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Italian regions are largely responsible for healthcare provision with healthcare accounting for 80% of their operating expenditure. The regions operate within a supportive institutional framework, which has ensured that the central government has absorbed the bulk of the Covid-19 pandemic-related costs providing extraordinary support and mitigating near-term budgetary pressures on the regions’ finances.

“The regions’ responsibilities in healthcare limit their budgetary flexibility, as large proportions of revenue and expenditure are in the form of earmarked healthcare transfers,” says Giulia Branz, associate analyst at Scope Ratings. “At the same time, they increase the likelihood of support from the central government, as demonstrated by the Covid-19 crisis, which protects regions’ finances in the short term.”

Regional healthcare-sector deficits narrowed in recent years, partly through restructuring plans under central-government oversight.

“However, the need for heavy investment in public health, exposed by the pandemic and partly to meet the needs of Italy’s ageing population, is likely to permanently raise healthcare costs,” says Branz. “The regions now face more limited budgetary flexibility and greater reliance on the central government for redistributing healthcare funds,” she says.

In the context of wider economic discrepancies across Italian regions, the need to ensure minimum standards of healthcare and provide equal per capita healthcare financing requires a significant redistribution of financial resources. Economically-stronger regions finance a large part of their needs with their own taxes, but weaker regions rely more on central-government transfers and equalisation flows.

As healthcare costs structurally increase, the share that regions can cover with their own taxes is set to gradually decline, absent a significant restructuring of the overall framework.

The reform process related to the fiscal federalism reform of 2009, aimed at enhancing fiscal responsibilities and overcoming transfer-based regional finance, has been postponed multiple times in the last decade.

If this process in the direction of greater fiscal autonomy for Italian regions takes place, at the same time, strong redistribution mechanisms to ensure the provision of fundamental services in the whole national territory have to be constructed.

“Rising pressures on the healthcare-financing framework requiring large fiscal redistribution and greater central-government funding will further strengthen the operational, fiscal and financial interlinkage between regions and the central government,” concludes Giacomo Barisone, managing director of sovereign and public-sector ratings.

Moreover, despite the availability of EU funds for healthcare investment and the overall supportiveness of the framework, a track record of uneven administrative capacity across regional governments will continue to weigh on individual regions’ creditworthiness.