UPDATE 1-Italy delays over Recovery plan negative for rating - Scope

(Adds quotes, detail, background) By Sara Rossi and Alessia Pe MILAN, April 3 (Reuters) - Significant delays in Italian efforts to meet the targets in its pandemic Recovery Plan would likely lower the country's medium-term growth prospects, with a negative impact for its credit rating, Scope Ratings said on Monday. The European Commission has frozen an overdue 19-billion-euro tranche of post-pandemic funds under its Next Generation EU (NGEU) programme, and Italy has until the end of April to persuade Brussels to release the money. "The timely implementation of NGEU-related reforms and investments is critical to raise the country's medium-term growth prospects, and thus ensure the sustainability of its public finances," Scope Ratings analyst Alvise Lennkh-Yunus said in comments emailed to Reuters. "Significant delays in the implementation of reforms or investment projects would thus likely lower Italy's medium-term growth prospects, which would be negative for the country's credit rating." Italy is due to receive a total of around 200 billion euros
($216.80 billion) of EU Recovery Fund cash in grants and cheap loans through 2026, making it the single-largest beneficiary in absolute terms. However, it is falling behind schedule both in meeting the "targets and milestones" agreed with Brussels in its reform plan, and also in spending the money it has already received. Lennkh-Yunus pointed out that more than half of the NGEU funds are loans, thus affecting Italy's already sky-high public debt, so it is vital that the money results in higher growth over the medium-term to ensure Rome's debt sustainability. Meeting the goals agreed with Brussels is one of the main challenges for Prime Minister Giorgia Meloni's rightist government that took office in October last year. To gain some flexibility, Italy's EU Affairs Minister Raffaele Fitto has begun talks with Brussels to replace some projects from its original recovery plan, which it now realises it cannot complete by a 2026 deadline. "The extent to which the Italian government can deploy EU funds in a timely and growth-enhancing manner will critically inform our rating outlook," Lennkh-Yunus said. He added that the rating agency will carefully monitor whether Brussels continues to disburse the EU funds to Italy according to plan, and whether any delays are Italy-specific or also observable across other EU member states. Scope Ratings is seen as the leading European credit rating agency, and is in talks with the European Central Bank to become one of its recognised agencies, joining Standard and Poor's, Moody's, Fitch and DBRS. The EU's Economy Commissioner Paolo Gentiloni said on Saturday he was confident that Rome would get the latest instalment of the funds. ($1 = 0.9225 euros) (editing by Gavin Jones)