bank of Italy (BoI), which assists the Ministry of the Economy and Finance (MEF) in the management of the public debt. Criteria to identify government units as well as debt instruments are based on the European System of National Accounts (ESA 1995; ESA 2010 as of Q2 2014), which in turn is based on the System of National Accounts (SNA 1993). The Bank of Italy database collects monthly data for public debt reaching back to January 1862.

Italy Public Debt Performance

Data for 2013 set public debt at a ratio of 132.6% against GDP, the highest level since unification in 1861. At the current level, Italy’s public debt as a percentage of GDP is the fifth largest worldwide.

The build-up of such a sizable debt burden was largely the result of lax fiscal policies over the course of the 1970s and 1980s—Italian governments were running primary deficits to finance large public investment projects and the creation of a welfare state. Italy was forced to bring its debt under control over the course of the nineties, as the country struggled to meet the 60% threshold for public debt as a percentage of GDP established by the Maastricht Treaty for accession to the euro. After reaching a previously-unseen peak of 124.8% in 1994, debt as a percentage of GDP moderated to 113.1% in 1999 when Italy adopted the common currency.

Debt consolidation continued in the following years and debt hit a 13-year trough in 2007, coming in at 103.3% of GDP. The onset of the global financial crisis in 2008 and the subsequent recessions that Italy experienced in 2008 and 2009 prompted debt reduction trend to reverse. As fears mounted that the country would be unable to repay its debt, international investors fled from the Italian debt markets and—at the end of 2011—yields on the Italian debt skyrocketed to previously-unseen levels, putting the sustainability of the country’s finances at risk.

Yields on the country’s debt moderated in the months following the European Central Bank’s (ECB) announcement of the Outright Monetary Transaction (OMT) program in which the ECB committed itself to buying bonds of debt-ridden countries in the Eurozone to safeguard the stability of the monetary union. Despite the indirect support of the ECB and a raft of austerity measures approved by recent governments, Italy has not been able to reduce its debt-to-GDP ratio, which currently stands at the highest level on record.

Composition of Italy Public Debt

75% of Italy’s public debt is constituted by long term bonds (i.e., maturity greater than one year). According to the most recent BoI data, the average residual life of outstanding government securities is of 6.4 years, which is down from a record-high of 7.7 years recorded in 2010. Around 60% of Italy’s public debt is held by resident holders. Italian financial institutions—including in particular banks and insurance companies—hold a sizable part (around 75%) of the total debt held by residents. The role of domestic banks and financial institutions became prominent during the Euro debt crisis between 2010 and 2012. Many foreign investors fled from Italian debt markets as uncertainty about the sustainability of the country’s finances mounted. At the same time, Italian lenders invested the proceeds of cheap long-term ECB loans in high-yield government bonds, thus propping up their profits that had been hit by years of recession. That said, since the ECB launched the OMT program in September of 2012 and pressure on the Eurozone peripheral countries eased, foreign presence in the Italian debt market has begun to pick up again, albeit modestly.

When are Italian Public Debt Released?

The BoI publishes public debt figures on a monthly basis. In addition, twice a year, in April and October, the BoI reports public debt data to Eurostat, in compliance with the rules for the Excessive Deficit Procedure (EDP). A detailed calendar with the next release dates for Italy’s public debt data is available on the BoI’s website.

How are Italy Public Debt Figures Computed?

The BoI uses various sources to collect its public debt data. The bulk of the information is collected directly by BoI through its securities database, which collects data on financial instruments issued or traded by Italian residents. Further data are collected from a variety of different sources, including the MEF, Eurostat, the National Institute of Statistics (Istat) and the European Investment Bank (EIB).

How Accurate are Italian Public Debt Numbers?

The BoI revises its public debt data with each new release, as new information is added by the different sources. The switch from the European System of National and Regional Accounts 1995 (ESA 1995) to ESA 2010 will have an impact on the elaboration of public debt figures, as the list of institutional units belonging to the government sector will be revised.

Why are Italian Public Debt data important?

Public debt as a percentage of GDP is an important gauge of the sustainability of the country’s finances, as it represents how much the country owes to its lenders. In the case of Italy, public debt is of chief importance, as the country holds the fifth largest debt-to-GDP ratio worldwide and the second largest in the Euro area. For this reason, Italian public debt data have a notable impact in the market and are closely watched. The development of the public debt figure is a measure of whether Italy’s quest to rein in public spending and improve the sustainability of its finances is successful.

Where Can I Get forecasts for Italy’s Public Debt?

Forecasts for the Italian public debt are elaborated by many sources. The government, banks, consultancies and think tanks closely watch the Italian economy and regularly update their projections for Italian Public debt. FocusEconomics collects more than 30 different forecasts on Italy Public debt and provides an average (Consensus Forecast) from the economists surveyed. Together with the minimum and the maximum projections for Italian public debt, you receive a comprehensive overview on Italy’s future public debt data.

Forecasts for Italy’s public debt are included in the monthly FocusEconomics Consensus Forecast for Italy, the monthly FocusEconomics Consensus Forecast for the Euro Area and the monthly Major Economies (G7 and BRIC) reports. All reports are available both on an ad-hoc basis and via an annual subscription (including optional Excel support). Download a free sample or purchase the report directly via our Online Store. The report is available immediately after purchase.