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Italy is biggest recipient of EU pandemic recovery funds
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But falling behind schedule in agreed reforms, spending
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DBRS warns against changing plan, extending deadlines
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Says Rome dragging its feet on needed competition reforms
By Sara Rossi and Alessia Pe MILAN, April 13 (Reuters) - DBRS on Thursday joined other ratings agencies in warning Italy that further delays, or revisions, to its COVID-19 Recovery Plan agreed with the European Union would hurt its economic growth prospects and debt sustainability. The European Commission last month froze an overdue 19-billion-euro ($20.50 billion) tranche of Italy's post-pandemic funds, requesting clarification over its efforts to meet the policy "targets and milestones" needed to unlock the money. Italy is also behind schedule in using the 67 billion euros it has already received. "Should delays continue, this would jeopardize the implementation in full of Italy's plan and reduce the positive impact the plan could have in raising potential GDP growth," DBRS senior vice president Carlo Capuano told Reuters in emailed comments. DBRS's warning adds to concerns already expressed by Moody's and Scope, which have both cautioned explicitly of a possible impact on the country's credit rating. Italy is due to get 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.
"HIGHER DEBT, LOWER GROWTH" Rome's initial timetable set out in 2021 envisaged spending more than 40 billion euros by 2022, but this goal was repeatedly revised down, as red tape and inefficiency slowed the roll-out of projects. So far it has spent only around 20 billion, and less than 4 billion was spent in 2022. As delays have accumulated the government has aired various possibilities, including trying to change the agreed spending programmes, or trying to push back the 2026 deadline. DBRS said both options were undesirable.
Revising Italy's plan towards projects which are easier to implement but have less impact on the economy would mean "a higher stock of public debt, but lower growth scenario," Capuano said. An Italian proposal to finance some projects using EU "cohesion funds" which can be spent until 2029 instead of 2026 would require co-financing by the Rome government and therefore lead to a higher budget deficit, he added. This month a lawmaker from the co-ruling League party called for Italy to renounce some of the EU transfers altogether because it was unable to spend them. This option was quickly ruled out by Prime Minister Giorgia Meloni, who took office last October. She insists Italy will receive and spend all the money and has blamed her predecessor Mario Draghi for the delays. Capuano said Meloni's coalition appeared reluctant to pass some reforms agreed with Brussels, particularly those related to improving competition in the economy. "In our view, delays or dilutions in reforms due to political reasons is not encouraging and is a key issue to monitor closely," he said. Scope ratings told Reuters last week that significant delays in the implementation of reforms or investment projects "would be negative for the country's credit rating," while Moody's issued a similar warning in a report in mid-February. Moody's and Fitch declined to comment for this article, while Standard & Poor's said it was not appropriate to comment ahead of its formal review of Italy's rating on April 21. (writing by Gavin Jones; Editing by Sharon Singleton)
