ITALY: Moody’s Places Italy’s Baa2 Rating on Review for Downgrade

Tuesday May 29 2018

On 25^th May 2018, Moody’s Investors Service placed the Government of Italy’s ratings on review for possible downgrade. Ratings placed under review are the Baa2 long-term issuer and senior unsecured bond ratings as well as the (P) Baa2 medium-term MTN programme, the (P)Baa2 senior unsecured shelf, the Commercial Paper and other short-term ratings of Prime-2/(P) Prime-2 respectively.

The key drivers for today’s initiation of the review for downgrade are as follows:

1. The significant risk of a material weakening in Italy’s fiscal strength, given the fiscal plans of the new coalition government; and
2. The risk that the structural reform effort stalls, and that past reforms such as the pension reforms implemented in 2011 are reversed.

 Conversely, Moody’s stated that the rating would likely be downgraded if policies enacted or anticipated proved insufficient to place the public debt ratio on a sustainable, downward trajectory in the coming years

Moody’s decision not to downgrade the ratings immediately was based on its rationale that there inevitably exists substantial uncertainty whenever a new government is formed regarding that government’s intentions and capacity. While this is the case Moody’s noted that to date Italy has maintained reasonably solid public finances for a long period of time and under different governments.

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