Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly-rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Italy (BBB+/Negative; S-2/Stable) on 3 March 2021, incorporating the update from the sovereign methodology. The review resulted in no action on the assigned ratings. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

Italy’s long-term ratings of BBB+ are underpinned by the following credit strengths: i) EU and euro-area memberships and access to the programmes and facilities of European institutions including to ECB asset purchases and the Next Generation EU Fund; ii) systemic relevance of Italy with respect to the euro area and associated high likelihood of contingent support from European institutions under severe scenarios; iii) a strong external sector; and iv) moderate levels of non-financial private-sector debt. These factors raise resilience to economic and financial shocks and support implementation of an appropriate countercyclical fiscal response to the present crisis. In addition, with the recent appointment of Prime Minister Mario Draghi, there is momentum behind a structural reform agenda. Challenges relate to: i) very high and structurally increasing government debt and structurally higher government gross financing needs after the crisis; and ii) adverse demographics alongside comparatively weak productivity-growth dynamics. The Negative Outlook represents Scope’s opinion that the risk to ratings remains skewed to the downside. The ratings could be downgraded if: i) a material weakening in the outlook for debt sustainability and/or significant structural increase in annual gross financing needs is likely; ii) expectations regarding the economic-growth outlook observe significant downside risk; and/or iii) support from European institutions is weakened, exposing Italy’s elevated debt stock to greater refinancing risk and/or questioning the contingent timely support from European facilities under stressed scenarios. Conversely, the Outlook could be revised to Stable if: i) there is convergence around a sustainable post-crisis reform programme that balances raising growth potential with a deeper reflection of Italy’s limited fiscal space – enhancing the debt sustainability outlook by placing the debt ratio on a durable downward trajectory; and/or ii) structural long-term transfer of Italian sovereign debt to European institutions is seen and/or some form of a mutualisation of public debt is seen to a macro-economically relevant degree.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Director.

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