Moody’s, carrot and stick for the new government: “We will probably downgrade but with reforms the vote can improve”

The US rating agency Moody’s, which postponed updating its opinion on Italy after the elections while awaiting the formation of a new government, warns that the rating could be reduced in the absence of reforms. “We would probably downgrade Italy’s ratings if we were to see a significant weakening of prospects of medium-term growth of the country, due to the lack of implementation growth-enhancing reforms, including those outlined in the Pnrr ”, the analysts write in an update report. Even “fiscal and / or economic policies that weaken market sentiment and the increase in debt levels in the medium term” would lead to a drop in ratings from the current Baa3.

Moody’s highlights the factors that would lead to a change in the rating on Italy, even positively. “Although a rating increase is unlikely in the near futurewe would consider changing the outlook to stable (from negative, ed) if “there was evidence” that the next government is committed to implementing structural reforms to support growth, including those outlined in the NRP “and if this” were accompanied by a credible medium-term fiscal consolidation plan that would prevent a significant increase in debt “.

The rating judgment captures a debtor’s reliability and his presumed ability to repay his obligations. In the case of a sovereign nation, it means regularly paying interest on government bonds and repaying them once they mature. In addition to Moody’s, the other most important agencies in the world are Standard & Poor’s and Fitch. In the case of Moody’s the grades range from Aaa, which indicates the highest level of reliability, to Ca, which indicates the level immediately before insolvency. (D by default). Below an A3 valuation, the investment in that security is considered speculative. The rating agencies’ judgment is also taken into consideration by the European Central Bank, below a certain level of reliability, government bonds cannot be included in purchase programs, known as quantitative easing.