# EDGAR Filing Document

**Accession Number:** 0000052782
**File Stem:** 0001341004-23-000081
**Filing Date:** 2023-2
**Character Count:** 1268403
**Document Hash:** bf04da5dfec4ec023c0200d7eddd49be
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001341004-23-000081.hdr.sgml**: 20230221

**ACCESSION NUMBER**: 0001341004-23-000081

**CONFORMED SUBMISSION TYPE**: 18-K

**PUBLIC DOCUMENT COUNT**: 112

**CONFORMED PERIOD OF REPORT**: 20221215

**FILED AS OF DATE**: 20230221

**DATE AS OF CHANGE**: 20230221

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** ITALY REPUBLIC OF
- **CENTRAL INDEX KEY:** 0000052782
- **STANDARD INDUSTRIAL CLASSIFICATION:** FOREIGN GOVERNMENTS [8888]
- **IRS NUMBER:** 000000000
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 18-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 033-66360
- **FILM NUMBER:** 23647005

**BUSINESS ADDRESS:**
- **STREET 1:** MINISTRY OF ECONOMY AND FINANCE
- **STREET 2:** VIA XX SETTEMBRE, 97
- **CITY:** ROME
- **STATE:** L6
- **ZIP:** 00187
- **BUSINESS PHONE:** (44) 20 7519 7000

**MAIL ADDRESS:**
- **STREET 1:** C/O SASM&F (UK) LLP
- **STREET 2:** 40 BANK STREET, CANARY WHARF
- **CITY:** LONDON
- **STATE:** X0
- **ZIP:** E14 5DS

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#### FORM 18-K <br> For Foreign Governments and Political Subdivisions Thereof

### UNITED STATES<br> SECURITIES AND EXCHANGE COMMISSION<br> Washington, D.C. 20549

### ANNUAL REPORT<br> of

## THE REPUBLIC OF ITALY<br> (Name of Registrant)

#### Date of end of last fiscal year: December 31, 2021

#### SECURITIES REGISTERED\*<br> (As of close of the fiscal year)

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| | | |
|:---|:---|:---|
| **Title of Issues** | **Amounts as to which<br> registration is<br> effective** | **Names of exchanges on which<br> registered** |
| **N/A<sup>\*</sup>** | **N/A** | **N/A** |

---

#### Name and address of Authorized Agent of the Registrant in the United States to receive notices and communications from the Securities and Exchange Commission:

#### THE HONORABLE MARIANGELA ZAPPIA<br> Italian Ambassador to the United States<br> 3000 Whitehaven Street, N.W.<br> Washington, D.C. 20008

#### It is requested that copies of notices and communications from the Securities and Exchange Commission be sent to:

#### LORENZO CORTE, ESQ.<br> Skadden, Arps, Slate, Meagher & Flom (UK) LLP<br> 40 Bank Street,<br> Canary Wharf<br> London E14 5DS<br> United Kingdom

________________________<br>

&nbsp;&nbsp;&nbsp;&nbsp;• The Republic of Italy files Annual Reports on Form 18-K voluntarily in order for The Republic of Italy to incorporate such Annual Reports into its shelf registration statements.

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&nbsp;&nbsp;&nbsp;&nbsp;1. In respect of each issue of securities of the registrant registered, a brief statement as to:

<br> (a) The general effect of any material modifications, not previously reported, of the rights of the holders of such securities.

There have been no such modifications.

<br> (b) The title and the material provisions of any law, decree or administrative action, not previously reported, by reason of which the security is not being serviced in accordance with the terms thereof.

There has been no such law, decree or administrative action.

<br> (c) The circumstances of any other failure, not previously reported, to pay principal, interest, or any sinking fund or amortization installment.

There has been no such failure.

&nbsp;&nbsp;&nbsp;&nbsp;2. A statement as of the close of the last fiscal year of the registrant giving the total outstanding of:

(a) Internal funded debt of the registrant. (Total to be stated in the currency of the registrant. If any internal funded debt is payable in foreign currency it should not be included under this paragraph (a), but under paragraph (b) of this item.)

See "Tables and Supplementary Information," pages 84 to 90 of Exhibit (1), which is hereby incorporated by reference herein.

(b) External funded debt of the registrant. (Totals to be stated in the respective currencies in which payable. No statement need be furnished as to intergovernmental debt.)

See "Tables and Supplementary Information," pages 84 to 90 of Exhibit (1), which are hereby incorporated by reference herein.

&nbsp;&nbsp;&nbsp;&nbsp;3. A statement giving the title, date of issue, date of maturity, interest rate and amount outstanding, together with the currency or currencies in which payable, of each issue of
 funded debt of the registrant outstanding as of the close of the last fiscal year of the registrant.

See "Tables and Supplementary Information," pages 84 to 90 of Exhibit (1), which are hereby incorporated by reference herein.

---

| | | |
|:---|:---|:---|
| 4.  | (a) | As to each issue of securities of the registrant which is registered, there should be furnished a break-down of the total amount outstanding, as shown in Item 3, into the following: |

---

<sup>(1)</sup> Total amount held by or for the account of the registrant.<br>

<sup>(2)</sup> Total estimated amount held by nationals of the registrant (or if registrant is other than a national government by the nationals of its national government); this estimate needs be furnished only if it is practicable to do so.<br>

<sup>(3)</sup> Total amount otherwise outstanding.<br>

Not applicable. The Republic of Italy files Annual Reports on Form 18-K voluntarily in order to incorporate such Annual Reports into its shelf registration statements.

(b) If a substantial amount is set forth in answer to paragraph (a)(1) above, describe briefly the method employed by the registrant to reacquire such securities.

------

Not applicable.

&nbsp;&nbsp;&nbsp;&nbsp;5. A statement as of the close of the last fiscal year giving the estimated total of:

(a) Internal floating indebtedness of the registrant. (Total to be stated in the currency of the registrant.)

See "Tables and Supplementary Information," pages 84 to 90 of Exhibit (1), which is hereby incorporated by reference herein.

(b) External floating indebtedness of the registrant. (Total to be stated in the respective currencies in which payable.)

See "Tables and Supplementary Information," pages 84 to 90 of Exhibit (1), which are hereby incorporated by reference herein.

&nbsp;&nbsp;&nbsp;&nbsp;6. Statements of the receipts, classified by source, and of the expenditures, classified by purpose, of the registrant for each fiscal year of the registrant since the close of the
 latest fiscal year for which such information was previously reported. These statements should be so itemized as to be reasonably informative and should cover both ordinary and extraordinary receipts and expenditures; there should be indicated
 separately, if practicable, the amount of receipts pledged or otherwise specifically allocated to any issue registered, indicating the issue.

See "Public Finance — Measures of Fiscal Balance," "— The 2022 Economic and Financial Document," "– The Update of the 2022 Economic and Financial Document," "— Revenues and Expenditures," "— Expenditures," "— Revenues," and"— Government Enterprises," pages 64 to 74 of Exhibit (1), and "— Public Debt", pages 75 to 83 of Exhibit (1) which are hereby incorporated by reference herein.

&nbsp;&nbsp;&nbsp;&nbsp;7. (a) If any foreign exchange control, not previously reported, has been established by the registrant, briefly describe such foreign exchange control.

No foreign exchange control not previously reported was established by the registrant during 2021.

<br> (b) If any foreign exchange control previously reported has been discontinued or materially modified, briefly describe the effect on any such action, not previously reported.

No foreign exchange control previously reported was discontinued or materially modified by the registrant during 2021.

&nbsp;&nbsp;&nbsp;&nbsp;8. Brief statements as of a date reasonably close to the date of the filing of this report, (indicating such date) in respect of the note issue and gold reserves of the central
 bank of issue of the registrant, and of any further gold stocks held by the registrant.

See "The External Sector of the Economy — Reserves and Exchange Rates," page 53 of Exhibit (1), which are hereby incorporated by reference herein.

&nbsp;&nbsp;&nbsp;&nbsp;9. Statements of imports and exports of merchandise for each year ended since the close of the latest year for which such information was previously reported. The statement should
 be reasonably itemized so far as practicable as to commodities and as to countries. They should be set forth in items of value and of weight or quantity; if statistics have been established in terms of value, such will suffice.

See "The External Sector of the Economy — Foreign Trade," "— Geographic Distribution of Trade," "— Balance of Payments — Current Account" and "—

------

Balance of Payments — Capital Account," pages 45 to 51 of Exhibit (1), which are hereby incorporated by reference herein.

&nbsp;&nbsp;&nbsp;&nbsp;10. The balances of international payments of the registrant for each year ended since the close of the latest year for which such information was previously reported. The
 statements of such balances should conform, if possible, to the nomenclature and form used in the "Statistical Handbook of the League of Nations." (These statements need to be furnished only if the registrant has published balances of
 international payments.)

See "The External Sector of the Economy — Balance of Payments," pages 49 to 50 of Exhibit (1), which is hereby incorporated by reference herein.

#### EXHIBITS
This annual report comprises:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pages numbered (i) to (vi) consecutively

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following exhibits:

Exhibit (1) — Description of The Republic of Italy

Exhibit (2) — 2022 Stability Programme (Section I of the Economic and Financial Document of 2022), dated April 6, 2022 \*

Exhibit (3) — 2022 Stability Programme (Section I of the Economic and Financial Document of 2022), dated April 6, 2022 – (condensed English version) \*\*

Exhibit (4) — 2022 National Reform Programme (Section III of the Economic and Financial Document of 2022), dated April 6, 2022 (in Italian only) \*

Exhibit (5) — Update of the 2022 Economic and Financial Document, dated September 28, 2022 \*

Exhibit (6) — Update of the 2022 Economic and Financial Document, dated September 28, 2022 – (condensed English version) \*\*

Exhibit (7) — Update of the 2022 Economic and Financial Document (Updated and Revised Version), dated November 4, 2022

Exhibit (8) — Report on Public Debt in 2021, dated October 25, 2022<br>

This annual report is filed subject to the Instructions for Form 18-K for Foreign Governments and Political Subdivisions Thereof.

________________________

\* Filed by paper under cover of Form SE on February 21, 2023.

\*\* Full text Italian version filed by paper under cover Form SE on February 21, 2023.

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#### SIGNATURE
Pursuant to the requirements of the United States Securities Exchange Act of 1934, the registrant Republic of Italy has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rome, Italy on February 21, 2023.

---

| | | |
|:---|:---|:---|
| REPUBLIC OF ITALY | REPUBLIC OF ITALY | REPUBLIC OF ITALY |
| By: <br>| /s/ Dott. Davide Iacovoni | /s/ Dott. Davide Iacovoni |
|  | Name: <br>| Dott. Davide Iacovoni |
|  | Title: | Director General –Treasury |
|  |  | Department – Directorate II |
|  |  | Ministry of Economy and Finance |

---

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#### EXHIBIT INDEX

---

| | |
|:---|:---|
| **Exhibit** <br>| **Description** |
| (1) | Description of The Republic of Italy |
| (2) | 2022 Stability Programme (Section I of the Economic and Financial Document of 2022), dated April 6, 2022 \* |
| (3) | 2022 Stability Programme (Section I of the Economic and Financial Document of 2022), dated April 6, 2022 – (condensed English version) \*\* |
| (4) | 2022 National Reform Programme (Section III of the Economic and Financial Document of 2022), dated April 6, 2022 (in Italian only) \* |
| (5) | Update of the 2022 Economic and Financial Document, dated September 28, 2022 \* |
| (6) | Update of the 2022 Economic and Financial Document, dated September 28, 2022 – (condensed English version) \*\* |
| (7) | Update of the 2022 Economic and Financial Document (Updated and Revised Version), dated November 4, 2022 |
| (8) | Report on Public Debt in 2021, dated October 25, 2022<br>|

---

________________________

**\*** Filed by paper under cover of Form SE on February 21, 2023.

\*\* Full text Italian version filed by paper under cover Form SE on February 21, 2023.

## Exhibit 99.1

**Exhibit (1)**

**** 

#### Description of<br> The Republic of Italy

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#### INCORPORATION OF DOCUMENTS BY REFERENCE
This document is The Republic of Italy's Annual Report on Form 18-K ("**Annual Report**") under the U.S. Securities Exchange Act of 1934 for the fiscal year ended December 31, 2021. All amendments to the Annual Report filed by The Republic of Italy on Form 18-K following the date hereof shall be incorporated by reference into this document. Any statement contained herein, or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded for purposes of this document to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this document.

#### FORWARD-LOOKING STATEMENTS
As required by Form 18-K, The Republic of Italy's most recent budget is filed as an exhibit to this Annual Report. In addition, other Italian Government budgetary papers may from time to time be filed as exhibits to amendments to this Annual Report. This Annual Report, any amendments hereto and exhibits hereto contain or may contain budgetary papers or other forward-looking statements that are not historical facts, including statements about the Italian Government's beliefs and expectations for the forthcoming budget period. Forward-looking statements are contained principally in the sections titled "*The Italian Economy*", "*Monetary System*" and "*Public Finance*." Forward-looking statements can generally be identified by the use of terms such as "will", "may", "could", "should", "would", "expect", "intend", "estimate", "anticipate", "believe", "continue", "project", "aim" or other similar terms. These forward-looking statements include, but are not limited to, statements relating to:

<br> • Italy's goals and strategies;

<br> • potential changes to Italy's legal and regulatory frameworks at the national, regional or municipal level, as well as changes to the European Union's legal, regulatory, and banking frameworks;

<br> • the expected timing of proposed legislation and Italy's ability to effectively implement such legislation;

• the aims of certain legal, regulatory, and economic measures, and the impact of such measures on Italy's political and macroeconomic results and outlook, including with respect to projected government spending, economic growth, national, regional, municipal or local taxation levels, and deficit reductions;

<br> • expected or potential improvements to Italy's banking system and corporate governance regulations;

<br> • forecasts in respect of Italy's economy, including GDP growth, debt-to-GDP ratios and pension expenditures, as well as Italy's implementation of the related government-designed policies;

<br> • Italy's public finance objectives, macroeconomic and finance indicators forecasts, and the potential financial impact of the 2021 National Reform Programme;

<br> • Italy's ability to reduce its net borrowing, net structural borrowings, primary balances and public debts, and the expected timing of such reductions;

<br> • potential or expected improvements in Italy's capital position and capital ratios;

i

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<br> • Italy's ability to increase its revenues through its proposed privatization program, and the expected timing thereof;

<br> • certain terms of bonds which may be potentially issued by The Republic of Italy;

<br> • Italy's inclusion in the European Financial Stability Facility and the European Stability Mechanism, The Republic of Italy's maximum commitment to such programs, and the expected timing of financings to any requesting countries; and

<br> • the availability of funding for European Union members from the European Central Bank, including through its asset-backed securities, covered bonds and euro-denominated securities purchase programs.

Those statements are or will be based on plans, estimates and projections that are current only as of the original date of release by the Italian Government of those budgetary papers and speak only as of the date they are so made. The information included in those budgetary papers may also have changed since that date. In addition, these budgets are prepared for government planning purposes, not as future predictions, and actual results may differ and have in fact differed, in some cases materially, from results contemplated by the budgets or other forward-looking statements. Therefore, those forward-looking statements are not a guarantee of performance and you should not rely on the information in those budgetary papers or forward-looking statements. If the information included or incorporated by reference in this Annual Report differs from the information in those budgetary papers or forward-looking statements, you should consider only the most current information included in this Annual Report, any amendments hereto and exhibits hereto. Certain figures regarding prior fiscal years have been updated to reflect more recent data that were not previously available. You should read all the information in this Annual Report.

There are important factors that could cause actual outcomes to differ materially from those expressed or implied in the forward-looking statements. These factors include, but are not limited to:

<br> • External factors, such as:

<br> • interest rates in financial markets outside Italy;

<br> • present and future exchange rates of the Euro;

<br> • the impact of changes in the credit rating of Italy;

<br> • the impact of changes in the international prices of commodities; and

<br> • the international economy, and in particular the rates of growth (or contraction) of Italy's major trading partners, including the United States.

<br> • Internal factors, such as:

<br> • general economic and business conditions in Italy;

<br> • the level of public debt, domestic inflation and domestic consumption;

<br> • the ability of Italy to effect key economic reforms;

<br> • increases or decreases in Italy's labor force participation and productivity;

<br> • the level of budget deficit and investments;

<br> • the strength of the banking sector;

ii

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<br> • the level of inventories; and

<br> • the level of foreign direct and portfolio investment.

iii

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#### **TABLE OF CONTENTS**

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| | |
|:---|:---|
| Summary Information | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; x |
| REPUBLIC OF ITALY | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Area and Population | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Coronavirus Pandemic | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Government and Political Parties | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The European Union | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Membership of International Organizations | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 11 |
| THE ITALIAN ECONOMY | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Key Measures related to the Italian Economy | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 14 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross Domestic Product | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 22 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Principal Sectors of the Economy | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 24 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Role of the Government in the Economy | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 25 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Employment and Labor | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 29 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Prices and Wages | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 31 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Social Welfare System | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 32 |
| MONETARY SYSTEM | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Monetary Policy | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Exchange Rate Policy | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 37 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Banking Regulation | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 37 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Risk-Based Capital Requirements and Solvency Ratios | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 41 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Equity Participations by Banks | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 42 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Measures to assess the condition of Italian Banking System | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 43 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Credit Allocation | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 44 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Exchange Controls | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 44 |
| THE EXTERNAL SECTOR OF THE ECONOMY | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 45 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Foreign Trade | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 45 |

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iv

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| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Geographic Distribution of Trade | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 47 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Balance of Payments | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 49 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Current Account | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 50 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital Account | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 51 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Financial Account and the Net External Position | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 51 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Reserves and Exchange Rates | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 53 |
| PUBLIC FINANCE | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 55 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Budget Process | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 55 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; European Economic and Monetary Union | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 56 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounting Methodology | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 58 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Measures of Fiscal Balance | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 58 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The 2021 Economic and Financial Document | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 60 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The 2022 Economic and Financial Document | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 64 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revenues and Expenditures | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 69 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Expenditures | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 71 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revenues | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 72 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Government Enterprises | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 74 |
| PUBLIC DEBT | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 75 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 75 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Summary of Internal Debt | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 79 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Summary of External Debt | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 81 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Debt Record | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 83 |
| TABLES AND SUPPLEMENTARY INFORMATION | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 84 |

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Except as otherwise specified, all amounts are expressed in euro ("**euro**"). See "External Sector of the Economy—Reserves and Exchange Rates—U.S. Dollar/Euro Exchange Rate" for certain information concerning the exchange rate of the euro against the U.S. dollar and certain other currencies. We make no representation that the euro amounts referred to in this Annual Report could have been converted into U.S. dollars at any particular rate.

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#### Defined Terms and Conventions
We use terms in this Annual Report that may not be familiar to you. These terms are commonly used to refer to economic concepts that are discussed in this Annual Report. Set forth below are some of the terms used in this Annual Report.

• ***Gross domestic product, or GDP,*** means the total value of products and services produced inside a country during the relevant period.

• ***Imports and Exports.*** Imports are goods brought into a country from a foreign country for trade or sale. Exports are goods taken out of a country for trade or sale abroad. Data on imports and exports included in this Annual Report are derived from customs documents for non-European Union countries and data supplied by other Member States of the European Union.

• ***The unemployment rate*** is calculated as the ratio of the members of the labor force who register with local employment agencies as being unemployed to the total labor force. "Labor force" means people employed and people over the age of 16 looking for a job. The reference population used to calculate the Italian labor force in this Annual Report consists of all household members present and resident in Italy and registered with local authorities.

• ***The inflation rate*** is measured by the year-on-year percentage change in the general retail price index, unless otherwise specified. The European Union harmonized consumer price index ("**HICP**") is calculated on the basis of a weighted basket of goods and services taking into account all families resident in a given territory. Year-on-year rates are calculated by comparing the average of the twelve monthly indices for the later period against the average of the twelve monthly indices for the prior period.

• ***Net borrowing,*** or government deficit, is consolidated revenues minus consolidated expenditures of the general government. This is the principal measure of fiscal balance for countries participating in the European Economic and Monetary Union and is calculated in accordance with the EU Protocol on Excessive Deficit Procedure, which implements the European System of Accounts ("**ESA2010**").

• ***Net borrowing-to-GDP, or deficit-to-GDP,*** means the ratio of net borrowing or government deficit to nominal GDP.

• ***Debt-to-GDP*** means the ratio of public debt to nominal GDP. Public debt includes debt incurred by the central government (including Treasury securities and borrowings), regional and other local government, public social security agencies and other public agencies.

• ***Primary balance*** is net borrowing less interest payments and other borrowing costs of the general government. The primary balance is used to measure the effect of discretionary actions taken to control expenditures and increase revenues.

Unless otherwise indicated, we have expressed:

<br> • all annual rates of growth as average annual compounded rates;

• all rates of growth or percentage changes in financial data in constant prices adjusted for inflation; and

<br> • all financial data in current prices.

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Amounts included in this Annual Report are normally rounded. In particular, amounts stated as a percentage are normally rounded to the first decimal place. Totals in certain tables of this Annual Report may differ from the sum of the individual items in such tables due to rounding.

#### Information Sources
The source for most of the financial and demographic statistics for Italy included in this Annual Report is data prepared by *Istituto Nazionale di Statistica*, or ISTAT, an independent Italian public agency that produces statistical information regarding Italy (including GDP data), in particular financial and demographic statistics for Italy published in the Annual Report of ISTAT dated September 30, 2022 and appendices thereto (together the "**2022 ISTAT Annual Report**") and elaborations on such data and other data published in the Annual Report of the Bank of Italy (*Banca d'Italia*, Italy's central bank) dated May 31, 2022 and appendices thereto (together the "**2022 Bank of Italy Annual Report**"). We also include in this Annual Report information published by the Statistical Office of the European Communities or Eurostat.

Certain other financial and statistical information contained in this Annual Report has been derived from other Italian Government sources, including: (i) the economic and financial document of 2022 (*Documento di Economia e Finanza 2022*), dated April 7, 2022 (the "**2022 Economic and Financial Document**"), which includes the 2022 stability programme (the "**2022 Stability Programme**") and the 2022 national reform programme (the "**2022 National Reform Programme**") filed by paper under cover of Form SE as Exhibits 2, 3 (condensed English version of the 2022 Stability Programme) and 4, respectively, to this Annual Report ; (ii) the update of the 2022 Economic and Financial Document (*Nota di Aggiornamento del Documento di Economia e Finanza 2022*), dated September 28, 2022 (the "**Update of the 2022 Economic and Financial Document**") filed as Exhibit 5 to this Annual Report (condensed English version of the Update of the 2022 Economic and Financial Document attached as Exhibit 6 to this Annual Report); (iii) the updated and revised version of the Update of the 2022 Economic and Financial Document, dated November 4, 2022, filed as Exhibit 7 to this Annual Report, and (iv) the Report on Public Debt in 2021 (*Rapporto sul Debito Pubblico 2021*), dated October 25, 2022 (the "**2021 Report on Public Debt**") filed as Exhibit 8 to this Annual Report.

#### Revised National Accounts
In 1999, ISTAT introduced a new system of national accounts in accordance with the new European System of Accounts (ESA95) as set forth in European Union Regulation 2223/1996. This system was intended to contribute to the harmonization of the accounting framework, concepts and definitions within the European Union. Under ESA95, all European Union countries apply a uniform methodology and present their results on a common calendar. Both state sector accounting and public sector accounting transactions are recorded on an accrual basis. Since introducing the ESA95 accounting system, ISTAT has published revisions to the national system of accounts, including replacing its methodology for calculating real growth, which had been based on a fixed base index, with a methodology linking real growth between consecutive time periods, or a chain-linked index.

Effective September 2014, ISTAT has adopted a new system of national accounts in accordance with the new European System of National and Regional Accounts (ESA2010) as set forth in European Union Regulation 549/2013. ESA2010 has introduced several key differences from its predecessor ESA95, reflecting certain developments in the methodological and statistical tools widely used at international level to measure modern economies. Unless otherwise provided in this Annual Report, Italy's GDP data were prepared in accordance with the ESA2010 accounting system. For additional information regarding Italy's accounting methodology, see "Public Finance—Accounting Methodology".

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All references herein to "Italy," the "State" or the "Republic" are to The Republic of Italy, all references herein to the "Government" are to the central Government of The Republic of Italy and all references to the "general government" are collectively to the central Government and local government sectors and social security funds (those institutions whose principal activity is to provide social benefits), but exclude government owned corporations. In addition, all references herein to the "Treasury" or the "Ministry of Economy and Finance" are interchangeable and refer to the same entity.

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#### SUMMARY INFORMATION
The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this Annual report, any amendments hereto and annexes hereto.

**Gross Domestic Product.** According to International Monetary Fund estimates, the economy of Italy, as measured by 2021 GDP (at current prices in U.S. dollars), is the ninth largest in the world. In 2021, Italy's real GDP increased by 6.7 per cent, compared to a 9.0 per cent decrease in 2020. For additional information with respect to Italy's GDP, see "The Italian Economy—Gross Domestic Product".

**The European Economic and Monetary Union.** Italy is a signatory of the Treaty on European Union of 1992, also known as the "Maastricht Treaty," which established the European Economic and Monetary Union, or EMU, culminating in the introduction of a single currency. Eleven member countries, including Italy, met the government deficit, inflation, exchange rate and interest rate requirements of the Maastricht Treaty and were included in the first group of countries to join the EMU on January 1, 1999. On that date, conversion from each EMU member's old national currency into the euro was irrevocably fixed and the euro became legal tender. The euro was introduced in physical form in the countries participating in the EMU on January 1, 2002 and replaced national notes and coins entirely on February 28, 2002. On January 1, 1999, the exchange rate between the euro and Italian lire ("lira" or "lire") was irrevocably fixed at Lit. 1,936.27 per €1.00. On January 4, 1999, the noon buying rate for the euro as reported by the European Central Bank (the "**Noon Buying Rate**") was €1.00 for US$1.1789. On December 31, 2021, the European Central Bank ("**ECB**") exchange reference rate was €1.00 for US$1.1326. For additional information regarding the historic dollar/euro exchange rate, see "The External Sector of the Economy—Reserves and Exchange Rates".

**Foreign Trade.** Over half of Italy's exports and imports involve other European Union countries. Italy's main exports are manufactured goods, including industrial machinery, office machinery, automobiles, clothing, shoes and textiles. In recent years, Italy has recorded a trade surplus, increasing from €47.6 billion in 2017 to €63.2 billion in 2020. In 2021, the trade surplus was €44.2 billion, mainly due to a larger increase in imports relative to the increase in exports.

**Inflation.** In 2021, Italy recorded an average inflation of 2.0 per cent measured by the harmonized EU consumer price index (HICP), compared to a 0.2 per cent average deflation in 2020. Among other factors, the inflation rate in 2021 was caused by an increase in the price of commodities, supply chain disruptions, tensions affecting international trade and surging prices in key sectors of the economy such as the energy, hospitality and manufacturing goods. As of October 31, 2022, harmonized inflation as measured by the HICP in Italy increased to 12.6 per cent compared to 3.2 per cent in the same period of 2021.

**Public Finance.** Italy has historically experienced substantial government deficits and high public debt. Countries participating in the EMU are required to reduce "excessive deficits", adopting budgetary balance as a medium-term objective, and to reduce public debt. Italy recorded net borrowing amounts as a percentage of GDP higher than the 3.0 per cent ratio imposed by the Maastricht Treaty in 2001 and each year during 2003-2006 and 2009-2011. Italy's deficit-to-GDP ratio was 2.4 per cent in 2016. Italy's net borrowing-to-GDP ratio was 7.2 per cent in 2021 and its debt-to-GDP ratio (gross of euro area financial support) was 150.8 per cent in 2021. For additional information with respect to Italy's debt-to-GDP, see "The Italian Economy", "Public Finance".

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**The Italian Political System.** Italy is a democratic republic. Italy is a civil law jurisdiction, with judicial power vested in ordinary courts, administrative courts and courts of accounts. The Government operates under a Constitution that provides for a division of powers among Parliament, the executive branch and the judiciary. Parliament comprises a Senate and a Chamber of Deputies. The executive branch consists of a Council of Ministers selected and headed by a Prime Minister. The Prime Minister is appointed by the President of the Republic and the Prime Minister's government is confirmed by Parliament. The general Parliamentary elections held on September 25, 2022 resulted in the right-wing coalition, led by Fratelli d'Italia and including Lega and Forza Italia, winning a majority in both the Chamber of Deputies and the Senate. On October 21, 2022, President Mr. Sergio Mattarella invited Ms. Giorgia Meloni to form a new Government and, on October 22, 2022, Ms. Giorgia Meloni was sworn in as Italy's Prime Minister. The coalition Government led by Ms. Giorgia Meloni is supported by the following major political parties: (i) Fratelli d'Italia, (ii) Lega, and (iii) Forza Italia.

**2021 Developments.** In addition to the measures adopted by Italy in connection with the Coronavirus pandemic, in 2021 the Government adopted a series of measures including:

• Law Decree No. 56 of April 30, 2021, (i) extending from June 30 to December 31, 2021 the term during which the Government may prohibit or impose conditions on the acquisition of strategic Italian businesses by non-Italian acquirers; and (ii) extending the term for filing financial statements with the competent Chamber of Commerce for certain categories of companies. This Law Decree was not subsequently converted into law; and

• Law Decree No. 99 of June 30, 2021, enacted to implement rules regulating individual dismissals for business-related reasons following the expiration of the grace period during which dismissal procedure were suspended. Further, Law Decree No. 99 introduced certain provisions regarding the use of electronic payment methods, such as allocating cash reimbursements for purchases made through the use of electronic payment methods (so-called cash back). This Law Decree was not subsequently converted into law.

**2022 Developments.** In 2022, the Government adopted a series of measures mainly intended to contain the sharp increase in the costs of energy including (i) introducing a cap on the excise duties payable on petrol and diesel fuel, (ii) granting extraordinary contributions and other measures aimed at limiting the impact of energy costs increases both to domestic users and non-domestic users, (ii) a new regulation incentivizing the development of solar energy. For additional information see "*The Italian Economy – Key Measures related to the Italian Economy – Measures adopted in 2022*".

**Rating of the Republic of Italy's Indebtedness.** As of the date hereof, the Republic of Italy's long-term credit is rated BBB with stable outlook by Standard & Poor's, BBB with stable outlook by Fitch Ratings and Baa3 with stable outlook by Moody's.

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#### REPUBLIC OF ITALY

#### Area and Population
**Geography**. Italy is situated in south central Europe on a peninsula approximately 1,200 kilometers (745.645 miles) long and includes the islands of Sicily and Sardinia in the Mediterranean Sea and numerous smaller islands. To the north, Italy borders on France, Switzerland, Austria and Slovenia along the Alps, and to the east, west and south it is surrounded by the Mediterranean Sea. Italy's total area is approximately 302,068 square kilometers (116,629 square miles), and it has 8,970 kilometers (5,574 miles) of coastline. The independent States of San Marino and Vatican City, whose combined area is approximately 61 square kilometers (24 square miles), are located within the same geographic area. The Apennine Mountains running along the peninsula and the Alps north of the peninsula give much of Italy a rugged terrain.

*The following is a map of the European Union and the countries, including Italy, within the Euro area.*

![](image00039.jpg)

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The following is a map of Italy.

![](image00040.jpg)

**Population**. According to ISTAT data, as of December 31, 2021, Italy's resident population was estimated to be approximately 58.983 million, accounting for approximately 13.2 per cent of the total EU population, compared to approximately 59.258 million as of December 31, 2020. Italy is the third most populated country in the EU after Germany and France.

According to ISTAT data, as of December 31, 2021, the six regions in the southern part of the peninsula together with Sicily and Sardinia, known as the *Mezzogiorno*, had a population of approximately 19.8 million. As of the same date, northern and central Italy had a population of approximately 27.4 million and 11.7 million, respectively.

As of December 31, 2021, the breakdown of the resident population by age group was as follows:

• under 20 17.5 per cent

• 20 to 39 21.4 per cent

• 40 to 59 30.4 per cent

• 60 and over 30.7 per cent

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Source: ISTAT.

Italy's fertility rate is one of the lowest in the world, while life expectancy for Italians is among the highest in the world. The average age of the resident population is increasing, mainly due to resident population decreasing in recent years.

Rome, the capital of Italy and its largest city, is situated near the western coast approximately halfway down the peninsula, and had a population of approximately 2.76 million as of December 31,

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2021. The next largest cities are Milan, with a population of approximately 1.37 million, Naples, with approximately 915,000 inhabitants, and Turin, with approximately 850,000 inhabitants. Based on ISTAT data, as of December 31, 2021, population density was approximately 195.3 persons per square kilometer.

According to ISTAT data, as of December 31, 2021, there were approximately 5.2 million foreigners holding permits to live in Italy, a 3.1 per cent increase from December 31, 2020. Immigration legislation has been the subject of intense political debate since the early 1990s. Since 2002, Italy has tightened its immigration laws through Law No. 189 of July 30, 2002 (*Legge Bossi-Fini*), and in the recent past initiated bilateral agreements with several countries for cooperation in identifying illegal immigrants. In addition to measures aimed at controlling illegal immigration, the Government has also introduced measures aimed at regularizing the position of illegal immigrants, such as Legislative Decree No. 109 of July 16, 2012 and Law Decree No. 76 of June 28, 2013 (converted into Law No. 99 of August 9, 2013), and Law Decree No. 130 of October 21, 2020 (converted into Law No. 173 of December 18, 2020). While these legislative efforts have resulted in the regularization of large numbers of illegal immigrants, Italy continues to have a relatively large number of foreigners living in Italy illegally.

In 2021, approximately 67,400 immigrants arrived illegally in Italy by sea, compared to approximately 34,100 and 11,500 arriving illegally by sea in 2020 and 2019, respectively. This is due in part to the increase in the number of immigrants from North Africa entering Europe through the Central and Western Mediterranean routes.

As of November 30, 2022, the Government hosted approximately 105,000 migrants. The number of Asylum seekers has increased in 2021, with the number of applications increasing from approximately 26,940 in 2020 to approximately 53,610 in 2021.

#### Coronavirus Pandemic
On December 31, 2019, the World Health Organization ("**WHO**") was informed of cases of pneumonia of unknown cause in Wuhan City, China. In early January 2020, Chinese authorities identified the cause of these as a novel Coronavirus, temporarily named 2019-nCov and now identified as SARS-CoV-2, with COVID-19 being the name of the disease associated with the Coronavirus. On March 11, 2020, the WHO announced that the outbreak could be characterized as a global pandemic.

**Government measures enacted in response to Coronavirus**. As a result of the outbreak of Coronavirus in Italy, on January 31, 2020, the Government declared a state of emergency which was subsequently extended on multiple occasions until March 2022. In addition, since February 2020, the Government enacted a number of measures aimed at preventing the spread of the virus, reducing the burden on the national health system, mitigating the negative economic effects of Coronavirus and supporting the Italian economy throughout the pandemic, including what follows:

• On March 11, 2020, the Government approved an amendment to the 2020 report to Parliament (*relazione al parlamento per il 2020*), to obtain Parliament's consent for incurring an additional €13.75 billion in national debt in connection with the response to the Coronavirus pandemic.

• On March 17, 2020, the Government enacted Law Decree No. 18 (the so-called *Decreto Cura Italia*, the "**Cure Italy Decree**"), converted into Law No. 27 of April 24, 2020, which included €25.0 billion of support measures to counter the Coronavirus pandemic. Measures introduced by the Cure Italy Decree included suspension of tax payments and related obligations, tax credits for certain businesses, suspension of civil and criminal proceedings, financial support to business and self-employed people including wage supplements, aid to businesses in sectors that had been particularly affected, including tourism, transport, entertainment, sport, restaurants and bars,

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suspension of employee dismissals, cash payments to certain employees and self-employed persons, mortgage holidays for first homes for certain workers and protection from eviction, encouraging remote working, support for working families with children, funding for remote learning including the provision of the necessary tech to certain students, funds for the production of face masks, financial support measures for SMEs including state guarantees for certain loans, as well as additional funding for public services, the healthcare system and medical workers' salaries. For more information on state guarantees provided pursuant to the Cure Italy Decree, see "Public Debt—General—SACE Guarantees".

• On April 8, 2020, the Government enacted Law Decree No. 23 (the so-called *Decreto Liquidità*, the "**Liquidity Decree**"), converted into Law No. 40 of June 5, 2020, aimed at generating further cashflow for businesses, delaying payment terms for certain taxes and other dues, and protecting businesses in strategic industries from takeovers. The measures introduced included an expansion of the so-called Golden Power, pursuant to which Italy may prohibit or impose conditions on the acquisition of strategic businesses by non-Italian acquirers. The Golden Power regime (first introduced by Law Decree No. 21 of March 15, 2012, converted into Law No. 56 of May 11, 2012) was extended to additional sectors that are deemed to be strategic, such as infrastructure and key basic goods, key technologies, food security, access to sensitive or personal information, freedom and plurality of the media and financial institutions, extending the application of the powers to any acquisition of strategic businesses by persons based in the EU until December 31, 2020. The Liquidity Decree also introduced a number of measures to address the effects of the Coronavirus pandemic on business, including additional support measures for SMEs such as state guarantees for certain , a moratorium on starting insolvency proceedings, delaying payment for business taxes and other dues, suspension of civil and administrative proceedings and certain criminal proceedings, additional support for hospitals which had to expand their intensive care units, and extending the mortgage holiday fund to include further beneficiaries. For more information on state guarantees provided pursuant to the Liquidity Decree, see "Public Debt—General—SACE Guarantees".

• On May 19, 2020, the Government enacted Law Decree No. 34 (the so-called *Decreto Rilancio*, the "**Restart Decree**"), converted into Law No. 77 of July 17, 2020, introducing measures to counter the economic effects of the Coronavirus pandemic and to support households, businesses and self-employed people. The measures included: a fund for education aimed at workers changing roles, financial support to the self-employed, financial support to working families with children, financial support to low-income households, remote working as of right for households with small children, financial and tax support to businesses in the hospitality sector, delaying payment terms for business taxes and other dues, further financial support for workers made redundant, grants up to a value of €50,000 for certain businesses, reduced utilities, and tax credits for rent and sanitising costs for SMEs, hiring of additional teachers for the new school year, financial support to the healthcare system to hire additional nursing staff and expand intensive care units.

• On August 14, 2020, the Government enacted Law Decree No. 104, amending, restating or supplementing measures previously introduced by the Cure Italy Decree and the Restart Decree. This Law Decree provided for additional €25.0 billion in support of economic recovery against the adverse effects of the Coronavirus pandemic, bringing the total amount of funds committed by the Government to counter the Coronavirus pandemic to approximately €100.0 billion (approximately 6.0 per cent of Italian GDP). Measures included additional financial support to businesses, particularly those in the hospitality, travel and tourism sectors, a suspension on the obligation to pay social security for certain businesses, continued suspension of employee dismissals, cash payments to certain households and workers in specific industries in the tourism

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sector, additional funding to the Restart Decree fund aimed at workers changing roles. The measures also included further relaxation of the payment terms for taxes for both individuals and businesses, as well as tax incentives and rebates for certain businesses, particularly in the entertainment and tourism sectors. Additional funding was also allocated to various local authorities, partly to make up for the shortfall in taxes as well as to support the implementation of anti-Coronavirus measures.

• On November 9, 2020, the Government approved Law Decree No. 149 (the so-called *Decreto Ristori-bis*) which, *inter alia*, allocated approximately additional €2.5 billion to the restoration of the economic activities affected, directly or indirectly, by Coronavirus-related restrictions and to the support of affected workers. On November 23, 2020 and November 30, 2020, the Government approved Law Decree No. 154 (so-called *Decreto Ristori-ter*) and Law Decree No. 157 (so-called *Decreto Ristori-quarter*), which allocated a further €1.95 billion and €8.0 billion, respectively, to the restoration of the economic activities affected, directly or indirectly, by the Coronavirus related restrictions and to the support of affected workers. None of these Law Decrees were subsequently converted into Law.

• On March 22, 2021, the Government enacted Law Decree No. 41 (the so-called *Decreto Sostegni*), converted into Law No. 69 of May 21, 2021, providing for financial measures totaling €32.0 billion, aimed at supporting the service sector. The measures included new grants for businesses which suffered a decline in turnover, further extensions and suspensions of tax payment terms, extension of financial support for furloughs, suspension of employee dismissals, financial support to the unemployed, additional funding for vaccines and drugs, and financial support for remote learning.

• On May 25, 2021, the Government enacted Law Decree No. 73, converted into Law No. 106 of July 23, 2021, to allocate approximately €40.0 billion to contain the social and economic impact of the Coronavirus related restrictions. The main areas of action included, inter alia: support for businesses; access to credit and business liquidity; support for the health sector; work and social policies; support to local authorities.

• On January 27, 2022, the Government enacted Law Decree No. 4, converted into Law No. 25 of March 28, 2022, allocating approximately €20.0 billion to support the economic activities affected, directly or indirectly, by Coronavirus related restrictions. Further, with Law Decree No. 4, the Government established a special fund of €200.0 billion to boost the economic recovery through non-repayable grants to certain sectors of the economy.

#### EU Measures Enacted in Response to the Coronavirus Pandemic

#### SURE Facility
On September 17, 2020, the EU approved to extend a loan to Italy pursuant to the Council Regulation 2020/672 (the "**SURE Regulation**") in an aggregate principal amount of up to €27.4 billion, with a maximum average maturity of 15 years (the "**SURE Facility**"). As of June 30, 2022, Italy had fully drawn the SURE Facility. For more information regarding the SURE Facility, see "The Italian Economy—Financial Assistance to EU Member States—SURE Facility".

#### National Recovery and Resilience Plan

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Following the submission by Italy of its National Recovery and Resilience Plan (*Piano Nazionale di Ripresa e Resilienza*) ("**NRRP**"), the EU Commission endorsed the NRRP on June 22, 2021, approving the disbursement to Italy of a total of €191.5 billion (€68.9 billion as grants and €122.6 billion as loans, respectively). As of June 30, 2022, Italy had received €24.9 billion under the NRRP and, on September 27, 2022, the EU Commission approved the disbursement of additional €21.0 billion to Italy. Additional disbursements to Italy may be authorized by the EU Commission subject to the satisfaction of certain milestones and targets outlined in the NRRP. For more information regarding the NRRP, see "The Italian Economy—Financial Assistance to EU Member States—The National Recovery and Resilience Plan".

#### Government and Political Parties
Italy was originally a loose-knit collection of city-states, most of which united into one kingdom in 1861. It has been a democratic republic since 1946. The Government operates under a Constitution, originally adopted in 1948, that provides for a division of powers among the legislative, executive and judicial branches.

**The Legislative Branch**. Parliament consists of a Chamber of Deputies, with 400 elected members, and a Senate, with 200 elected members and a small number of life tenure Senators, currently six, consisting of former Presidents of the Republic and prominent individuals appointed by the President. Except for life tenure senators, members of Parliament are elected for five years by direct universal adult suffrage, although elections have been held more frequently in the past because the instability of multi-party coalitions has led to premature dissolutions of Parliament. The Chamber of Deputies and the Senate rank equally and have substantially the same legislative power. Any statute must be approved by both the Chamber of Deputies and the Senate before being enacted.

**The Executive Branch**. The head of State is the President, elected for a seven-year term by an electoral college that includes the members of Parliament and 58 regional delegates. On January 31, 2015, Parliament along with 58 regional delegates elected Mr. Sergio Mattarella as the new President. Mr. Sergio Mattarella was elected as President for a second term on January 29, 2022. The President nominates and Parliament confirms the Prime Minister, who is the effective head of government. The President has the power to dissolve Parliament. The Council of Ministers is appointed by the President on the Prime Minister's advice. The Prime Minister and the Council of Ministers answer to the Chamber of Deputies and the Senate and must resign if Parliament passes a vote of no confidence in the administration. The Constitution also grants the President the power to appoint one-third of the members of the Constitutional Court, call general elections and lead the army.

**The Judicial Branch**. Italy is a civil law jurisdiction. Judicial power is vested in ordinary courts, administrative courts and courts of accounts. The highest ordinary court is the *Corte di Cassazione* in Rome, where judgments of lower courts of local jurisdiction may be appealed. The highest of the administrative courts, which hear claims against the State and local entities, is the *Consiglio di Stato* in Rome. The *Corte dei Conti* in Rome supervises the preparation of, and adjudicates, the State budget of Italy.

There is also a Constitutional Court (*Corte Costituzionale*) that does not exercise general judicial powers but adjudicates conflicts among the other branches of government and determines the constitutionality of statutes. Each of the President, the Parliament (in joint session) and representatives of the highest civil and administrative courts appoint five members of the Constitutional Court, for a total of 15 members.

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Criminal matters are within the jurisdiction of the criminal law divisions of ordinary courts, which consist of magistrates who either act as judges in criminal trials or are responsible for investigating and prosecuting criminal cases.

**Political Parties**. The main political parties are: (i) *Fratelli d'Italia*, a right-wing political party led by Ms. Giorgia Meloni, (ii) *Partito Democratico*, a center-left political party led by Mr. Enrico Letta, (iii) *Lega*, a right-wing political party led by Mr. Matteo Salvini, (iv) Movimento 5 Stelle, a non-aligned political party led by Mr. Giuseppe Conte, (v) *Forza Italia*, a center-right political party led by Mr. Silvio Berlusconi, and (vi) *Azione-Italia Viva*, a liberal political party led by Mr. Carlo Calenda.

The general Parliamentary elections held on September 25, 2022 resulted in the right-wing coalition, led by *Fratelli d'Italia* and including *Lega* and *Forza Italia*, winning a majority in both the Chamber of Deputies and the Senate. On October 21, 2022, President Mr. Sergio Mattarella invited Ms. Giorgia Meloni to form a new Government and, on October 22, 2022, Ms. Giorgia Meloni was sworn in as Italy's Prime Minister. The coalition Government led by Ms. Giorgia Meloni is supported by the following major political parties: (i) *Fratelli d'Italia*, (ii) *Lega*, and (iii) *Forza Italia*.

**Elections**. Except for a brief period, since Italy became a democratic republic in 1946 no single party has been able to command an overall majority in Parliament, and, as a result, Italy has a long history of coalition governments.

On October 26, 2017, Parliament adopted Law No. 165, the new electoral law (so-called *Rosatellum*) that became effective on November 12, 2017 (the "**2017 Electoral Law**"). The 2017 Electoral Law provides for a mixed system of proportional and majority method with 37.5 per cent of seats awarded using a first past the post electoral system and 62.5 per cent of seats awarded using a proportional method, with one round of voting. As a result of the adoption of the 2017 Electoral Law, the 400 seats in the Chamber of Deputies are awarded as follows: (i) 147 seats are awarded through a first past the post vote in an equivalent number of single-member districts, (ii) 245 seats are awarded by vote based on regional proportional representation, and (iii) 8 seats are awarded by vote of Italians abroad. Excluding the life tenure Senators (currently six), that includes senators appointed at the discretion of the President, and former presidents of Italy, the 200 seats in the Senate are awarded as follows: (i) 74 seats are awarded through a first past the post vote in an equivalent number of single-member districts, (ii) 122 seats are awarded by vote based on regional proportional representation, and (iii) 4 seats are awarded by vote of Italians abroad. Both the Senate and the Chamber of Deputies are elected on a single ballot. Parties are not eligible for any seats unless they obtain at least 3.0 per cent of the total votes, while the minimum threshold for party coalitions is 10.0 per cent (on the assumption that at least one party in the coalition obtain at least 3.0 per cent of the total votes).

**Regional and Local Governments**. Italy is divided into 20 regions made up of 14 metropolitan areas, 80 provinces and 6 municipal consortia. The Italian Constitution reserves certain functions, including police services, education, and other local services, for the regional and local governments. Following a Constitutional reform passed by Parliament in 2001, additional legislative and executive powers were transferred to the regions. Legislative competence that historically had belonged exclusively to Parliament was transferred in certain areas (including foreign trade, health and safety, ports and airports, transport network and energy production and distribution) to a regime of shared responsibility whereby the national government promulgates legislation defining fundamental principles and the regions promulgate implementing legislation. Furthermore, as to all areas that are neither subject to exclusive competence of Parliament nor in a regime of shared responsibility between Parliament and the regions, exclusive regional competence is conferred to a region upon its request, subject to Parliamentary approval. In July 2009, Italy adopted legislation designed to increase the fiscal autonomy of regional and local governments. Under the new system, lower levels of government are able to levy their own taxes

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and will have a share in central tax revenues, including income tax and value added tax. In addition, a "standard cost" for public services such as health, education, welfare and public transport has been determined to set budgets for local governments.

The Italian Constitution grants special status to five regions (Sicily, Sardinia, Trentino-Alto Adige, Friuli-Venezia Giulia and Valle d'Aosta) providing them with additional legislative and executive powers.

**Referenda**. An important feature of Italy's Constitution is the right to hold a referendum to abrogate laws passed by Parliament. Upon approval, a referendum has the legal effect of annulling legislation to which it relates. Referenda cannot be held on matters relating to taxation, the State budget, the ratification of international treaties or judicial amnesties. A referendum can be held at the request of 500,000 signatories or five regional councils. In order for a referendum to be approved, a majority of the Italian voting population must vote in the referendum and a majority of such voters must vote in favor of the referendum.

Constitutional reforms can be approved by two thirds of the members of each of the Chamber of Deputies and the Senate. If a constitutional reform fails to be approved by this super majority, the relevant reform may be submitted to a popular referendum at the request of one-fifth of the members of either the Chamber of Deputies or the Senate, 500,000 petitioners or five regional councils. Unlike any other referendum, referenda called to amend the Constitution do not require a quorum of the majority of the Italian voting population to vote in such referenda.

#### The European Union
Italy is a founding member of the European Economic Community, which now forms part of the European Union. Italy is one of the 27 current members of the EU together with Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden. The United Kingdom left the European Union on February 1, 2020.

The European Union is currently negotiating the terms and conditions of accession to the EU of the following candidate countries: Albania, North Macedonia, Montenegro, Serbia, and Turkey. Potential candidates are Bosnia and Herzegovina, Kosovo, Ukraine, Moldavia and Georgia.

EU Member States have agreed to delegate sovereignty for certain matters to independent institutions that represent the interests of the union as a whole, its Member States and its citizens. Set forth below is a summary description of the main EU institutions and their role in the European Union.

**The Council of the EU**. The Council of the EU, or the Council, is the EU's main decision-making body. It meets in different compositions by bringing together on a regular basis ministers of the Member States to decide on matters such as foreign affairs, finance, education and telecommunications. When the Council meets to address economic and financial affairs, it is referred to as ECOFIN. The presidency of the Council rotates amongst Member States every six months according to a pre-set order. Croatia and Germany were in charge of the presidency of the Council from January 2020 to June 2020 and from July 2020 to December 2020, respectively. Portugal and Slovenia were in charge of the presidency of the Council from January 2021 to June 2021 and from July 2021 to December 2021, respectively. Czech Republic is currently in charge of the presidency of the Council, while France was in charge during the first half of the year. 

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The Council mainly exercises, together with the European Parliament, the European Union's legislative function and promulgates:

<br> • regulations, which are EU laws directly applicable in Member States;

<br> • directives, which set forth guidelines that Member States are required to enact by promulgating national laws; and

<br> • decisions, through which the Council implements EU policies.

The Council also coordinates the broad economic policies of the Member States and concludes, on behalf of the EU, international agreements with one or more Member States or international organizations. In addition, the Council:

<br> • shares budgetary authority with the European Parliament;

<br> • makes the decisions necessary for framing and implementing a common foreign and security policy; and

<br> • coordinates the activities of Member States and adopts measures in the field of police and judicial cooperation in criminal matters.

Generally, decisions of the Council are made by qualified majority vote on a proposal by the Commission or the High Representative of the Union for Foreign Affairs and Security Policy. Starting from November 1, 2014, pursuant to changes enacted by the Treaty of Lisbon, qualified majority is achieved if:

• 55 per cent of Member States vote in favor (72 per cent in case the proposal is not coming from the Commission or from the High Representative); and

• the proposal is supported by Member States representing at least 65 per cent of the total EU population.

A minority of at least four Council members representing 35 per cent of the population may block a qualified majority vote.

**The European Parliament**. The European Parliament is elected every five years by direct universal suffrage. The European Parliament has three essential functions:

<br> • it shares with the Council the power to adopt directives, regulations and decisions;

<br> • it shares budgetary authority with the Council and can therefore influence EU spending; and

<br> • it approves the nomination of EU Commissioners, has the right to censure the EU Commission and exercises political supervision over all the EU institutions.

The latest EU election was held between May 23, 2019, and May 26, 2019, and Member State were allocated 751 (the maximum allowed under the EU treaties) seats in the European Parliament. Following the United Kingdom's withdrawal from the EU on January 31, 2020, the 73 seats previously allocated to the United Kingdom were reallocated, with 27 seats being redistributed to other countries and the remaining 46 being kept in reserve for potential future enlargements. This reallocation resulted in each

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Member State being allocated the following number of seats in the European Parliament starting from February 1, 2020:

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| | | | |
|:---|:---|:---|:---|
| Austria | 19 | Latvia | 8 |
| Belgium | 21 | Lithuania | 11 |
| Bulgaria | 17 | Luxembourg | 6 |
| Cyprus | 6 | Malta | 6 |
| Croatia | 12 | Netherlands | 29 |
| Czech Republic | 21 | Poland | 52 |
| Denmark | 14 | Portugal | 21 |
| Estonia | 7 | Romania | 33 |
| Finland | 14 | Slovakia | 14 |
| France | 79 | Slovenia | 8 |
| Germany | 96 | Spain | 59 |
| Greece | 21 | Sweden | 21 |
| Hungary | 21 |  |  |
| Ireland | 13 |  |  |
| Italy | 76 | **Total**<br>| **705** |

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The five largest political groups in the European Parliament as a result of the United Kingdom's withdrawal from the EU are:

• the European People's Party (Christian Democrats), which comprises politicians of Christian democratic, conservative and liberal-conservative orientation, cumulatively representing approximately 25 per cent of the total seats;

• the Progressive Alliance of Socialists and Democrats in the European Parliament, which is the political group of the Party of European Socialists, cumulatively representing approximately 21 per cent of the total seats;

• Renew Europe, which comprises politicians of liberal-centrist orientation, cumulatively representing approximately 14 per cent of the total seats;

• the Greens/European Free Alliance, which comprises primarily green and regionalist politicians, cumulatively representing approximately 10 per cent of the total seats; and

• Identity and Democracy, which comprises politicians of nationalist orientation, cumulatively representing approximately 10 per cent of the total seats.

In the European Parliamentary elections held in Italy on May 26, 2019, *Lega*, which is part of the Identity and Democracy coalition, won approximately 34 per cent of the votes increasing significantly the votes won in the 2018 Italian Parliamentary elections. *Partito Democratico*, which is part of the Progressive Alliance of Socialists and Democrats coalition, remained the second largest party with approximately 23 per cent of the votes. *Movimento 5 Stelle*, which had come first in the 2018 Italian Parliamentary elections, fell to third place with approximately 17 per cent of the votes.

**The European Commission**. The European Commission traditionally upholds the interests of the EU as a whole and has the right to initiate draft legislation by presenting legislative proposals to the

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European Parliament and Council. Currently, the European Commission consists of 27 members, one appointed by each Member State for five year terms.

**Court of Justice**. The Court of Justice ensures that Community law is uniformly interpreted and effectively applied. It has jurisdiction in disputes involving Member States, EU institutions, businesses and individuals. A Court of First Instance has been attached to it since 1989.

**Other Institutions**. Other institutions that play a significant role in the European Union are:

<br> • the European Central Bank, which is responsible for defining and implementing a single monetary policy in the euro area;

<br> • the Court of Auditors, which checks that all the European Union's revenues has been received and that all its expenditures have been incurred in a lawful and regular manner and oversees the financial management of the EU budget; and

<br> • the European Investment Bank, which is the European Union's financial institution, supporting EU objectives by providing long-term finance for specific capital projects.

#### Membership of International Organizations
Italy is a member of the North Atlantic Treaty Organization (NATO), as well as many other regional and international organizations, including the United Nations and many of its affiliated agencies. Italy is one of the Group of Seven (G-7) industrialized nations, together with the United States, Japan, Germany, France, the United Kingdom and Canada, and a member of the Group of Twenty (G-20), which brings together the world's major advanced and emerging economies, comprising the European Union and 19 country members. Italy is also a member of the Organization for Economic Co-operation and Development (OECD), the World Trade Organization (WTO), the IMF, the International Bank for Reconstruction and Development (World Bank), the European Bank for Reconstruction and Development (EBRD) and other regional development banks.

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#### THE ITALIAN ECONOMY

#### General
According to IMF data, the Italian economy, as measured by 2021 GDP (at current prices in U.S. dollars), is the ninth largest in the world after the United States, the People's Republic of China, Japan, Germany, India, the United Kingdom, France and Canada.

The table below shows the annual percentage change in real GDP growth for Italy and the countries participating in the EU and in the euro area, including Italy, for the period from 2017 through 2021.

#### Annual Per Cent Change in Real GDP (2017-2021)

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
| Italy | 1.7 | 0.9 | 0.5 | (9.0) | 6.7 |
| EU<sup>(1)</sup> | 2.8 | 2.0 | 1.8 | (5.7) | 5.3 |
| Euro area<sup>(2)</sup> | 2.6 | 1.8 | 1.6 | (6.1) | 5.2 |

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_____________________<br>

&nbsp;&nbsp;&nbsp;&nbsp;(1) The EU represents the 27 countries participating in the European Union.

&nbsp;&nbsp;&nbsp;&nbsp;(2) The euro area represents the 19 countries participating in the European Monetary Union.

Source: Bank of Italy and Eurostat.

In 2017, Italy's GDP increased by 1.7 per cent compared to 2016, further consolidating the growth trend started in the second half of 2013. This increase in Italy's GDP was mainly due to a general increase in global commerce, resulting in a 1.3 per cent increase in domestic demand and a 1.6 per cent increase in exports of goods and services. Exports, in particular, benefitted from lower increases in prices compared to Italy's trading partners, offsetting the negative impact of the euro nominal exchange-rate appreciation.

In 2018, Italy's GDP increased by 0.9 per cent compared to 2017, at a slower pace than expected and experiencing a stop in the last few months of the year. This was mainly due to both the slowdown in foreign sales and the weakening of national demand, which in the second half of the year affected investments (especially in capital goods) and, to a lesser extent, household spending.

In 2019, Italy's GDP increased by 0.5 per cent compared to 2018, evidencing a further slow-down in the growth of Italian economy. This was mainly due to lower investments than in 2018 as a result of an increased uncertainty in the global economy, and a slowdown in disposable income.

In 2020, Italy's GDP decreased by 9.0 per cent compared to 2019, mainly as a result of the contraction of global activities, exports and tourist inflows, as well as the reduction in internal mobility and consumption, due to the containment measures adopted in Italy and worldwide to face the Coronavirus pandemic. Uncertainty around the pandemic and its effects also caused a decline in business investments. For additional information regarding the key measures adopted by Italy in connection with the Coronavirus pandemic, see "Republic of Italy – Coronavirus Pandemic."

In 2021, Italy's GDP increased by 6.7 per cent compared to 2020, mainly as a result of the measures in support of the economy adopted in connection with the Coronavirus pandemic and the lifting of the Coronavirus restrictions that facilitated the recovery of the services sector, in particular tourism.

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Consumer spending, fostered by improved labor market conditions and less uncertainty related to the Coronavirus pandemic than in 2020, supported the growth of the economy, with the household savings rate gradually returning to pre-pandemic levels.

In the past, the Government has historically experienced substantial government deficits. Among other factors, this has been largely attributable to high levels of social spending and the fact that social services and other non-market activities of the central and local governments accounted for a relatively significant percentage of total employment as well as high interest expense resulting from the size of Italy's public debt. Countries participating in the European Economic and Monetary Union are required to reduce "excessive deficits" and adopt budgetary balance as a medium-term objective. For additional information on the budget and financial planning process, see "Public Finance—Measures of Fiscal Balance," "Public Finance—Revenues and Expenditures" and, "Public Debt—Summary of External Debt—Excessive Deficit Procedure."

A longstanding objective of the Government has been to control Italy's debt-to-GDP ratio. Mainly as a result of the increase in GDP, Italy's debt-to-GDP ratio in 2021 decreased to 147.6 per cent net of euro area financial support and 150.8 per cent gross of euro area financial support, while the primary deficit amounted to 3.6 per cent. Excluding the financial support provided to European Monetary Union ("**EMU**") countries, the decrease from 2020 was of 4.4 percentage points.

On September 23, 2019, the Bank of Italy announced that Italy's debt-to-GDP ratio had been revised upwards for the previous years, due to a change in the methodology employed to calculate public debt at a European level, as set out in the Manual on Government Deficit and Debt published by Eurostat on August 2, 2019 ("**Eurostat Manual**"). The methodology change affected how interest on certain non-negotiable notes is accounted for. In Italy, this has mainly affected the accounting treatment of postal savings (*Buoni Postali Fruttiferi*) ("**BPF**") issued up to 2001. BPFs are bearer instruments payable on demand, on or prior to their maturity date; accrued interest on BPFs is paid on redemption, at the same time as the principal amount. The Eurostat Manual requires that accrued interest on BPFs be taken into account when calculating their face value, rather than just when BPFs are redeemed. As of December 31, 2021, the outstanding BPFs had an aggregate principal amount and accrued interest of €8.7 billion and €47.5 billion, respectively.

According to Italy's most recent estimates, Italy's debt-to-GDP ratio, gross of euro area financial support, is expected to reach 145.7 per cent in 2022, 144.6 per cent in 2023, 142.3 per cent in 2024, and 141.2 per cent in 2025, respectively.

Historically, Italy has had a high savings rate, calculated as a percentage of gross national disposable income, which measures aggregate income of a country's citizens after providing for capital consumption (the replacement value of capital used up in the process of production). Private sector savings as a percentage of gross national disposable income averaged 19.5 per cent in the period from 2001 to 2010 and 19.4 per cent in the period from 2011 to 2020. Private sector savings as a percentage of gross national disposable income were 25.9 per cent in 2020 and 24.1 per cent in 2021, respectively. Because of the historically high savings rate, the Government has been able to raise large amounts of funds through issuances of Treasury securities in the domestic market, with limited recourse to external financing. As of June 30, 2022, non-resident holders owned 27.6 per cent of the total outstanding government debt, while the Bank of Italy and resident holders owned 25.8 per cent and 46.6 per cent of the total outstanding government debt, respectively.

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The Italian economy is characterized by significant regional disparities, with the level of economic development of Southern Italy usually below that of Northern and Central Italy. In 2021, the per capita GDP in Southern Italy, also known as the *Mezzogiorno*, increased by 5.8 per cent. GDP increased by 7.4 per cent in the North West and by 7.0 per cent in the North East of Italy, respectively, while GDP in the Centre of Italy increased by 6.0 per cent. The marked regional divide in Italy is also evidenced by significantly higher unemployment in the *Mezzogiorno*. For additional information on Italian employment, see "—Employment and Labor."

In 2021, following a 0.2 per cent average harmonized deflation in 2020, Italy recorded a 2.0 per cent average harmonized inflation as measured by the HICP. As of October 31, 2022, harmonized inflation as measured by the HICP in Italy increased to 12.6 per cent compared to 3.2 per cent in the same period of 2021.

#### Key Measures related to the Italian Economy
Since 2009, the Government has acted to limit the effects of the global crisis, support the economy and facilitate its recovery. The Government also injected significant liquidity into the financial system by accelerating payment of past debts and reducing the accrual of tax refunds. From 2009 to 2018, the Government adopted a series of measures aimed at increasing Government receipts, reducing Government spending, fighting tax evasion, reforming the Italian banking system, simplifying the public administration, sustaining the economic and financial growth of Italy, achieving the financing targets adopted by the EU and balancing the general government's budget.

#### Measures adopted in 2019
During the first months of 2019, the Government adopted Law Decree No. 4 of January 28, 2019 (converted into Law No. 26 of March 28, 2019), aimed at implementing some of the key measures included in the 2019 Budget, namely:

*Reddito di Cittadinanza*, a basic universal income aimed at preventing poverty and social disparity. This measure will allow people with low income to apply for the so-called *assegno di cittadinanza*, a monetary support of up to €500 per month, and a contribution for accommodation of up to €150 per month for citizens owning a property that is subject to a mortgage and up to €280 per month for citizens renting (but not owning) a property, respectively.

*Quota Cento*, allowing people to qualify for an early retirement. The measure will allow workers with at least 62 years of age and 38 years of social contribution to the national pension fund to apply for retirement.

On April 18, 2019, the Government adopted Law Decree No. 32 (the so-called *Decreto Sblocca Cantieri,* the "**Decree Favoring Construction**"), converted into Law No. 55 of June 14, 2019, aimed at fostering economic growth by reviving public investment. In particular, the Decree Favoring Construction aims at incentivizing investment in public infrastructure and construction sites through several measures designed to facilitate the public procurement process. These measures include the implementation of simplified bidding procedures to counter the difficulties faced by firms, especially smaller sized ones, when participating in public procurement. Moreover, the Decree Favoring Construction includes *ad hoc* measures aimed, among other things, at facilitating and promoting the reconstruction of those areas of Italy that have been affected by earthquakes, reconstructing the Morandi bridge in Genoa which collapsed on August 14, 2018 (reconstruction was completed on August 3, 2020), and simplifying the authorization process for the construction of waste facilities in Rome.

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On April 30, 2019, the Government adopted Law Decree No. 34 (the so-called *Decreto Crescita*, the "**Growth Decree**"), converted into Law No. 58 of June 28, 2019, aimed at fostering the economic growth of the country. The Growth Decree includes:

1) fiscal measures such as: (i) reduced corporate income tax rates; (ii) measures allowing companies and professionals to apply a higher base price for capital goods for depreciation purposes; (iii) additional deductions on tax payable on real estate; (iv) reduced income tax rates for certain categories of Italian citizens moving their tax residence to Italy from abroad;

2) financial measures such as: (i) measures intended to simplify the securitization process of non-performing loans; (ii) the introduction of simplified investment companies with fixed capital; and (iii) simplified regulation for companies operating in the financial technology sector;

<br> 3) measures intended to promote private investments such as measures extending the circumstances in which small and medium enterprises (or SME) can access the SMEs Protection Fund; and

4) measures aimed at protecting "made in Italy" including: (i) the creation of a fund for venture capital investments into entities that own or license historical Italian brands; and (ii) provisions for the protection of Italian products against Italian sounding (i.e., the practice of using names, images, geographical indications or brands reminiscent of Italy in marketing products which have no connections with Italy).

On December 27, 2019, Parliament approved the stability law for 2020 and the budget law for 2020-2022 through Law No. 160 of December 27, 2019 (the "**2020 Budget**"). The 2020 Budget includes measures for the reduction of labor taxes and the promotion of investments in the environmental, social and welfare sectors.

#### Measures adopted in 2020
In addition to the measures adopted by Italy in connection with the Coronavirus pandemic (see "Republic of Italy—Coronavirus Pandemic"), other measures adopted by the Government in 2020 included the Decrees of the Ministry of Education No. 24 of June 5, 2020, No. 28 of June 9, 2020, and No. 72 of July 25, 2020, granting financial support to local authorities for the development and implementation of school expansion plans in certain areas of Central Italy affected by earthquakes in 2016 and 2017.

On December 30, 2020, Parliament approved the stability law for 2021 and the budget law for 2021-2023 through Law No. 178 of December 30, 2020 (the "**2021 Budget**"). The 2021 Budget allocates funds to the healthcare sector for hiring medical personnel and healthcare workers, and includes measures aimed at stimulating the job market, such as offering certain tax incentives for hiring young people (up to 35 years of age) and women (with no age limits). Furthermore, €5.0 billion have been allocated to fund certain tax exemptions granted to private employers hiring employees in the South of Italy, and a new social safety net, the Extraordinary Indemnity for Income and Operational Continuity (ISCRO), has been introduced granting protection to those registered for VAT within a separate contribution regime (*partite Iva in gestione separata*).

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#### Measures adopted in 2021
In addition to the measures adopted by Italy in connection with the Coronavirus pandemic (see "Republic of Italy—Coronavirus Pandemic"), in 2021, the Government adopted a series of measures including:

• Law Decree No. 56 of April 30, 2021, (i) extending from June 30 to December 31, 2021 the term during which the Government may prohibit or impose conditions on the acquisition of strategic Italian businesses by non-Italian acquirers; and (ii) extending the term for filing financial statements with the competent Chamber of Commerce for certain categories of companies. This Law Decree was not subsequently converted into law;

• Law Decree No. 99 of June 30, 2021, enacted to implement rules regulating individual dismissals for business-related reasons following the expiration of the grace period during which dismissal procedure were suspended. Further, Law Decree No. 99 introduced certain provisions regarding the use of electronic payment methods, such as allocating cash reimbursements for purchases made through the use of electronic payment methods (so-called cash back). This Law Decree was not subsequently converted into law.

On December 30, 2021, Parliament approved the stability law for 2022 and the budget law for 2022-2024 through Law No. 234 of December 30, 2021 (the "**2022 Budget**"). The 2022 Budget defines new medium and long-term interventions that aim to strengthen the actions undertaken under the National Recovery and Resilience Plan (*Piano Nazionale di Ripresa e Resilienza*) and reforms the income tax for individuals, redesigning rates and deductions. For additional information on the National Recovery and Resilience Plan, see "Financial Assistance to EU Member States—The National Recovery and Resilience Plan".

#### Measures adopted in 2022
In 2022, the Government adopted several measures to counter the negative effects of the war in Ukraine on the Italian economy and the increase in energy prices, including:

• Law Decree No. 17 of March 1, 2022, converted into Law No. 34 of April 27, 2022, provided for urgent measures to contain the effects of price increases in electricity and natural gas and increase the national production of renewable energy and energy savings, including (i) the exemption, for the second quarter of 2022, from the payment of general system charges for domestic users and non-domestic low voltage users, and (ii) a new regulation incentivizing the development of solar energy. Further, Law Decree No. 17: (i) reduced the VAT rate for gas and methane for civic and industrial uses; and (ii) granted an extraordinary contribution in the form of a tax credit ranging from 15 to 20 per cent of the incurred energy costs to companies with a high consumption of electricity and natural gas.

• Law Decree No. 21 of March 21, 2022, converted into Law No. 51 of May 20, 2022, (i) introduced a cap on the excise duties payable on petrol and diesel fuel; (ii) provided for utilities bills' installment plans and additional tax credits for companies; and (iii) lowered the family income threshold necessary to access certain energy bonuses.

• Law Decree No. 115 of August 9, 2022, converted into Law No. 142 of September 21, 2022, *inter alia*: (i) mandated energy suppliers and operators to provide gas to certain categories of private consumers at a price that reflects the actual cost in the wholesale market, and (ii) prevented electricity and natural gas suppliers from amending contracts for the supply of energy to domestic users until April 30, 2023.

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• Law Decree No. 144 of September 23, 2022, converted into Law No. 175 of November 17, 2022, provided additional measures to contain the effects of the sharp increase in the cost of energy, including: (i) extending contributions to businesses and individuals for energy costs, and (ii) establishing certain allowances for the benefit of employees and self-employed workers.

• Law Decree No. 176 of November 18, 2022 (not yet converted into law) provided for, *inter alia*, (i) extensions until December 31, 2022 of State contributions to businesses for energy costs and a cap on excise taxes on petrol and diesel fuel and (ii) extension until March 31, 2023 of installment plans for payment of energy utilities in favor of certain businesses.

 **On December 29, 2022, Parliament approved the stability law for 2023 and the budget law for 2023-2025 through Law No. 197 of December 29, 2022 (the "2023 Budget"). The 2023 Budget allocated approximately €35.0 billion to measures aimed at containing the increase in the cost of energy, and to support families, workers and businesses. Key measures of the 2023 Budget include, *inter alia*: (i) an increase in the income threshold required for families to access certain State funded energy grants; (ii) tax credits for SMEs and businesses with high energy consumption rates; (iii) a new pension system (*Quota 103*), allowing workers with at least 62 years of age and 41 years of social contribution to the national pension fund to apply for retirement; (iv) an increase in the minimum pension amount for retirees over the age of 75 to €600 per month; (v) a 15% flat-tax regime for certain self-employed workers; and (vi) an increase in the threshold for cash payments from €1,000 to €5,000 with effect from January 1, 2023.**

<br> #### Financial Assistance to EU Member States
**The EFSF**. In June 2010, the EU Member States created the European Financial Stability Facility (the "**EFSF**") whose objective is to preserve financial stability of Europe's monetary union by providing temporary assistance to euro area Member States. In order to fund any such assistance, the EFSF has the ability to issue bonds or other debt instruments in the financial markets. Such debt is guaranteed by the Member States on a several basis based on each Member State's participation in the ECB's share capital. Initially, the limit to these guarantees (and therefore of the facility itself) was capped at €440.0 billion. Italy's share of the EFSF is approximately 19.0 per cent. Financing granted by the EFSF increases the public debt of the participating countries proportionally to the share of the EFSF.

The EFSF financing is combined with the financing granted under the European Financial Stabilization Mechanism (the "**EFSM**"), a €60.0 billion facility organized by the European Commission, and additional financings from the IMF. The EFSM allows the European Commission to borrow in financial markets on behalf of the Union and then lend the proceeds to the beneficiary Member State. All interest and loan principal are repaid by the beneficiary Member State via the European Commission. The EU budget guarantees the repayment of the bonds in case of default by the borrower. The EFSF, EFSM and IMF can only act after a request for support is made by a euro area Member State and a country program has been negotiated with the European Commission and the IMF. As a result, any financial assistance by the EFSF, EFSM and IMF to a country in need is linked to strict policy conditions. The EFSF and EFSM could only grant new financings until June 2013; after this date, only existing financings could be administered.

A set of measures designed to expand the EFSF's role were approved during the course of 2011: (i) the cap to guarantees provided by the euro area countries was increased from €440.0 billion to €780.0 billion; (ii) the facility was authorized to make purchases of Member States' government bonds in the primary and secondary markets; (iii) it was authorized to take action under precautionary programs and to finance the recapitalization of financial institutions; and (iv) it was allowed to use the leverage options offered by granting partial risk protection on new government bond issues by euro area countries and/or by setting up one or more vehicles to raise funds from investors and financial institutions.

**The ESM***.* From July 2013, the European Stability Mechanism ("**ESM**"), a facility with lending capacity of €500.0 billion, has assumed the role of the EFSF and the EFSM. The ESM has a subscribed capital of €700.0 billion, of which €80 billion is in the form of paid-in capital provided by the euro area Member States and €620.0 billion as committed callable capital and guarantees from euro area Member States, who have committed to maintain a minimum 15.0 per cent ratio of paid-in capital to outstanding amount of ESM issuances in the transitional phase from 2013 to 2017. Italy's maximum commitment to

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the ESM is approximately €125.3 billion. The ESM will grant financings to requesting countries in the euro area under strict conditions and following a debt sustainability analysis.

On February 2, 2012, several revisions were made to the treaty instituting the ESM. Its entry into force was brought forward by one year, to July 2012, and the voting rules were amended to allow decisions to be taken by a qualified majority of 85 per cent in certain circumstances. This majority rule can be invoked in place of the requirement of unanimous decisions if the European Commission and the ECB determine that financial assistance measures need to be taken urgently and in the interests of the euro area's financial and economic stability. Furthermore, as in the case of the EFSF, the ESM has additional means available to it to support countries in difficulty: it can purchase member countries' government bonds, both directly or on the secondary market, and is allowed greater flexibility in its direct purchases of government bonds; it can act under precautionary programs; and it can finance the recapitalization of financial institutions. Finally, to strengthen investors' confidence in the new arrangements, on March 30, 2012, the EU announced that the ESM's endowment capital would be paid up by 2014 instead of 2017 as originally planned. It was also agreed that as of July 2012 the ESM has become the main instrument for financing new support packages. The EFSF will continue to operate until existing financing arrangements terminate. Total ESM/EFSF loans (in net disbursed terms) amounted to €295.0 billion as of August 2022. The ESM's remaining lending capacity as of September 2022 is of approximately €414.0 billion.

**The EU Solidarity Fund.** In 2002, the EU Solidarity Fund was originally set up to respond to major natural disasters within Europe. The fund was created as a reaction to the severe floods in Central Europe in the summer of 2002. Since then, it has been used for 80 natural disasters covering a range of different catastrophic events including floods, forest fires, earthquakes, storms and drought. The fund can provide financial aid if total direct damage caused by a disaster exceeds €3.0 billion (at 2011 prices) or 0.6 per cent of an EU country's gross national income (GNI), whichever is lower, or for more limited regional disasters, the eligibility threshold is 1.5 per cent of the region's gross domestic product (GDP), or 1.0 per cent for an outermost region. On September 11, 2020, the European Commission announced that it had granted €211.7 million from the EU Solidarity Fund to Italy, following the extreme weather damages in late October and November 2019. The grant will finance retroactively the restoration of vital infrastructures, measures to prevent further damage and to protect cultural heritage, as well as cleaning operations in the affected areas. In response to the Coronavirus pandemic, the scope of the EU Solidarity Fund has been extended to encompass major public health emergencies. For information regarding the extension of the scope of the EU Solidarity Fund in connection with the Coronavirus pandemic, see "Republic of Italy—Coronavirus Pandemic."

**Quantitative Easing***.* On January 22, 2015, the ECB announced an expanded asset purchase program ("**Quantitative Easing**") comprising the ongoing purchase programs for asset-backed securities (ABSPP) and covered bonds (CBPP3), and, as a new element, purchases of certain euro-denominated securities issued by euro area central governments, agencies, and European institutions (PSPP). Combined monthly purchases were originally capped at €60.0 billion and were initially intended to be carried out until September 2016 or until the ECB sees a sustained adjustment in the path of inflation that is consistent with its aim of achieving inflation rates close to 2.0 per cent over the medium term. In early December 2015, the ECB announced the extension of Quantitative Easing until March 2017, maintaining combined monthly purchases at the level of €60.0 billion. On March 10, 2016, the ECB announced an increase to €80.0 billion in the monthly purchase under the Quantitative Easing program and four new targeted longer-term refinancing operations (TLTRO II) to reinforce its accommodative monetary policy stance and to foster new lending, which will be conducted from June 2016 to March 2017, on a quarterly basis. On December 8, 2016, the ECB decided to extend the Quantitative Easing program decreasing the combined monthly purchases to €60.0 billion until the end of December 2017. On October 26, 2017, the ECB decided to further extend the Quantitative Easing program until September 2018, decreasing the

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combined monthly purchases to €30.0 billion from January 1, 2018. With respect to the PSPP, the percentage of securities issued in the euro area and purchased by the ECB was increased from 8.0 per cent in 2015 to 10.0 per cent in 2016, while the percentage of securities issued in the euro area and purchased by national central banks of a Member State different from the Member State where the relevant securities were issued was decreased from 12.0 per cent in 2015 to 10.0 per cent in 2016. The residual 80.0 per cent of PSPP securities issued in the euro area were purchased by the national central bank of the Member State where the relevant securities were issued. On December 13, 2018, the ECB announced that net purchases under Quantitative Easing would end in December 2018. At the same time, the ECB announced that it would continue reinvesting, in full, the principal payments from maturing securities purchased under the Quantitative Easing for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation. On September 12, 2019, the ECB announced that it would resume making net purchases under the Quantitative Easing program, beginning November 1, 2019, at a rate of €20.0 billion per month. The ECB expects this to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key interest rates. In March 2020, as a consequence of the Coronavirus pandemic, the ECB implemented the Pandemic Emergency Purchase Program (PEPP), a temporary asset purchase program of private and public sector securities. The initial €750.0 billion appropriation for the PEPP has been increased by €600.0 billion on June 4, 2020, and by €500.0 billion on December 10, 2020, for a total of €1,850 billion. On December 16, 2021, the ECB decided to discontinue net asset purchases under the PEPP at the end of March 2022. The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2024. As of September 2022, the PEPP holdings at amortized cost amounts to €1.7 billion.

**The National Recovery and Resilience Plan**. The National Recovery and Resilience Plan (*Piano Nazionale di Ripresa e Resilienza*) ("**NRRP**") is part of the Next Generation EU programme, namely the €750.0 billion package – about half of which is in the form of grants – that the European Union implemented in response to the pandemic crisis to support its Member States. The main component of the Next Generation EU programme is the Recovery and Resilience Facility ("**RRF**"), which has a duration of six years – from 2021 to 2026 – and a total size of €672.5 billion (€312.5 billion in the form of grants, and the remaining €360.0 billion in the form of low-interest loans). The NRRP presented by Italy and endorsed by the EU Commission on June 22, 2021, envisages investments and a reform package, with €191.5 billion in resources being allocated to Italy through the RRF and €30.6 billion being funded through a complementary fund established by Law Decree No. 59 of May 6, 2021 (converted into Law No. 101 of July 1, 2021). In addition, €26.0 billion has been earmarked for the implementation of specific works and for replenishing the resources of the development and cohesion fund by 2032 and €13.0 billion will be available pursuant the REACT-EU programme under Next Generation EU. The NRRP has been developed around three strategic axes shared at a European level: (i) digitization and innovation; (ii) ecological transition; and (iii) social inclusion, and intends to achieve the following six missions:

1. *Digitization, Innovation, Competitiveness, Culture:* promoting the country's digital transformation, supporting innovation in the production system, and investing in two key sectors for Italy, namely tourism and culture. Under the NRRP, €48.8 billion has been allocated to this mission (of which €40.3 billion from the RRF and €8.5 billion from the complementary fund);

2. *Green Revolution and Ecological Transition:* improving the sustainability and resilience of the economic system and ensuring a fair and inclusive environmental transition. Under the NRRP, €68.8 billion has been allocated to this mission (of which €59.5 billion from the RRF and €9.3 billion from the complementary fund);

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3. *Infrastructure for Sustainable Mobility:* promoting the development of a modern and sustainable transportation infrastructure throughout the country. Under the NRRP, €31.7 billion has been allocated to this mission (of which €25.4 billion from the RRF and €6.3 billion from the complementary fund);

4. *Education and Research:* promoting education, digitalization and technical-scientific skills, research and technology transfer. Under the NRRP, €31.9 billion has been allocated to this mission (of which €30.9 billion from the RRF and €1.0 billion from the complementary fund);

5. *Inclusion and Cohesion:* promoting labor market participation, including through training, strengthen active labor market policies and foster social inclusion. Under the NRRP, €22.4 billion has been allocated to this mission (of which €19.8 billion from the RRF and €2.6 billion from the complementary fund); and

6. *Health:* promoting local health services, to allow modernization and digitization of the health system and ensuring equal access to care. Under the NRRP, €18.5 billion has been allocated to this mission (of which €15.6 billion from the RRF and €2.9 billion from the complementary fund).

The NRRP also includes a programme of reforms to facilitate the implementation phase and, more generally, to contribute to the modernization of the country and make the economic environment more favorable to the development of business activities:

<br> • a Public Administration reform to provide better services, encourage the recruitment of young people, invest in human capital and increase the level of digitization;

<br> • a justice reform to reduce the length of legal proceedings, especially civil proceedings, and the heavy burden of backlogs;

<br> • simplification measures horizontal to the NRRP, e.g., in matters of permits and authorizations and public procurement, to ensure the implementation and maximum impact of investments; and

<br> • reforms to promote competition as an instrument of social cohesion and economic growth.

The NRRP may be amended and supplemented from time to time, including through adjustments contained in the National Reform Programme. For additional information on the 2022 National Reform Programme, see "Public Finance—The 2022 Economic and Financial Document."

The following table shows the estimated financial impact of the measures contained in the NRRP on GDP, consumption, investments, imports and exports, in each case for the period from 2021 to 2026.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **2021** | **2022** | **2023** | **2024** | **2025** | **2026** |
| GDP | 0.2 | 0.9 | 1.5 | 2.1 | 2.8 | 3.2 |
| Consumption | (0.3) | (0.8) | (0.7) | (0.3) | 0.5 | 1.5 |
| Investments | 2.1 | 6.5 | 9.6 | 11.2 | 11.7 | 10.1 |
| Imports | 0.0 | 0.6 | 1.4 | 2.2 | 3.0 | 3.6 |
| Exports | (0.1) | (0.5) | (0.5) | 0.2 | 1.1 | 2.2 |

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Source: Ministry of Economy and Finance.

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As of June 30, 2022, Italy had received €24.9 billion under the NRRP and, on September 27, 2022, the EU Commission approved the disbursement of additional €21.0 billion to Italy. Additional disbursements to Italy may be authorized by the EU Commission subject to the satisfaction of certain milestones and targets outlined in the NRRP.

The Ministry of Economy and Finance periodically monitors progress in the implementation of reforms and investments and is the primary point of contact with the EU Commission. A steering committee has been also set up at the Presidency of the Italian Council of Ministers.

**SURE Facility**. On May 19, 2020, the EU approved Council Regulation 2020/672 ("**SURE Regulation**") which sets forth the legal framework for providing financial assistance in an aggregate amount of up to €100.0 billion to Member States that have experienced a severe economic disturbance caused by the Coronavirus pandemic. Loans granted under the SURE Regulation, the terms of which are to be agreed in a loan agreement between the beneficiary Member State and the EU Commission, are intended to help Member States cover the costs related to the financing of national short-time work schemes and similar measures put in place at a national level in response to the Coronavirus pandemic, as well as health-related measures adopted by Member States so as to ensure a safe return to normal economic activity. Loans provided to Member States under the SURE instrument are underpinned by a system of voluntary guarantees from Member States. Each Member State's contribution to the overall amount of the guarantee corresponds to its relative share in the total gross national income (GNI) of the European Union, based on the 2020 EU budget. On September 17, 2022, the EU approved to extend a loan to Italy pursuant to the SURE Regulation in an aggregate principal amount of up to €27.4 billion with a maximum average maturity of 15 years (the "**SURE Facility**"). As of June 30, 2022, Italy had fully drawn the SURE Facility.

**Collective Action Clauses***.* Italy has introduced a form of collective action clause into the documentation of all of its New York law governed bonds issued since June 16, 2003.

The rights of bondholders have generally been individual rather than collective. As a result of each bondholder having individual rights, the restructuring or amending of a bond would legally have to be negotiated with each bondholder individually and any one bondholder that did not agree with restructuring or amendment terms could refuse to accept such terms or "hold out" for better terms thereby delaying the restructuring or amendment process and potentially forcing an issuer into costly litigation. These risks increase as the bondholder base is more geographically dispersed or is comprised of both individual and institutional investors.

In an effort to minimize these risks, issuers began including so-called collective action clauses into their bond documentation. These collective action clauses are intended to minimize the risk that one or a few "hold out" bondholders delay a restructuring or amendment where a majority of the other bondholders favor the terms of the restructuring or amendment, by permitting a qualified majority of the bondholders to accept the terms and bind the entire bondholder base to such terms.

The treaty instituting the ESM, as revised on February 2, 2012 (and ratified by Italy through Law No. 116 of July 23, 2012), required that all new government debt securities with a maturity of more than one year, issued on or after January 1, 2013, include the same collective action clauses as other countries in the Eurozone (the "**EU Collective Action Clauses**"). These standardized clauses for all euro area Member States, as set out in the document "Common Terms of Reference" dated February 17, 2012, developed and agreed by the European Economic and Financial Committee (EFC) and published on the

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EU Commissions website, allow a qualified majority of creditors to agree on certain "reserved matter modifications" to the most important terms and conditions of the bonds of a single series (including the financial terms) that are binding for all the holders of the bonds of that series with either (i) the affirmative vote of the holders of at least 75 per cent represented at a meeting or (ii) a written resolution signed by or on behalf of holders of at least 66 2/3 per cent of the aggregate principal amount of the outstanding bonds of that series and the consent of the Issuer. The EU Collective Action Clauses also include an aggregation clause enabling a majority of bondholders across multiple bond issues to agree on certain "reserved matter modifications" to the most important terms and conditions of all outstanding series of bonds (including the financial terms) that are binding for the holders of all outstanding series of bonds with (1) either (i) the affirmative vote of all holders of at least 75 per cent represented at separate meetings or (ii) a written resolution signed by or on behalf of all holders of at least 66 2/3 per cent of the aggregate principal amount of all outstanding series of bonds (taken in the aggregate) and (2) either (i) the affirmative vote of the holders of more than 66 2/3 per cent represented at a meeting or (ii) a written resolution signed by or on behalf of holders of more than 50 per cent of the aggregate principal amount of each outstanding series of bonds (taken individually) and the consent of the Issuer (so-called "**Cross Series Modification Clauses**"). Italy has included the EU Collective Action Clauses and the Cross Series Modification Clauses in the documentation of all new bonds issued since January 1, 2013. On December 14, 2018, a reform of the model EU Collective Action Clauses was announced during the Euro Summit. The main purpose of the new model was to introduce a "single-limb" voting mechanism under which Cross Series Modification Clauses are binding on all holders of series of debt securities aggregated in one voting group if the proposed modifications are approved by holders of a majority of all securities aggregated in the voting group. Such mechanism is different from the "double-limb" voting arrangement, which requires both a positive vote at the level of each affected class of holders of series of debt securities, and an overall aggregated positive vote of all holders of series of debt securities aggregated in one voting group. On November 30, 2021, the euro area Member States agreed to introduce the single-limb Collective Action Clauses for all new Eurozone government securities with maturity exceeding one year. The single-limb voting mechanism was originally intended to be in use as from January 1, 2022, but will now be implemented on the first day of the second month following the entry into force of the agreement amending the ESM Treaty. In the meantime, the euro area Member States have agreed to begin the phase out of the double-limb Collective Action Clauses (and no Collective Action Clauses) issuance from January 1, 2023, and to a maximum percentage of annual government securities issuance, without single-limb Collective Action Clauses, for each year, with a view of having only 5% of such issuances by 2023 and onwards. For additional information regarding Italy's implementation of EU Collective Action Clauses, see "Public Debt—Summary of External Debt."

#### Gross Domestic Product
In 2017, Italy's GDP increased by 1.6 per cent compared to 2016, mainly due to a continued expansion of domestic demand (net of inventories) and private consumption, with continuing improved conditions for having access to credit offsetting a decrease in real disposable income.

In 2018, Italy's GDP increased by 0.8 per cent compared to 2017, mainly due to a continued expansion of domestic demand (net of inventories).

In 2019, Italy's GDP increased by 0.3 per cent compared to 2018, mainly due to a continued expansion of demand (net of inventories), albeit at a slower rate than in previous years. Contraction in inventories limited growth.

In 2020, Italy's GDP decreased by 8.9 per cent compared to 2019, mainly due the Coronavirus pandemic and the decline in production levels recorded in the first half of the year at the onset of the

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emergency. The strong resumption of production activities marked in the third quarter was also halted by a new and more acute resurgence of the infection starting from the end of October 2020.

In 2021, Italy's GDP increased by 6.7 per cent compared to 2020, mainly due to a general increase in the economic activity benefitting from an easing of the Coronavirus pandemic and a gradual relaxation of the restrictions previously imposed.

The following table sets forth information relating to nominal (unadjusted for changing prices) GDP and real GDP for the periods indicated.

#### GDP Summary

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
| Nominal GDP (in € millions)<sup>(1)</sup> | 1736593 | 1771391 | 1796649 | 1660621 | 1782050 |
| Real GDP (in € millions)<sup>(2)</sup> | 1704733 | 1720515 | 1728829 | 1572543 | 1678490 |
| Real GDP per cent change | 1.7 | 0.9 | 0.5 | (9.0) | (6.7) |
| Population (in thousands) | 60067 | 59938 | 59817 | 59258 | 58983 |

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&nbsp;&nbsp;&nbsp;&nbsp;(1) Nominal GDP (in € millions) calculated at current prices.

&nbsp;&nbsp;&nbsp;&nbsp;(2) Real GDP (in € millions) at constant euro with purchasing power equal to the average for 2015.

Source: ISTAT.

**Private Sector Consumption**. In 2021, private sector consumption in Italy increased by 5.2 per cent, compared to a 10.7 per cent decrease in 2020, mainly due to an increase in demand, as well as higher savings accumulated in 2020 partially boosting consumption levels in 2021. Purchases of non-durable goods and purchases of durable goods such as motor vehicles, white goods and consumer electronics, increased by 3.3 per cent and 13.7 per cent in 2021, respectively, while consumption of semi-durable goods increased by 10.0 per cent. Services increased at a pace of 4.6 per cent compared to 2020, but still represented 49.8 per cent of the total private sector consumption.

**Public Sector Consumption**. In 2021, public sector consumption in Italy increased by 0.6 per cent compared to a 1.6 per cent decrease in 2020, mainly due to public sector consumptions levels remaining at historically high levels despite the easing of the Coronavirus pandemic.

**Gross Fixed Investment**. In 2021, gross fixed investment in Italy increased by 17.0 per cent compared to a 9.1 per cent decrease in 2020, mainly due to an increase in financed investments and ongoing structural investment reforms.

**Net Exports**. In 2021, exports of goods and services increased by 13.3 per cent in volume compared to a 13.8 per cent decrease in 2020, mainly due to an increase in foreign demand. Exports of goods increased at a faster pace compared to 2020 by approximately 13.1 per cent. Italy's world market share in 2021 remained stable at approximately 3.0 per cent at current prices and exchange.

**Imports**. In 2021, imports of goods and services registered a 14.2 per cent increase compared to 2020, with a strong recovery from both goods and services mainly caused by an increase in domestic demand.

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**Strategic Infrastructure Projects**. Italy's infrastructure is still significantly underdeveloped compared to other major European countries.

Italy adopted legislation in 2001 (the "**Strategic Infrastructure Law**") providing the government with special powers to plan and realize those infrastructure projects considered to be of strategic importance for the growth and modernization of the country, particularly in the *Mezzogiorno*. The Strategic Infrastructure Law is aimed at simplifying the administrative process necessary to award contracts in connection with strategic infrastructure projects and increase the proportion of privately financed projects. In the last decade, beginning with the Strategic Infrastructure Law, progress was made in the planning of public works, starting to overcome historical weakness linked to long procedures due to overlapping powers and responsibilities among different levels of government. In 2020 and 2021 general government expenditure for investments was 2.7 per cent and 2.9 per cent of GDP, respectively.

#### Principal Sectors of the Economy
In 2021, value added increased by 6.6 per cent, compared to a decrease of 8.6 per cent in 2020.

The following table sets forth value added by sector and the percentage of such sector of the total value added at purchasing power parity with 2015 prices.

#### Value Added by Sector<sup>(1)</sup>

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| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2017** | **2018** | **2018** | **2019** | **2019** | **2020** | **2020** | **2021** | **2021** |
|  | **in € millions** | **per cent of Total** | **in € millions** | **per cent of Total** | **in € millions** | **per cent of Total** | **in €**<br> **millions** | **per cent of Total** | **in €**<br> **millions** | **per cent of Total** |
| **Agriculture, fishing and forestry** | **32883** | **2.1%** | **33491** | **2.2%** | **32961** | **2.1%** | **31444** | **2,2%** | **31034** | **2.0%** |
| **Industry** | **299348** | **19.5%** | **305399** | **19.7%** | **305040** | **19.6%** | **270669** | **19.0%** | **301903** | **19.9%** |
| &nbsp;&nbsp;&nbsp;&nbsp;of which: Manufacturing | 253908 | 16.6% | 258285 | 16.7% | 257147 | 16.6% | 227719 | 16.0% | 251263 | 16.6% |
| Mining | 6347 | 0.4% | 6304 | 0.4% | 5900 | 0.4% | 6513 | 0.5% | 7260 | 0.5% |
| Supply of Energy, Gas, Steam, and Conditioned Air | 23919 | 1.6% | 25465 | 1.6% | 26638 | 1.7% | 26600 | 1.9% | 27212 | 1.8% |
| Water Supply Drainage and Wasting | 15304 | 1.0% | 15418 | 1.0% | 15347 | 1.0% | 15112 | 1.1% | 16468 | 1.1% |
| **Construction** | **65580** | **4.3%** | **66386** | **4.3%** | **68171** | **4.4%** | **64303** | **4.5%** | **78170** | **5.1%** |
| **Services** | **1134499** | **74.0%** | **1141339** | **73.8%** | **1148026** | **73.9%** | **1056651** | **74.2%** | **1106807** | **72.9%** |
| &nbsp;&nbsp;&nbsp;&nbsp;of which:<br> Commerce, repairs, transport and storage, hotels and restaurants | 326042 | 21.3% | 327311 | 21.2% | 333073 | 21.4% | 273679 | 19.2% | 303099 | 20.0% |
| Information and communication services | 57547 | 3.8% | 57191 | 3.7% | 58681 | 3.8% | 58521 | 4.1% | 60148 | 4.0% |
| Financial and monetary intermediation | 83045 | 5.4% | 82717 | 5.3% | 83356 | 5.4% | 83903 | 5.9% | 84587 | 5.6% |
| Real estate activities | 206646 | 13.5% | 208678 | 13.5% | 211064 | 13.6% | 205479 | 14.4% | 208444 | 13.7% |
| Professional, scientific and technical activities | 148302 | 9.7% | 153636 | 9.9% | 151447 | 9.7% | 147770 | 10.4% | 158504 | 10.4% |

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| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2017** | **2018** | **2018** | **2019** | **2019** | **2020** | **2020** | **2021** | **2021** |
|  | **in € millions** | **per cent of Total** | **in € millions** | **per cent of Total** | **in € millions** | **per cent of Total** | **in €**<br> **millions** | **per cent of Total** | **in €**<br> **millions** | **per cent of Total** |
| Public administration and defense, mandatory social insurance, education, public health, social and personal services | 249415 | 16.3% | 248462 | 16.1% | 247058 | 15.9% | 236561 | 16.6% | 240361 | 15.8% |
| Recreational and artistic activities, repairs of goods and homes, and other services | 63478 | 4.1% | 63297 | 4.1% | 63385 | 4.1% | 52568 | 3.7% | 52325 | 3.5% |
| **Value added at market prices** | **1532443** | **100.0%** | **1546749** | **100.0%** | **1554315** | **100.0%** | **1423114** | **100.0%** | **1518078** | **100.0%** |

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&nbsp;&nbsp;&nbsp;&nbsp;(1) Value added in this table is calculated by reference to prices of products and services, excluding any taxes on any such products.

Source: Istat.

#### Role of the Government in the Economy
Until the early 1990's, State-owned enterprises played a significant role in the Italian economy. The State participated in the energy, banking, shipping, transportation and communications industries, among others, and owned or controlled approximately 45.0 per cent of the Italian industrial and services sector and 80.0 per cent of the banking sector. As a result of the implementation of its privatization program, which started in 1992, the State exited the insurance, banking, telecommunications and tobacco sectors and significantly reduced its interest in the energy sector (principally through sales of shareholdings in ENI S.p.A. ("**ENI**") and ENEL S.p.A. ("**ENEL**")) and in the defense sector (principally through sales of shareholdings in Leonardo S.p.A., formerly known as Finmeccanica S.p.A.). For additional information on the role of the Government in the Italian economy, see "Monetary System—Equity Participations by Banks—Structure of the Banking Industry" and "Public Finance—Government Enterprises."

#### Services
**Transport**. Italy's transport sector has been relatively fast-growing and, during the period from 1980 to 1996, grew at more than twice the rate of industrial production growth. The expansion of the transport sector was largely the result of trade integration with European markets. Historically, motorways and railways have been controlled, directly and indirectly, by the Government, and railways in particular have posted large financial losses. In recent years, many of these enterprises have been restructured in order to place them on a sounder financial footing and/or have been privatized.

Roadways are the dominant mode of transportation in Italy. The road network includes, among others, municipal roads that are managed and maintained by local authorities, roads outside municipal areas that are managed and maintained by the State Road Board ("**ANAS**") and a system of toll highways that in part are managed and maintained by several concessionaries, the largest of which is controlled by Autostrade per l'Italia S.p.A. ("**Autostrade**"), which was privatized in 1999.

Projects for the construction of new high-speed train systems (*Treno ad alta velocità*) linking the principal urban centers of Italy with one another and with neighboring European countries, as well as other infrastructure projects designed to upgrade the railway network, are under way or, in some cases, have been completed. The corridors of Milano-Bologna-Rome-Naples-Salerno and Milano-Torino have been completed. As of December 31, 2021, there were 24,564 kilometers of railroad track, 16,832 kilometers of which were operational, including 1,467 kilometers of high-speed railroad track, of which 68.6 per cent are managed by State-owned enterprises, with the remainder managed by private firms operating under concession from the Government.

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In 1992, the Italian State railway company was converted from a public law entity into a commercial State-owned corporation, Ferrovie dello Stato S.p.A. ("**FS**"), with greater autonomy over investment, decision-making and management. In response to EU directives and the intervention by the Italian Antitrust Authority (*Autorità Garante della Concorrenza e del Mercato*), since March 1999 Italy has been implementing a plan aimed at preparing Italy's railways for competition. Italy liberalized railway transportation by creating two separate legal entities wholly owned by FS: (i) Trenitalia S.p.A., managing the transportation services business; and (ii) Rete Ferroviaria Italiana S.p.A., managing railway infrastructure components and the efficiency, safety and technological development of the network. Starting from the end of April 2012, Nuovo Trasporto Viaggiatori S.p.A. brought competition to FS through "Italo," another high-speed train that started serving the Milano-Bologna-Rome-Naples corridor.

On October 29, 2020, Italia Trasporto Aereo S.p.A. ("**ITA**"), a wholly owned subsidiary of the Italian Ministry of Economy and Finance, was incorporated to replace Alitalia, which used to be Italy's national airline and was nationalized by the Government in compliance with EU regulation on State Aid following a €3.0 billion recapitalization provided for by Law Decree No. 34 of May 19, 2020 (converted into Law No. 77 of July 17, 2020). On July 15, 2021, the board of directors of ITA approved the 2021-2025 industrial plan (the "**Plan**") according to which ITA acquired certain of Alitalia's assets, excluding, however, Alitalia's brand which was separately acquired on October 14, 2021 for €90 million. Upon the approval of the Plan, on July 28, 2021, the Government subscribed for an initial capital increase of €700 million.

**Communications**. In 1997, the Italian Parliament enacted legislation to reform the telecommunications market to promote competition in accordance with EU directives. This legislation permits companies to operate in all sectors of the telecommunications market, including radio, television and telephone, subject to certain antitrust limitations, and provides for the appointment of a supervisory authority. The Italian Telecommunication Authority (*Autorità per le Garanzie nelle Comunicazioni*, or "**AGCOM**"), consists of four members appointed by the Italian Parliament and a president appointed by the Government. It is responsible for issuing licenses and has the power to regulate tariffs and impose fines and other sanctions. Each fixed and mobile telephony operator must obtain an individual license, which is valid for 15 years and is renewable.

Italy's telecommunications market is one of the largest in Europe. The telecommunications market was deregulated in January 1998 and while Telecom Italia, which was privatized in 1997, remains the largest operator, it is facing increasing competition from new operators that have been granted licenses for national and local telephone services. Competition among telecommunications operators has resulted in lower charges and a wider range of services offered. In January 2000, access to local loop telephony was liberalized. Wind Tre, resulting from the business combination of Wind and Hutchison 3G's Italian businesses in 2016, is the largest mobile operator by revenues, followed by Telecom Italia Mobile (TIM) and Vodafone Italia (controlled by the Vodafone Group).

Internet and personal computer penetration rates in Italy have grown consistently in recent years. Nonetheless, the data significantly differs geographically. For example, there is a significant difference between North and Center regions of Italy, where penetration of broadband and ultrabroadband connections is far higher, compared to Southern regions of Italy, even though significant investments have been made in recent years in the *Mezzogiorno* area, aimed at bridging this gap. At the end of 2021, residential and business broadband and ultrabroadband accesses exceeded 18.7 million units, equal to a ratio of 31.7 lines per 100 inhabitants. Telecom Italia remains the largest internet provider by number of customers, followed by Fastweb, Vodafone Italia, Wind Tre and others (including BT Italia and Eolo).

**Tourism**. Tourism is an important sector of the Italian economy. In 2021, tourism revenues, net of amounts spent by Italians traveling abroad, increased to approximately €8.6 billion compared to €7.8

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billion in 2020. The growth in tourism revenues compared to 2020 follows the sharp decline caused by the Coronavirus pandemic's travel restrictions. In 2021 spending by foreign tourists in Italy increased by 23.0 per cent compared to 2020, and spending by Italian tourists abroad increased by 32.0 per cent.

**Financial Services**. The percentage of investment of households allocated to shares and investment fund units amounted to approximately 38.5 per cent at the end of 2021, compared to 36.2 per cent in 2020. Bank deposits accounted for 27.2 per cent (27.8 per cent in 2020), insurances and pension funds accounted for 23.1 per cent (24.0 per cent in 2020), and bonds accounted for 4.4 per cent (5.3 per cent in 2020). In the past, a significant portion of Italy's households used to be invested in public debt. In 2021, however, households' investments in public securities accounted for only 2.3 per cent of total households financial assets (2.8 per cent in 2020).

The general Italian share price index increased by 20.0 per cent in 2021. This increase was mainly driven by an improved profitability of listed companies and an overall favorable monetary policy.

Italian household indebtedness as a percentage of disposable income increased in 2021 to 64.6 per cent. Lending to families increased by 4.3 per cent in 2021. The amount of mortgages granted increased by approximately 5.0 per cent in 2021, compared to a 4.1 per cent increase in 2020, while consumer credit by banks increased by 1.0 per cent in 2021 compared to a decrease of 0.6 per cent in 2020. For additional information on the Italian banking system, see "Monetary System—Banking Regulation."

#### Manufacturing
In 2021, the manufacturing sector represented 14.0 per cent of GDP and 15.4 per cent of total employment. In 2021, value added in manufacturing increased by 10.3 per cent compared to a 11.4 per cent decrease in 2020.

Italy has compensated for its lack of natural resources by specializing in transformation and processing industries. Italy's principal manufacturing industries include metal products, precision instruments and machinery, textiles, leather products and clothing, wood and wood products, paper and paper products, food and tobacco, chemical and pharmaceutical products, and transport equipment, including motor vehicles.

The number of large manufacturing companies in Italy is small in comparison to other European Union countries. In 2021, the most significant companies by revenue included FCA Italy S.p.A. (automotive), Esselunga S.p.A. (retail chain store), Leonardo S.p.A. (formerly known as Finmeccanica S.p.A., defense, aeronautics, helicopters, and space), Fincantieri S.p.A. (shipbuilding), and Guccio Gucci S.p.A. (fashion).

Much of Italy's industrial output is produced by small and medium-sized enterprises, which also account for much of the economic growth over the past 20 years. These firms are especially active in light industries (including the manufacture of textiles, production machinery, clothing, food, shoes, and paper), where they have been innovators, and export a significant share of their production. The profit margins of large manufacturing firms, however, have generally been higher than those of their smaller counterparts. Various government programs (in addition to EU programs) to support small firms provide, among other things, for loans, grants, tax allowances and support to venture capital entities.

Traditionally, investment in research and development ("**R&D**") has been subdued in Italy. Total and corporate R&D spending has continued to be proportionally lower in Italy than in other industrialized countries, reflecting the Italian industry's persistent difficulty in closing the technology gap with other

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advanced economies. Total R&D spending in Italy was 1.5 per cent of GDP in 2020 (the most recent year for which data is available), compared to 3.1 per cent in Germany and to an average of 2.2 per cent in the EU.

The following table shows the growth by sector of indexed industrial production for the years indicated.

#### Industrial Production by Sector (Index: 2015 = 100)

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **2016** | **2017** | **2018** | **2019** | **2020** | **2021** |
| Food and tobacco | 102.0 | 104.5 | 107.0 | 109.9 | 107.4 | 114.2 |
| Textiles, clothing and leather | 97.7 | 97.3 | 99.0 | 94.1 | 67.5 | 74.6 |
| Wood, paper and printing | 98.3 | 97.9 | 94.7 | 94.0 | 84.5 | 95.1 |
| Coke and refinery | 97.9 | 101.4 | 99.8 | 97.4 | 82.2 | 88.8 |
| Chemical products | 101.8 | 104.7 | 105.8 | 106.2 | 98.5 | 106.0 |
| Pharmaceutical products | 100.5 | 106.7 | 111.8 | 114.5 | 109.4 | 111.2 |
| Rubber, plastic materials and non-ferrous minerals | 103.1 | 106.8 | 104.6 | 101.2 | 91.4 | 108.7 |
| Metals and ferrous products | 102.1 | 105.9 | 107.8 | 103.1 | 90.1 | 106.4 |
| Electronic and optic materials | 99.2 | 100.3 | 102.0 | 104.7 | 97.3 | 109.9 |
| Electric appliances for households | 98.9 | 100.7 | 106.8 | 106.3 | 95.5 | 115.0 |
| Machinery and equipment | 103.0 | 109.1 | 114.0 | 111.6 | 95.7 | 111.0 |
| Transport means | 104.1 | 107.4 | 108.0 | 103.4 | 84.6 | 96.3 |
| Other industrial products | 102.9 | 107.8 | 113.1 | 117.1 | 106.3 | 122.5 |

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_____________________

Source: ISTAT.

#### Energy Consumption
Energy consumption, measured in terms of millions of tons of oil equivalent, or "**MTOE**," increased by 6.6 per cent in 2021 compared to a decrease of 9.2 per cent in 2020. In 2021 (in MTOE), oil represented 31.0 per cent of Italy's energy consumption compared to 30.9 per cent in 2020, natural gas represented 42.0 per cent of Italy's energy consumption compared to 41.6 per cent in 2020, renewable energy resources represented 20.0 per cent of Italy's energy consumption compared to 20.9 per cent in 2020, solid combustibles represented 3.7 per cent of Italy's energy consumption compared to 3.6 per cent in 2020, and net imported electricity represented 2.7 per cent of Italy's energy consumption compared to 2.4 in 2020. In 2021, Italy's production (in MTOE) of oil, natural gas, renewable energy and solid combustibles represented 23.6 per cent of the national energy consumption, compared to 26.0 per cent in 2020. Therefore, in 2021 Italy continued to rely heavily on energy imports, mainly of oil and natural gas.

The Italian energy sector is governed by regulations that aim to promote competition at the production, transport and sales level. The Electricity and Gas Authority (*Autorità per l'Energia Elettrica e il Gas*) regulates electricity and natural gas activities, with the aim of promoting competition and service quality; it has significant powers, including the power to establish tariffs. Italy's domestic energy industry includes several major companies in which the Government holds an interest.

ENI is the largest oil and gas company in Italy and is engaged in the exploration, development and production of oil and natural gas in Italy and abroad, the refining and distribution of petroleum

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products, petrochemical products, the supply, transmission and distribution of natural gas and oil field services contracting and engineering. As of September 2022, the Ministry of Economy and Finance held approximately 4.4 per cent of the share capital of ENI directly and 26.2 per cent through Cassa Depositi e Prestiti S.p.A. ("**CDP**").

ENEL is the largest electricity company in Italy and is engaged principally in the generation, importation, and distribution of electricity. As of September 2022, the Ministry of Economy and Finance held approximately 23.6 per cent of ENEL's share capital directly.

CDP is a privately held corporation in which the Ministry of Economy and Finance owns approximately 82.8 per cent of the share capital. CDP is engaged in the financing of investments in the public sector, i.e., of the state, the regions, the provinces and the city administrations and other public bodies. For additional information regarding CDP, see "Public Debt—General—Public Debt Management." As of September 2022, CDP also indirectly holds approximately 29.9 per cent of the share capital of Terna S.p.A. ("**Terna**"). Formerly owned by ENEL, Terna is a public company that owns and operates a major portion of the transmission assets of Italy's national electricity grid.

#### Construction
In 2021, construction represented 4.4 per cent of GDP and 6.6 per cent of total employment. Investment in construction (characterized, as in the past, by more persistent cyclical fluctuation) represented 47.6 per cent of fixed investments in 2021. Housing investments increased by 25.9 per cent in 2021, compared to a 7.4 per cent decrease in 2020, while house prices increased by 2.5 per cent, following the trend set by the 1.9 per cent increase in 2020. Investment in non-residential construction increased by 18.7 per cent in 2021, compared to a 6.0 per cent decrease in 2020, while investment in residential construction increased by 25.9 per cent, compared to a 7.4 per cent decrease in 2020.

#### Agriculture, Fishing and Forestry
In 2021, agriculture, fishing and forestry decreased by 1.3 per cent compared to 2020 and accounted for 1.7 per cent of GDP and 3.6 per cent of total employment. Agriculture's share of Italian GDP has generally declined with the growth of industrial output since the 1960s. Italy is a net importer of all categories of food except fruits and vegetables. The principal crops are wheat (including the durum wheat used to make pasta), maize, olives, grapes, and tomatoes. Cereals are grown principally in the Po valley in the North and in the South-Eastern plains, olives are grown principally in Central and Southern Italy and grapes are grown throughout the country.

#### Employment and Labor
**General**. Job creation has been and continues to be a key objective of the Government. Employment increased by approximately 0.7 per cent in 2021, partly due to a lower use of wage integration schemes that had been exerting pressure on the labor market in 2020.

The unemployment rate in Italy increased to 9.7 per cent in 2021 from 9.5 per cent in 2020, marking a 0.2 per cent increase. As of September 30, 2022, Italy recorded an unemployment rate of 7.9 per cent. The decrease in the unemployment rate was caused, among other things, by the lifting of certain restrictive measures adopted by the Government in response to the Coronavirus pandemic, a growth in the import and export rate, and increased government contracts, with the sectors most affected by this decrease in the unemployment rate being the service and construction sectors.

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The following table shows the change in total employment in standard labor units, labor market participation rate and unemployment rate for each of the periods indicated. A standard labor unit is the amount of work undertaken by a full-time employee over the year and is used to measure the amount of work employed to produce goods and services.

#### Employment

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
| Employment in standard labor units (per cent on prior year) | 0.8 | 0.8 | 0.0 | (10.3) | 7.6 |
| Participation rate (per cent)<sup>(1)</sup> | 65.4 | 65.6 | 65.7 | 63.5 | 64.5 |
| Unemployment rate (per cent)<sup>(2)</sup> | 11.3 | 10.6 | 9.9 | 9.3 | 9.5 |

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&nbsp;&nbsp;&nbsp;&nbsp;(1) Participation rate is the rate of employment for the population between the ages of 15 and 64.

&nbsp;&nbsp;&nbsp;&nbsp;(2) Unemployment rate does not include workers paid by *Cassa Integrazione Guadagni*, or Wage Supplementation Fund, which compensates workers who are temporarily laid off or who have had their hours cut.

Source: ISTAT.

**Employment by sector**. In 2021, approximately 73.0 per cent were employed in the service sector, 16.8 per cent were employed in the industrial sector (excluding construction), 6.6 per cent were employed in the construction sector and 3.6 per cent were employed in the agriculture, fishing and forestry sector.

**Employment by geographic area and gender**. Unemployment in Southern Italy, which in 2021 reached 16.7 per cent, has been historically higher than in Northern and Central Italy, respectively 6.1 and 8.8 per cent. In 2021, unemployment in the South increased by 0.2 per cent compared to a 0.2 per cent increase in the Centre, while the rate remained stable in the North. The number of persons employed increased throughout the country by 0.7 per cent. In 2021, the unemployment rate of females in Italy was 10.8 per cent, a 0.3 per cent increase compared to 2020. In 2021, the unemployment rate of males in Italy increased by 0.1 per cent compared to 2020 and was 8.8 per cent in 2020. The participation rate remained stable.

**Employment of the population between the ages 15-24***.* The unemployment rate of the population in Italy aged 15-24 decreased by 1.9 per cent from 2020, reaching 27.5 per cent in 2021, compared to 29.4 per cent in 2020. In the euro area, the unemployment rate of the population aged 15-24 in 2020 and 2021 was 17.7 per cent and 15.4 per cent, respectively.

The following table shows the unemployment rate of the population between ages of 15-24 in Italy and the euro area for the periods provided.

#### Unemployment of the Population aged 15-24

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **2016** | **2017** | **2018** | **2019** | **2020** | **2021** |
| Italy | 37.6 | 34.9 | 32.4 | 29.0 | 30.0 | 29.5 |
| Euro area<sup>(1)</sup> | 21.4 | 19.3 | 17.5 | 16.3 | 18.0 | 16.8 |

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&nbsp;&nbsp;&nbsp;&nbsp;(1) The euro area represents the 19 countries participating in the European Economic and Monetary Union.

Source: Eurostat.

**Government programs and regulatory framework**. The Government has adopted a number of programs aimed at correcting the imbalances in employment, particularly between southern Italy and the rest of the country and reducing unemployment.

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Through the *Cassa Integrazione Guadagni* ("**CIG**"), or Wage Supplementation Fund, the Government guarantees a portion of the wages of workers in the industrial sector that are temporarily laid off or who have had their working hours reduced. Workers laid off permanently as a consequence of restructuring or other collective redundancies are entitled to receive unemployment compensation for a period of 24 months, which is extendable to up to 36 months for workers nearing retirement age. In March 2020, the Government introduced an *ad hoc* Wage Supplementation Fund directed specifically to workers who had lost their jobs due to the Coronavirus pandemic. The system of the CIG was conceived for a context of transitory sectoral and / or business crises, and for this reason in 2020 its reach was extended in order to include the businesses and the sectors that in ordinary situations would not have had access to CIG.In total, the Istituto Nazionale di Previdenza Sociale ("**INPS**") authorized 1.79 billion hours under the CIG in 2021, compared to the 2.96 billion hours authorized in 2020.

#### Prices and Wages
**Wages**. Unit labor costs have historically been lower in Italy, on average, than in most other European countries. This is due to lower average earnings per employee, combined with lower productivity levels.

Real earnings increased by 2.1 per cent in 2021, following an increase by 3.8 per cent in gross earnings compared to 2020. Employees earnings increased by 7.6 per cent compared to a 0.2 per cent increase of self-employed workers' earnings. In the private sector, nominal earnings increased by 0.4 per cent compared to 2021, with a larger increase for those employed in the agriculture sector as opposed to those employed in the industry sector or in services. In the public sector, nominal wages increased by 0.5 per cent. Unit labor increased by 7.3 per cent in 2021, after a sharp decrease in 2020.

**Prices***.* The HICP reflects the change in price of a basket of goods and services taking into account all families resident in a given territory. The inflation rate in the euro area, as measured by the HICP, was 2.6 per cent in 2021, compared to 0.3 per cent in 2020. Since Italy's entry into the euro area in 1999, monetary policy decisions are made for all euro zone countries by the European Central Bank. For additional information on monetary policy in the euro zone, see "Monetary System—Monetary Policy."

In 2021, as measured by the HICP, Italy recorded an average inflation of 1.9 per cent compared to an average deflation of 0.1 per cent in 2020.

The following table illustrates trends in prices and wages for the periods indicated.

#### Prices and Wages (in per cent)

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
| Cost of Living Index<sup>(1)</sup> | 1.1 | 1.1 | 0.5 | (0.3) | 1.9 |
| EU Harmonized Consumer Price Index<sup>(1)</sup> | 1.6 | 1.8 | 1.4 | 0.7 | 2.9 |
| Core Inflation Index<sup>(2)</sup> | 0.7 | 0.5 | 0.5 | 0.5 | 0.8 |
| Change in Unit Labor Cost<sup>(3)</sup> | (0.1) | 2.0 | 1.3 | 3.2 | (0.1) |

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&nbsp;&nbsp;&nbsp;&nbsp;(1) The cost of living index reflects the change in price of a basket of goods and services (net of tobacco) typically purchased by non-farming families headed by an employee. It
 differs from the harmonized consumer price index in that the cost of living index is smaller in scope.

&nbsp;&nbsp;&nbsp;&nbsp;(2) The basket of goods and services used to measure the core inflation index is equivalent to the harmonized consumer price index basket less energy, unprocessed food, alcohol and
 tobacco products.

&nbsp;&nbsp;&nbsp;&nbsp;(3) Unit labor costs are per capita wages reduced by productivity gains.

Source: Bank of Italy, OECD, Eurostat.

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As of October 31, 2022, harmonized inflation as measured by the HICP in Italy increased to 12.6 per cent compared to 3.2 per cent in the same period of 2021. The increase in the average yearly inflation rate was caused, among other things, by commodity price trends, supply chain disruptions, tensions affecting international trade and surging prices in key sectors of the economy such as the energy, hospitality and manufacturing sectors.

#### Social Welfare System
Italy has a comprehensive social welfare system, including public health, public education and pension, disability and unemployment benefits programs, most of which are administered by the Government or by local authorities receiving government funding. These social services are funded in part by contributions from employers and employees and in part from general tax revenues. They represent the largest single government expenditure. For additional information on government revenues and expenditures, see "Public Finance—Revenues and Expenditures."

Social benefits in cash include expenditures for pensions, disability, and unemployment benefits. The two principal social security agencies, INPS and the *Istituto Nazionale Assicurazioni e Infortuni sul Lavoro* ("**INAIL**"), provide old-age pensions and temporary and permanent disability compensation for all government employees and employees of the private sector and their qualified dependents, as well as coverage for accidents in the workplace or permanent disability as a consequence of employment. In 2021, pensions were provided to approximately 16.0 million beneficiaries, totaling disbursements for approximately €311.9 billion.

Old-age pensions in Italy, as in much of the developed world, continue to present a significant structural fiscal problem. Controlling pension spending is a particularly important government objective given Italy's aging population. Since 1992, Italy has adopted a number of measures designed to control the growth of pension expenditures. Recent measures include:

• The stability law for 2018 (Law No. 172 of December 4, 2017), exempting certain categories of workers from the increase of the retirement age to 67 years. The stability law for 2018 also included measures providing for an extension to December 31, 2019 of the experimental pension advance scheme introduced by the budget law for 2017 (Law No. 232 of December 11, 2016) (so-called voluntary APE) and expanded its scope to additional categories of workers.

• The 2019 budget law (Law No. 145 of December 30, 2018), allowing workers of at least 62 years of age and 38 years of social contribution to the national pension fund to apply for early retirement. These measures were implemented through the adoption of Law Decree No. 4 of January 28, 2019 (converted into Law No. 26 of March 28, 2019).

• The 2021 budget law (Law No. 178 of December 30, 2020), changing the calculation rules for companies employing more than 250 employees to facilitate access to a pension to part-time workers and introducing certain retirement relief measures for certain categories of workers.

<br> • The 2022 budget law (Law No. 234 of December 30, 2021), allowing individuals of at least 64 years of age and 38 years of social contribution to the national pension fund to apply for early retirement.

<br> • The 2023 budget law (Law No. 197 of December 29, 2022), allowing individuals of at least 62 years of age and 41 years of social contribution to the national pension fund to apply for early retirement.

The following table shows estimated public expenditure for pensions as a percentage of GDP based on the implementation of the various reforms described above.

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#### Estimated Pension Expenditure (as a per cent of GDP)

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| | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **2015** | **2020** | **2025** | **2030** | **2035** | **2040** | **2045** | **2050** | **2055** | **2060** | **2065** | **2070** |
| Current Legislation | 15.6 | 16.9 | 16.4 | 16.9 | 17.5 | 17.3 | 16.8 | 15.7 | 14.6 | 13.8 | 13.4 | 13.4 |

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Source: Ministry of Economy and Finance.

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#### MONETARY SYSTEM
The Italian financial system consists of banking institutions such as commercial banks, leasing companies, factoring companies and household finance companies, as well as non-bank financial intermediaries such as investment funds, portfolio management companies, securities investment firms, insurance companies and pension funds.

#### Monetary Policy
**The Eurosystem and the European System of Central Banks**. As of January 1, 1999, which marked the beginning of Stage III of the EMU, the 11 countries joining the EMU officially adopted the euro, and the Eurosystem became responsible for conducting a single monetary policy. Greece and Slovenia joined the EMU on January 1, 2001 and January 1, 2007, respectively. Cyprus and Malta joined the EMU on January 1, 2008 and Slovakia on January 1, 2009. Estonia and Latvia adopted the euro beginning on January 1, 2011 and January 1, 2014, respectively. Lithuania joined the Eurozone and adopted the euro on January 1, 2015.

The European System of Central Banks ("**ESCB**") consists of the ECB, established on June 1, 1998, and the national central banks of the EU Member States. The Eurosystem consists of the ECB and the 19 national central banks of those countries that have adopted the euro. So long as there are EU Member States that have not yet adopted the euro (currently Bulgaria, Croatia, the Czech Republic, Denmark, Hungary, Poland, Romania and Sweden), there will be a distinction between the 19-country Eurosystem and the 27-country ESCB. The eight national central banks of non-participating countries do not take part in the decision-making of the single monetary policy; they maintain their own national currencies and conduct their own monetary policies. The Bank of Italy, as a member of the Eurosystem, participates in Eurosystem decision-making.

The Eurosystem is principally responsible for:

• defining and implementing the monetary policy of the euro area, including fixing rates on the main refinancing lending facility (regular liquidity-providing reverse transactions with a weekly frequency and a maturity of two weeks, executed by the national central banks on the basis of standard tenders), the marginal lending facility (overnight liquidity facility provided to members of the Eurosystem by the national central banks against eligible assets, usually with no credit limits or other restrictions on access to credit) and the deposit facility (overnight deposit facility with the national central banks available to members of the Eurosystem, usually with no deposit limits or other restrictions);

<br> • conducting foreign exchange operations and holding and managing the official foreign reserves of the euro area countries;

<br> • issuing banknotes in the euro area;

<br> • promoting the smooth operation of payment systems; and

<br> • cooperating in the supervision of credit institutions and the stability of the financial system.

The ESCB is governed by the decision-making bodies of the ECB which are:

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<br> • the Executive Board, composed of the President, Vice-President and four other members, responsible for implementing the monetary policy formulated by the Governing Council and managing the day-to-day business of the ECB;

• the Governing Council, composed of the six members of the Executive Board and the governors of the 19 national central banks, in charge of implementing the tasks assigned to the Eurosystem, formulating the euro area's monetary policy and to adopt decisions relating to the general framework under which supervisory decisions are taken;

• the General Council, composed of the President and the Vice-President of the ECB and the governors of the 27 national central banks of the EU Member States. The General Council contributes to the advisory functions of the ECB and will remain in existence as long as there are EU Member States that have not adopted the euro; and

<br> • the Supervisory Board, composed of the Chair, the Vice-Chair, four ECB representatives and representatives of national supervisors, carries out ECB's supervisory tasks.

The ECB is independent of the national central banks and the governments of the Member States and has its own budget, independent of that of the EU; its capital is not funded by the EU but has been subscribed and paid up by the national central banks of the Member States, pro-rated, for each Member State that has adopted the euro, to the GDP and population of each such Member State. The ECB has exclusive authority for the issuance of currency within the euro area. As of December 29, 2021, the ECB had subscribed capital of approximately €10.8 billion and paid up capital of approximately €8.2 billion. As of December 29, 2021, the Bank of Italy had subscribed for approximately €1.4 billion, fully paid up, based on the capital key used to calculate each of the euro area national central banks' subscription to the capital of the ECB, which in the case of Italy is equal to 13.8 per cent.

**The Bank of Italy**. The Bank of Italy, founded in 1893, is the banker to the Treasury and had historically been the lender of last resort for Italian banks prior to the onset of the European sovereign debt crisis in 2009. It supervises and regulates the Italian banking industry and operates services for the banking industry as a whole. It also supervises and regulates non-bank financial intermediaries. As of December 31, 2021, the Bank of Italy had assets of approximately €1,538.1 billion, held gold in the amount of approximately €126.9 billion (including gold receivables) and capital and reserves of approximately €26.3 billion.

**The ECB's Monetary Policy**. The primary objective of the ECB is to preserve the euro's purchasing power and consequently to maintain price stability in the euro area. In 2003, clarifying previous positions taken since October 1998, the Governing Council stated that the ECB monetary strategy, in the pursuit of price stability, aims to maintain inflation rates below, but close to, 2.0 per cent over the medium term. Inflation rate has been defined as an annual increase in the HICP for the euro. Moreover, in order to assess the outlook for price developments and the risks for future price stability, a two-pillar approach was adopted by the ECB: monetary analysis and economic analysis.

The first pillar, monetary analysis, focuses on a longer term horizon than the economic analysis. It mainly serves as a means of cross-checking, from a medium to long-term perspective, the short to medium-term indications for monetary policy coming from the economic analysis. Monetary analysis assigns a prominent role to money supply, the growth rate of which is measured through three monetary aggregates, a narrow monetary aggregate (M1), an intermediate monetary aggregate (M2) and a broad monetary aggregate (M3). These aggregates differ with regard to the degree of liquidity of the assets they include. M1 comprises currency (banknotes and coins) and overnight deposits, which can immediately be converted into currency or used for cashless payments. M2 comprises M1 and deposits with an agreed

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maturity of up to and including two years or redeemable at a period of notice of up to and including three months. These deposits can be converted into M1 components, subject to certain restrictions such as the need for advance notice, penalties and fees. M3 comprises M2 as well as repurchase agreements, debt securities of up to two years, money market fund shares and money market paper. These additional instruments have a high degree of liquidity and price certainty, which make them close substitutes for deposits. As a result, M3 is less affected by substitution between various liquid asset categories and is more stable than narrower (M1 and M2) money.

In December 1998, the Governing Council set the first quantitative reference value for monetary growth at an annual growth rate of 4.5 per cent. This reference value was confirmed by the Governing Council in 1999, 2000, 2001 and 2002. On May 8, 2003, the Governing Council decided to stop its practice of reviewing the reference value annually, given its long-term nature. The reference value has not been changed since.

The second pillar consists of a broad assessment of the outlook for price developments and the risks to price stability in the euro area and is made in parallel with the analysis of M3 growth in relation to its reference value. This assessment encompasses a wide range of financial market and other economic indicators, including developments in overall output, demand and labor market conditions, a broad range of price and cost indicators, fiscal policy and the balance of payments for the euro area as well as the production and review of macroeconomic projections.

Based on a thorough analysis of the information provided by the two pillars of its strategy, the Governing Council determines monetary policy aiming at price stability over the medium term.

The ECB's monetary and exchange rate policy is aimed at supporting general and economic policies in order to achieve the economic objectives of the EU, including sustainable growth and a high level of employment without prejudice to the objective of price stability.

**ECB Money Supply and Credit**.

In May 2019, the annual growth rate of the broad monetary aggregate M3 increased to 4.8 per cent from 4.7 per cent in April 2019. The annual growth rate of M1, decreased to 7.2 per cent in May 2019, from 7.4 per cent in April 2019. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) increased to 0.7 per cent in May 2019, from 0.6 per cent in April 2019. The annual growth rate of marketable instruments (M3-M2) increased to negative 2.5 per cent in May 2019, from negative 5.4 per cent in April 2019.

In May 2020, the annual growth rate of the broad monetary aggregate M3 increased to 8.9 per cent from 8.2 per cent in April 2020. The annual growth rate of M1, increased to 12.5 per cent in May 2020, from 8.2 per cent in April 2020. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) increased to 0.7 per cent in May 2020, from negative 0.3 per cent in April 2020. The annual growth rate of marketable instruments (M3-M2) decreased to 5.8 per cent in May 2020, from 5.9 per cent in April 2020.

In May 2021, the annual growth rate of the broad monetary aggregate M3 decreased to 8.4 per cent from 9.2 per cent in April 2021. The annual growth rate of M1, decreased to 11.6 per cent in May 2021, from 12.3 per cent in April 2021. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) decreased to negative 0.7 per cent in May 2021, from 0.3 per cent in April 2021. The annual growth rate of marketable instruments (M3-M2) increased to 11.3 per cent in May 2021, from 10.5 per cent in April 2021.

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In May 2022, the annual growth rate of the broad monetary aggregate M3 decreased to 5.6 per cent from 6.1 per cent in April 2022. The annual growth rate of M1, decreased to 7.8 per cent in May 2022, from 8.2 per cent in April 2022. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) decreased to 0.3 per cent in May 2022, from 0.4 per cent in April 2022. The annual growth rate of marketable instruments (M3-M2) decreased to negative 2.3 per cent in May 2022, from 1.3 per cent in April 2022.

**ECB Interest Rates**. The following table shows the movement in the ECB interest rate on main refinancing operations and on marginal lending and deposit facilities from 2015 to date.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  |  | **Main Refinancing Operations<sup>1</sup>** | **Main Refinancing Operations<sup>1</sup>** |  |
| **Effective date** | **Deposit<br> Facility per cent<br> interest rate** | **Fixed rate<br> tenders** | **Variable rate<br> tenders –<br> minimum bid<br> rate** | **Marginal<br> lending<br> facility per cent<br> interest rate** |
| **2015**<br> December 9 | (0.30) | 0.05 |  | 0.30 |
| **2016**<br> March 16 | (0.40) | 0.00 |  | 0.25 |
| **2019**<br> September 18 | (0.50) | 0.00 |  | 0.25 |
| **2022**<br> July 27 | 0.00 | 0.50 |  | 0.75 |
| September 14 | 0.75 | 1.25 |  | 1.50 |
| November 2 | 1.50 | 2.00 |  | 2.25 |
| December 21 | 2.00 | 2.50 |  | 2.75 |

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_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) The table presents only changes in key ECB interest rates. No changes to key ECB interest rates were recorded in 2017, 2018, 2020 and 2021.

Source: European Central Bank.

#### Exchange Rate Policy
Under the Maastricht Treaty, the ECB and ECOFIN are responsible for foreign exchange rate policy. The EU Council formulates the general orientation of exchange rate policy, either on the recommendation of the Commission, following consultation with the ECB, or on the recommendation of the ECB. However, the EU Council's general orientation cannot conflict with the ECB's primary objective of maintaining price stability. The ECB has exclusive authority for effecting transactions in foreign exchange markets.

#### Banking Regulation
**Regulatory Framework**.

Pursuant to the principle of "home country control", non-Italian EU banks may carry out banking activities and activities subject to "mutual recognition" in Italy within the framework set out by Directive 2006/48/EC and Directive 2006/49/EC (collectively known as Capital Requirements Directive, or CRD I), as amended by Directive 2009/27/EC, Directive 2009/83/EC and Directive 2009/111/EC (collectively known as CRD II), by Directive 2010/76/EU (known as CRD III), by Directive 2013/36/EU (known as CRD IV) and by Directive 2019/878/EC (known as CRD V). Under the principle of "home country control", a non-Italian EU bank remains subject to the regulation of its home-country supervisory authorities. It may carry out in Italy those activities described in the aforesaid directives that it is

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permitted to carry out in its home country, provided the Bank of Italy is informed by the entity supervising the non-Italian EU bank. Subject to certain authorization requirements, non-EU banks may also carry out banking activities in Italy.

**Deregulation and Rationalization of the Italian Banking Industry**. Historically, the Italian banking industry was highly fragmented and characterized by high levels of State ownership and influence. During the 1980s, Italian banking and European Community authorities began a process of deregulation. The principal components of deregulation at the European level are set forth in EU Directives and provide for:

<br> • the free movement of capital among member countries;

<br> • the easing of restrictions on new branch openings;

<br> • the range of domestic and international services that banks are able to offer throughout the European Union; and

<br> • the elimination of limitations on annual lending volumes and loan maturities.

The effect of the deregulation, in the context of the implementation of the EU Directives, has been a significant increase in competition in the Italian banking industry in virtually all bank and bank-related services.

*The Consolidated Banking Law*. In 1993, Legislative Decree No. 385 of September 1, 1993, (the "**Consolidated Banking Law**") consolidated most Italian banking legislation into one statute. Provisions in the Consolidated Banking Law relate, *inter alia*, to the role of supervisory authorities, the definition of banking and related activities, the authorization of banking activities, the scope of banking supervision, special bankruptcy procedures for banks and the supervision of financial companies. Banking activities may be performed by banks, without any restriction as to the type of bank. Furthermore, subject to their respective bylaws and applicable regulations, banks may engage in all the business activities that are integral to banking.

*The Draghi Law*. Legislative Decree No. 58 of February 24, 1998, (the "**Draghi Law**") entered into force in 1998 and introduced a comprehensive regulation of investment services, securities markets and publicly traded companies. While the Draghi Law did not significantly amend Italian legislation governing the banking industry, it is generally applicable to Italian publicly traded companies and it has implemented the EU directives on securities. In particular, the Draghi Law introduced a comprehensive regulation of investment services and collective investment management which applies to banks, investment firms and asset managers.

*Directive 2004/39/EC - The Markets in Financial Instruments EU Directive (MiFID)*. On November 1, 2017, Directive 2004/39/EC ("**MiFID**") came into force and replaced the existing Investment Services Directive (Directive 93/22/EEC). The purpose of the MiFID is to harmonize rules governing the operation of regulated markets. The MiFID resulted in significant changes to the regulation of financial instruments and widened the range of investment services and activities that firms can offer in EU Member States other than their home state. In addition, the MiFID:

<br> • provides for tailored disclosure requirements, depending on the level of sophistication of investors;

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<br> • establishes detailed standards for fair dealings and fair negotiations between investment firms and investors;

<br> • introduces the operation of multilateral trading facilities as a new core investment service; and

<br> • extends the scope of the definition of financial instruments to include commodity derivatives, credit derivatives and swap agreements.

The MiFID also sets out detailed requirements governing the organization of investment firms and their conduct of business.

Further to the implementation of the MiFID in Italy, the Italian Stock Exchange Commission ("**Consob**") and the Bank of Italy adopted a joint regulation coordinating their respective supervisory competences with regard to the Italian financial markets and the institutions operating in those markets.

*Directive 2014/65/EU - The Markets in Financial Instruments EU Directive II (MiFID II)*. In April 2014, the European Parliament repealed and recast the MiFID into a new Directive (Directive 2014/65/EU) ("**MiFID II**") alongside a new regulation (Regulation 600/2014) ("**MiFIR**"). The new framework aims to make financial markets more efficient, resilient and transparent. The measures are intended to increase investor protection by introducing more stringent organizational and conduct requirements and strengthen the role of management bodies and the supervisory powers of regulators. Both MiFID II and MiFIR came into force on July 2, 2014. Member States had until January 3, 2018 to transpose these new measures into national law.

*Law No. 33 of March 24, 2015*. In March 2015, Parliament converted Law Decree No. 3 of January 24, 2015 into Law No. 33 of March 24, 2015, also known as "**Investment Compact**." Law No. 33/2015 required co-operative banks exceeding €8.0 billion in assets to incorporate as joint stock banks by December 2016. Law No. 33/2015 also mandated for a change in the corporate governance structure of those banks, providing for proportionality of voting rights to the number of shares owned by shareholders (as opposed to the previous method where every member of the bank held one vote, independently of its share ownership).

*Law No. 49 of April 8, 2016*. In April 2016, Parliament converted Law Decree No. 18 of February 14, 2016, into Law No. 49 of April 8, 2016, also known as "**BCC Reform**." The BCC Reform requires co-operative banks to join a banking group in order to obtain or maintain their authorization for carrying out banking activities. Alternatively, co-operative banks with net assets in excess of €200 million could opt to maintain such authorization by re-incorporating as joint stock banks by June 14, 2016.

**Supervision**. Supervisory authorities, in accordance with the Consolidated Banking Law, include the Inter-Ministerial Committee for Credit and Savings (*Comitato Interministeriale per il Credito ed il Risparmio,* or "**CICR**"), the Ministry of Economy and Finance and the Bank of Italy. The principal objectives of supervision are to ensure the sound and prudent management of the institutions subject to supervision and the overall stability, efficiency and competitiveness of the financial system.

*The CICR*. The CICR is composed of the Minister of Economy and Finance who acts as chairman, the Minister of International Trade, the Minister of Agriculture and Forest Policies, the Minister of Economic Development, the Minister of Infrastructure, the Minister of Transportation and the Minister of EU Policies. The Governor of the Bank of Italy, although not a member of the CICR, attends all meetings of the CICR but does not have the right to vote at such meetings. Where provided for by the law, the CICR establishes general guidelines that the Bank of Italy must follow when adopting regulations applicable to supervised entities.

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*The Ministry of Economy and Finance*. The Ministry of Economy and Finance has certain powers in relation to banking and financial activities. It sets eligibility standards to be met by holders of equity interests in the share capital of a bank and the level of professional experience required of directors and executives of banks and other financial intermediaries. The Ministry of Economy and Finance may, in cases of urgency, adopt measures that are generally within the sphere of CICR's powers and may also issue decrees that subject banks and other supervised entities to mandatory liquidation (*liquidazione coatta amministrativa*) or extraordinary management (*amministrazione straordinaria*), upon the proposal of the Bank of Italy. Furthermore, the Ministry of Economy and Finance may exercise certain powers in relation to regulating wholesale markets for government securities.

*The Bank of Italy*. The Bank of Italy supervises banks and certain other financial intermediaries through its regulatory powers (in accordance with the guidelines issued by the CICR). The Consolidated Banking Law identifies four main areas of oversight: capital requirements, risk management, acquisitions of participations, administrative and accounting organization and internal controls, and public disclosure requirements. The Bank of Italy also regulates other fields, such as transparency in banking and financial transactions of banks and financial intermediaries, international payments, money laundering and terrorism financing. The Bank of Italy supervises banks and other supervised entities by, *inter alia*, authorizing the acquisition of shareholdings in banks in excess of certain thresholds and exercising off-site and on-site supervision. Certain acquisitions by non-EU entities based in jurisdictions that do not contemplate reciprocal rights by Italian banks to purchase banks based in those jurisdictions, may be denied by the President of the Council of Ministers, upon prior notice to the Bank of Italy.

On-site visits carried out by the Bank of Italy may be either "general" or "special" (directed toward specific aspects of banking activity). Matters covered by an on-site visit include the accuracy of reported data, compliance with banking laws and regulations, organizational aspects and conformity with a bank's own bylaws.

The Bank of Italy requires all banks to report periodic statistical information related to all components of their non-consolidated balance sheet and consolidated accounts. Other data reviewed by the Bank of Italy include minutes of meetings of each bank's board of directors. Banks are also required to submit any other data or documentation that the Bank of Italy may request.

In addition to its supervisory role, the Bank of Italy – as the Italian Central Bank – performs monetary policy functions by participating in the ESCB, and acts as treasurer to the Ministry of Economy and Finance. It also operates services for the banking industry as a whole, most notably the Credit Register (*Centrale dei Rischi*), a central information database on credit risk. Furthermore, the Bank of Italy may exercise a supervisory authority on wholesale markets for domestic government securities.

On December 28, 2005, Law No. 262 was passed to modify the powers and organization of the Bank of Italy. In particular, while prior to the reform the Governor was appointed for an indefinite term, in accordance with the new legal framework, the Governor of the Bank of Italy is now appointed for a 6-year term, and may be reappointed only once. In addition, the Law No. 262/2005 transferred most of the powers of the Bank of Italy regarding competition in the banking sector to the Antitrust Authority, although joint clearance of the Bank of Italy and the Antitrust Authority is required in cases of mergers and acquisitions.

*The SSM*. On October 29, 2013, following Council Regulation 1024/2013 and Regulation 1022/2013, the EU approved the creation of the Single Supervisory Mechanism ("**SSM**") as the new system of banking supervision for Europe, which has been effective since November 4, 2014. The SSM grants the ECB, in conjunction with national supervisory authorities, a supervisory role to monitor the financial stability of banks based in eurozone countries. The SSM's main aims are to:

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<br> • ensure the safety and soundness of the European banking system;

<br> • increase financial integration and stability; and

<br> • ensure consistent banking supervision.

Eurozone countries automatically joined the SSM, while Member States of the EU outside the eurozone can voluntarily participate. Other countries that do not yet have the euro as their currency can choose to participate. To do so, their national supervisors enter into "close cooperation" with the ECB. Bulgaria and Croatia joined European banking supervision through close cooperation in October 2020. The ECB directly supervises the 111 most significant banks of the participating countries, representing approximately 82.0 per cent of the total banking assets in the euro area. Banks that are not considered eligible for ECB supervision continue to be supervised by their national supervisors, in close cooperation with the ECB.

**Reserve Requirements**. Pursuant to ECB, ESCB and EU regulations, each Italian bank must deposit with the Bank of Italy an interest-bearing reserve expressed as a percentage of its total overnight deposits, deposits with an agreed maturity of up to and including two years, deposits redeemable at notice of up to and including two years and debt securities with an original maturity of up to and including two years.

#### Risk-Based Capital Requirements and Solvency Ratios
In 2013, the European Union adopted the Basel III rules which were implemented in the EU through the Capital Requirements Regulation ("**CRR**") and CRD IV, which replaced CRD I, CRD II and CRD III. CRD IV came into force on January 1, 2014 with other provisions being phased in by 2019. The legislative package of measures was aimed at improving the banking sector's ability to absorb shocks arising from financial and economic stress, improving risk management and governance and strengthening banks' transparency and disclosure with the effect of limiting the instruments that qualify as regulatory capital and increasing the amount of capital required. The CRR was then amended in 2019 by the Capital Requirements Regulation II ("**CRR II**") and CRD V.

Basel III rules require banks to meet certain minimum capital ratios. In addition, Basel III rules provide additional rules on liquidity by requiring that banks meet a liquidity coverage ratio and a net stable funding ratio and rules on leverage by requiring that banks meet a leverage ratio.

Italian capital adequacy requirements are mainly governed by CRD IV and CRD V, the Consolidated Banking Law, CICR Regulations and other implementing regulations issued by the Bank of Italy (*Nuove disposizioni di vigilanza prudenziale per le banche*). Under the implementing regulations of

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the Bank of Italy, Italian banks are required to maintain certain ratios of regulatory capital to risk-weighted assets.

**Risk Concentration Limitations**. The Bank of Italy has issued implementing regulations which require stand-alone banks and banking groups to limit each risk position to no more than 25.0 per cent of supervisory capital and their exposures to any single customer or group of related customers to 25.0 per cent of the bank's regulatory capital. Under specific conditions, for exposures to related or connected parties, the credit risk position may overcome the 25.0 per cent of supervisory capital limit.

Banks belonging to banking groups shall be subject to an individual limit of 40.0 per cent of their supervisory capital provided that the group to which they belong complies with the above limits at the consolidated level. The exception is therefore not applicable to Italian banks that do not belong to a banking group and are stand-alone entities.

#### Equity Participations by Banks
Prior approval of the Bank of Italy is required for any direct and indirect equity investments by a bank in other banks or financial or insurance companies: (1) exceeding 10.0 per cent of the regulatory capital of the acquiring bank; or (2) resulting in the control of the share capital of, or significant influence on, a bank or financial or insurance company having its registered office in a non-EU State other than Canada, Japan, Switzerland or the United States.

The acquisition by banks and banking groups of shareholdings in non-financial companies is also subject to certain limitations. Aggregate shareholdings in non-financial companies purchased by banks and banking groups cannot exceed 60.0 per cent of the acquiring bank's regulatory capital. Banks and banking groups may not acquire shareholdings in any single non-financial company exceeding 15.0 per cent of the acquiring bank's regulatory capital.

**Deposit Insurance**. The Interbank Fund (*Fondo Interbancario di Tutela dei Depositi*) was established in 1987 by a group consisting of the main Italian banks to protect depositors against the risk of bank insolvency and the loss of deposited funds. The Interbank Fund assists banks that are declared insolvent or are subject to temporary financial difficulties.

Participation in the Interbank Fund is compulsory for all Italian banks. The Interbank Fund intervenes when a bank has entered into extraordinary administration (a*mministrazione straordinaria*) or is undergoing mandatory liquidation (*liquidazione coatta amministrativa*). If a bank becomes subject to extraordinary administration, the Interbank Fund may make payments to support the business of the relevant bank, which may take the form of debt financing or taking an equity stake in the bank. In the case of mandatory liquidation, the Interbank Fund guarantees the refund of deposits to banking customers up to a maximum of €100,000 per depositor per bank. The guarantee does not cover customer deposit instruments in bearer form, deposits by financial and insurance companies and by collective investment vehicles and deposits by bank managers and executives with the bank that employs them.

**Structure of the Banking Industry**. Italy had 456 banks as of December 31, 2021, as opposed to 474 banks as of December 31, 2020. As of December 31, 2021, there were 54 banking groups in Italy, from 59 banking groups as of December 31, 2020. The ownership structure of the Italian banking sector has undergone substantial changes since 1992, reflecting significant privatizations through 1998. Since 1999, the Italian banking sector has experienced significant consolidation and this process has resulted in the formation of Italian banking groups of international standing. In 2021, the three largest banking groups in Italy were: Intesa Sanpaolo, UniCredit Group, and Banco BPM The degree of banking

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concentration in Italy, measured by the share of assets held by the 13 most significant banks in Italy under the SSM, was 82.0 per cent in 2021.

**Capitalization**. In 2021, the Italian banking system's aggregate capitalization decreased from 2020. At the end of the year, consolidated regulatory capital amounted to €241.8 billion, a 2.8 per cent decrease from the end of 2020. In 2021, Tier 1 capital decreased to €213.0 billion compared to €218.9 billion in 2020.

In 2021, the banking system's capital ratios decreased compared to 2020. As of December 31, 2021, the Common Equity Tier 1 ("**CET1**") ratio was 15.3 per cent and the Tier 1 ratio 16.6 per cent. The total capital ratio decreased to 18.8 per cent from 19.1 per cent in 2020. As of December 31, 2021, the Tier 1 ratio and total capital ratio of the five largest Italian banking groups were 16.8 per cent and 19.1 per cent, respectively, compared to 17.1 and 19.5 respectively in 2020.

At the end of 2021, the capital ratios of the five largest Italian banking groups were in line with the average ratios observed by the EBA for a number of European banks of comparable size. In particular, the CET1 ratio of the five largest Italian banking groups and the CET1 ratio of the largest European banks was 15.3 per cent and 15.4 per cent, respectively.

**Bad Debts and Non-Performing Exposure**. Bad debts (i.e. debts whose full repayment is uncertain because the relevant debtors are insolvent) decreased by 35.1 per cent in 2021 to €34,946 million, compared to €47,209 million in 2020. As a percentage of total outstanding loans, bad debts decreased to 1.4 per cent in 2021 from 2.0 per cent in 2020. The non-performing exposure (i.e. material exposures that are more than 90 days past-due) of Italian banks decreased in 2021, both generally and at the five largest Italian banks. The non-performing exposures of the entire Italian banking system in 2021 amounted to 3.4 per cent of the total outstanding loans compared to 4.4 per cent in 2020. Similarly, for Italy's five largest banks non-performing exposure amounted to 3.1 per cent in 2021, against 4.1 per cent in 2020. The average provisioning ratio against non-performing exposure of Italian banks stood at 52.0 per cent as of December 31, 2021.

#### Measures to assess the condition of Italian Banking System
In order to stabilize the banking system and protect private savings, the Government has enacted measures, which, among other things, allow the Ministry of Economy and Finance to support the recapitalization of Italian banks by subscribing for financial instruments and guaranteeing share capital increases, to provide a state guarantee on funds granted by the Bank of Italy to banks needing emergency liquidity and, in addition to the existing domestic bank deposit guaranty, to guarantee in full all Italian bank deposits. The measures adopted in Italy to preserve the stability of the financial system are aimed at protecting savers and maintaining adequate levels of bank liquidity and capitalization.

On December 23, 2016, the Government created a €20.0 billion fund to support the Italian banking system. The fund aims at supporting access to liquidity of Italian banks by providing a government guarantee to the issuance of banks' securities. Furthermore, the fund is intended to provide support to the recapitalization of banks that during the stress tests would suffer severe impacts as a result of adverse scenarios. Access to the fund is subject to the approval by the ECB of a recapitalization plan and requires the mandatory conversion of the bank's outstanding junior bonds into shares.

The Bank of Italy and the European Banking Authority ("**EBA**") periodically conduct stress tests to assess the banking system's ability to operate in adverse situations.

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In January 2021, the EBA launched a EU-wide stress test to provide supervisors, banks and other market participants with a common analytical framework to consistently compare and assess the resilience of EU banks to adverse market developments and shocks, providing valuable input for assessing the resilience of the European banking sector. It has been conducted on a sample of 50 banks from 15 EU and EEA countries, including 38 banks from euro area countries and 12 banks from Denmark, Hungary, Norway, Poland and Sweden. The Italian banks included in the stress test were Banco BPM S.p.A., Banca Monte dei Paschi di Siena S.p.A., Intesa Sanpaolo S.p.A., Mediobanca Banca di Credito Finanziario S.p.A. and UniCredit S.p.A. The exercise was not designed as a pass-fail test but as a supervisory tool and an input for the Pillar 2 assessment of banks. The adverse scenario is based on a narrative of a prolonged Coronavirus pandemic effect in a 'lower for longer' interest rate environment, in which negative confidence shocks would prolong the economic contraction. . The banks included in the 2021 stress test sample reported a 15.3 per cent weighted average transitional CET1 capital ratio as of December 2020. The aggregate capital ratio at the starting point was above the aggregate ratio reported by banks at the beginning of previous EU-wide stress test exercises. Over the stress test horizon, the weighted average CET1 capital ratio moved from 15.3 per cent transitional (15.0 per cent on a fully loaded basis) as of the end of 2020, to 10.3 per cent (on a transitional basis) or 10.2 per cent (on a fully loaded basis) at the end of 2023. Therefore, under the adverse scenario, the aggregate transitional CET1 capital ratio decreases by 497 bps (on a transitional basis) over the three-year period of the exercise (485 bps on a fully loaded basis).

#### Credit Allocation
The Italian credit system has changed substantially during the past decade. Banking institutions have faced increased competition from other forms of intermediation, principally securities markets.

During 2021, overall lending activity, including repos and bad debts, increased by 2.0 per cent compared to a 4.1 per cent increase in 2020. Lending activity in southern Italy increased in 2021 by 3.8 per cent compared to a 3.7 per cent increase in 2020. Lending activity in central and northern Italy also increased in 2021 by 1.6 per cent compared to a 4.1 per cent increase in 2020.

#### Exchange Controls
Following the complete liberalization of capital movements in the European Union in 1990, all exchange controls in Italy were abolished. Residents and non-residents of Italy may make any investments, divestments and other transactions that entail a transfer of assets to or from Italy, subject only to limited reporting, record-keeping and disclosure requirements which, if breached, may result in the imposition of administrative fines or criminal penalties. In particular, residents of Italy may hold foreign currency and foreign securities of any kind, within and outside Italy, while non-residents may invest in Italian securities without restriction and may export from Italy cash, instruments of credit or payment and securities, whether in foreign currency or euro, representing interest, dividends, other asset distributions and the proceeds of dispositions.

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#### THE EXTERNAL SECTOR OF THE ECONOMY

#### Foreign Trade
Italy is fully integrated into the European and world economies, with imports and exports in 2021 representing 29.9 per cent of real GDP and 32.0 per cent of real GDP, respectively. In recent years, Italy has recorded a trade surplus, increasing from €47.6 billion in 2017 to €63.3 billion in 2020. In 2021, the trade surplus was €44.2 billion, mainly due to a larger increase in imports relative to the increase in exports. In 2021, imports increased by 26.4 per cent, mainly due to an increase in imports relating to manufacturing industries totaling €387.0 billion in 2021. Exports increased by approximately 18.2 per cent in 2021, mainly affected by exports of manufactured products which increased to €492.6 billion in 2021.

The following table illustrates Italy's exports and imports for the periods indicated. Export amounts do not include insurance and freight costs and only include the costs associated with delivering and loading the goods for delivery. This is frequently referred to as "free on board" or "fob." Import amounts include all costs, insurance and freight, frequently referred to as "cif." A fob valuation includes the transaction value of the goods and the value of services performed to deliver the goods to the border of the exporting country; in a cif valuation, the value of the services performed to deliver the goods from the border of the exporting country to the border of the importing country is also included.

#### Foreign Trade (cif-fob)

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **(in € millions)** | **(in € millions)** | **(in € millions)** | **(in € millions)** | **(in € millions)** |
| **Exports (fob)**<sup>(1)</sup> |  |  |  |  |  |
| Agriculture, forestry and fishing | 7115 | 6876 | 6934 | 7179 | 7809 |
| Extractive industries&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 1243 | 1174 | 962 | 967 | 1442 |
| Manufactured products&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 430742 | 447013 | 461297 | 419374 | 492617 |
| &nbsp;&nbsp;&nbsp; Food, beverage and tobacco products | 34162 | 35474 | 38399 | 39615 | 44201 |
| &nbsp;&nbsp;&nbsp; Textiles, leather products, clothing, accessories | 51018 | 53189 | 57347 | 46736 | 54818 |
| &nbsp;&nbsp;&nbsp; Wood, wood products, paper, printing&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 8599 | 8966 | 9012 | 8104 | 9460 |
| &nbsp;&nbsp;&nbsp; Coke and refined oil products&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 13362 | 14659 | 13405 | 8118 | 13838 |
| &nbsp;&nbsp;&nbsp; Chemical substances and products&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 30127 | 31282 | 30905 | 29710 | 35350 |
| &nbsp;&nbsp;&nbsp; Pharmaceutical, chemical-medical, botanical products | 24722 | 25923 | 32690 | 34017 | 33271 |
| &nbsp;&nbsp;&nbsp; Rubber, plastic, non-metallic mineral products | 26463 | 27277 | 27479 | 25671 | 30002 |
| &nbsp;&nbsp;&nbsp; Base metal, metal (non-machine) products | 47333 | 50088 | 51483 | 49072 | 61847 |
| &nbsp;&nbsp;&nbsp; Computers, electronic and optical devices&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 14500 | 15597 | 15700 | 15510 | 17394 |
| &nbsp;&nbsp;&nbsp; Electrical equipment&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 23343 | 24249 | 23889 | 21970 | 26579 |
| &nbsp;&nbsp;&nbsp; Machines and other non-classified products | 80143 | 82280 | 82719 | 72858 | 83532 |
| &nbsp;&nbsp;&nbsp; Transportation means&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 51044 | 51573 | 50569 | 44882 | 52459 |
| &nbsp;&nbsp;&nbsp; Products from other manufacturing activities | 25928 | 26456 | 27689 | 23110 | 29864 |
| Electrical energy, gas, steam, air conditioning | 355 | 269 | 321 | 315 | 735 |
| Other products&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 9674 | 9993 | 10838 | 8882 | 13659 |
| **Total exports** | **449129** | **465325** | **480352** | **436718** | **516262** |

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **(in € millions)** | **(in € millions)** | **(in € millions)** | **(in € millions)** | **(in € millions)** |
| **Imports (cif)**<sup>(1)</sup> |  |  |  |  |  |
| Agriculture, forestry and fishing | 14483 | 14495 | 14768 | 14646 | 16307 |
| Extractive industries&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 39821 | 46728 | 43351 | 25607 | 48895 |
| Manufactured products&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 334209 | 351716 | 353254 | 321470 | 386954 |
| &nbsp;&nbsp;&nbsp; Food, beverage and tobacco products | 30665 | 30322 | 30602 | 28761 | 32235 |
| &nbsp;&nbsp;&nbsp; Textiles, leather products, clothing, accessories | 31310 | 32500 | 32603 | 30086 | 30870 |
| &nbsp;&nbsp;&nbsp; Wood, wood products, paper, printing | 10331 | 11374 | 10811 | 9107 | 11637 |
| &nbsp;&nbsp;&nbsp; Coke and refined oil products | 8053 | 9899 | 8913 | 5793 | 8852 |
| &nbsp;&nbsp;&nbsp; Chemical substances and products | 37331 | 39454 | 38244 | 36606 | 47103 |
| &nbsp;&nbsp;&nbsp; Pharmaceutical, chemical-medical, botanical products | 24243 | 26539 | 28956 | 29629 | 29991 |
| &nbsp;&nbsp;&nbsp; Rubber, plastic, non-metallic mineral products | 14301 | 14821 | 15250 | 14349 | 17486 |
| &nbsp;&nbsp;&nbsp; Base metal, metal (non-machine) products | 41283 | 45148 | 44325 | 41654 | 58783 |
| &nbsp;&nbsp;&nbsp; Computers, electronic and optical devices | 27558 | 28062 | 28343 | 28400 | 31913 |
| &nbsp;&nbsp;&nbsp; Electrical equipment&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 16793 | 18012 | 18172 | 17429 | 22737 |
| &nbsp;&nbsp;&nbsp; Machines and other non-classified products | 29562 | 31300 | 31424 | 28217 | 34418 |
| &nbsp;&nbsp;&nbsp; Transportation means&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 49058 | 49977 | 50763 | 38822 | 45168 |
| &nbsp;&nbsp;&nbsp; Products from other manufacturing activities | 13721 | 14307 | 14849 | 12616 | 15760 |
| Electrical energy, gas, steam, air conditioning | 2067 | 2619 | 2089 | 1572 | 5419 |
| Other products&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 10908 | 10488 | 10773 | 10134 | 14496 |
| **Total imports**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | **401487** | **426046** | **424236** | **373428** | **472070** |
| **Trade balance**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | **47642** | **39280** | **56116** | **63289** | **44192** |

---

_____________________

<br> (1) At current prices.

Source: ISTAT.

The Italian economy relies heavily on foreign sources for energy and other natural resources and Italy is also a net importer of chemical products, agricultural products, wood and wood products, computers, electronic and optical devices.

Of all the major European countries, Italy is one of the most heavily dependent on imports of energy. Italy's trade balance remains vulnerable to fluctuations in oil and gas prices, given the high proportion of energy imports. In 2020 and 2021, the energy deficit increased from 1.2 per cent of GDP to 2.4 per cent of GDP, respectively.

In 2021, exports of goods and services increased by 13.3 per cent in volume compared to 2020. Exports of goods in 2021 increased by 13.1 per cent, despite constraints in global supply chains. This resulted in a 16.3 per cent increase in exports to non-EU countries, together with a 20.0 per cent increase in exports to countries in the euro area, leading to a €79.5 billion increase in exports in 2021.

During 2021, imports of goods and services increased by 14.2 per cent by volume compared to a 12.6 per cent decrease by volume in 2020. Despite the increase in the import of both goods and services in 2021 from 2020, only the import of goods has recovered to pre pandemic levels. The increase in

------

import of goods, especially from Germany and China, has affected almost all sectors and has also been supported by higher levels of gross fixed investments.

#### Geographic Distribution of Trade
As a member of the European Union, Italy enjoys free access to the markets of the other EU Member States and applies the external tariff common to all EU countries. During the past several years, EU countries have made significant progress in reducing non-tariff barriers such as technical standards and other administrative barriers to trade amongst themselves, and Italy has incorporated into its national law most of the EU directives on trade and other matters. With the accession of new members, the EU now encompasses many of Italy's most important central and eastern European trading partners. The following tables show the distribution of Italy's trade for the periods indicated.

#### Distribution of Trade (cif-fob) - Exports

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **(in € millions)** | **(in € millions)** | **(in € millions)** | **(in € millions)** | **(in € millions)** |
| **Exports (fob)**<sup>(1)</sup> |  |  |  |  |  |
| Total EU | 227102 | 239283 | 245447 | 224793 | 269805 |
| &nbsp;&nbsp;&nbsp; *of which* |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; EMU | 183058 | 191674 | 196416 | 180847 | 217380 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *of which* |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Austria&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 9522 | 10248 | 10465 | 9281 | 11421 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Belgium | 13488 | 13304 | 14257 | 14930 | 17879 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; France&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 46333 | 48655 | 50561 | 45189 | 52766 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Germany&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 56043 | 58179 | 58516 | 56085 | 66902 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Netherlands | 10500 | 11661 | 12000 | 11404 | 15157 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Spain&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 23260 | 24200 | 24520 | 20851 | 25542 |
| &nbsp;&nbsp;&nbsp; Poland&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 12650 | 13617 | 13544 | 13160 | 16148 |
| United Kingdom | 23185 | 23798 | 25233 | 22569 | 23450 |
| China | 13489 | 13127 | 12969 | 12851 | 15691 |
| Japan | 6554 | 6465 | 7711 | 7118 | 7555 |
| OPEC countries<sup>(2)</sup><br>| 19124 | 17668 | 15875 | 13342 | 15313 |
| Russia <br>| 7955 | 7567 | 7882 | 7076 | 7696 |
| Switzerland | 20575 | 22328 | 25990 | 25211 | 27252 |
| Turkey <br>| 10112 | 8780 | 8346 | 7715 | 9533 |
| United States | 40433 | 42406 | 45536 | 42433 | 49440 |
| Other<sup>(3)</sup>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 80600 | 83903 | 85363 | 73610 | 90527 |
| **Total&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**  | **449129** | **465325** | **480352** | **436718** | **516262** |

---

_____________________

<br> (1) At current prices.

<sup>(2)</sup> Gabon terminated its membership to the Organization of the Petroleum Exporting Countries ("OPEC") in January 1995 and rejoined as of July 2016. Equatorial Guinea and the Republic of Congo became full members of OPEC in May 2017 and June 2018, respectively, while Qatar left OPEC in January 2019. Ecuador suspended its membership in December 1992, rejoined OPEC in October 2007, but decided to withdraw its membership of OPEC effective January 1, 2020. Indonesia suspended its membership in January 2009, reactivated it again in January 2016, but decided to suspend its membership once more in November 2016. For the purposes of the above table, exports to these countries are not included in OPEC countries.<br>

<sup>(3)</sup> Other represents all other countries and/or regions with whom Italy trades; none of such countries or regions accounts for a material amount.<br>

Source: ISTAT.

------

#### Distribution of Trade (cif-fob) - Imports

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **(in € millions)** | **(in € millions)** | **(in € millions)** | **(in € millions)** | **(in € millions)** |
| **Imports (fob)<sup>(1)</sup>** |  |  |  |  |  |
| Total EU&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 230015 | 239454 | 241671 | 217887 | 267501 |
| &nbsp;&nbsp;&nbsp; *of which&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; EMU&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 191322 | 198917 | 199805 | 181017 | 222193 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *of which&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Austria&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 9349 | 9627 | 10181 | 8536 | 10763 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Belgium&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 17745 | 19289 | 19786 | 18204 | 21020 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; France&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 35072 | 36626 | 34827 | 31288 | 39186 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Germany&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 65761 | 70193 | 68580 | 61306 | 75673 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Netherlands | 22724 | 22693 | 22247 | 22300 | 27741 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Spain&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 21385 | 20759 | 22997 | 20402 | 24177 |
| &nbsp;&nbsp;&nbsp; Poland&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 9891 | 9787 | 10644 | 9582 | 11889 |
| United Kingdom | 11550 | 11265 | 10388 | 8845 | 8068 |
| China&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 28460 | 30889 | 31663 | 32256 | 38525 |
| Japan&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 4182 | 3764 | 4113 | 3644 | 4455 |
| OPEC countries<sup>(2)</sup> | 22817 | 27569 | 22114 | 16835 | 24828 |
| Russia&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 12349 | 14970 | 14324 | 9050 | 17598 |
| Switzerland&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 11223 | 10961 | 10933 | 9715 | 11147 |
| Turkey&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 8300 | 9039 | 9457 | 7457 | 9850 |
| United States | 15007 | 15958 | 17007 | 14782 | 15810 |
| Other<sup>(3</sup><sup>)</sup>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 57584 | 62177 | 62566 | 52957 | 74288 |
| **Total&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**  | **401487** | **426046** | **424236** | **373428** | **472070** |

---

_____________________

<br> (1) At current prices.

<sup>(2)</sup> Gabon terminated its membership to the Organization of the Petroleum Exporting Countries ("OPEC") in January 1995 and rejoined as of July 2016. Equatorial Guinea and the Republic of Congo became full members of OPEC in May 2017 and June 2018, respectively, while Qatar left OPEC in January 2019. Ecuador suspended its membership in December 1992, rejoined OPEC in October 2007, but decided to withdraw its membership of OPEC effective January 1, 2020. Indonesia suspended its membership in January 2009, reactivated it again in January 2016, but decided to suspend its membership once more in November 2016. For the purposes of the above table, exports to these countries are not included in OPEC countries.<br>

<sup>(3)</sup> Other represents all other countries and/or regions with whom Italy trades; none of which country or region represents a material amount.<br>

Source: ISTAT.

As in the previous year, during 2021 over half of Italian trade was with other EU countries, with approximately 52.3 per cent of Italian exports and 56.7 per cent of imports attributable to trade with EU countries. Germany remains Italy's single most important trade partner and in 2021 supplied 16.0 per cent of Italian imports and purchased 13.0 per cent of Italian exports.

In 2021, the trade balance was the result of surpluses both with EU countries and non-EU countries. Italy's trade balance with EU countries was positive in 2021, with a surplus of approximately €2.3 billion, decreasing from the surplus of €6.9 billion recorded in 2020. With respect to non-EU countries, the trade balance in 2021 resulted in a surplus of €41.8 billion, compared to a surplus of €56.4 billion in 2020. Such decrease in the trade surplus was driven by an increase in energy imports from Russia, OPEC and other countries.

In 2021, Italian exports worldwide increased by 18.2 per cent compared to 2020, as a result of a 20.0 per cent increase in exports to Eurozone countries and a 16.3 per cent increase in exports to countries outside the Eurozone.

------

#### Balance of Payments
The balance of payments tabulates the credit and debit transactions of a country with foreign countries and international institutions for a specific period. Transactions are divided into three broad groups: current account, capital account and financial account. The current account is made up of (i) trade in goods (visible trade) and (ii) invisible trade, which consists of trade in services, income from profits and interest earned on overseas assets, net of those paid abroad, and net capital transfers to international institutions, principally the European Union. The capital account primarily comprises net capital transfers from international institutions, principally the European Union. The financial account is made up of items such as the inward and outward flow of money for direct investment, investment in debt and equity portfolios, international grants and loans and changes in the official reserves.

In 2010, the gathering and compilation system of the balance of payments and foreign financial position of Italy was updated with the abandonment of bank settlement reporting. The integration of international markets increased the complexity of transactions, which affected the reliability of gathering systems based on bank payments. Models of data collection based on direct gathering with entities involved in international exchanges are now preferred, the use of sample analysis was extended and the banks' obligation of statistical reporting on behalf of clients was almost entirely eliminated. The new system is based on various sources: (i) census-based collections, such as statistical reports of entities subject to oversight by the Bank of Italy; (ii) administrative data collected by other institutions for compliance purposes; and (iii) sample-based investigations, in particular with non-financial and insurance businesses. Reports of flux and amount are required for financial transactions.

In October 2014, ISTAT adopted new statistical standards outlined by the IMF in the sixth edition of *Balance of Payments and International Investment Position Manual* ("**BPM6**"). BPM6, which, consistent with ESA2010, provides the standard framework for the compilation of statistics on balance of payments and international investment positions between an economy and the rest of the world*.* Relevant methodological innovations include, among others, (i) computation of net revenues of merchanting, (ii) separation between primary income and secondary income, (iii) computation of goods for processing as manufacturing services, and (iv) sign conventions and nomenclature changes in line with national accounts. Unless otherwise provided, all data presented below was prepared in accordance with BPM6.

The following table illustrates the balance of payments of Italy for the periods indicated.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  |  | **(in € billions)** | **(in € billions)** | **(in € billions)** | **(in € billions)** |
| **Current Account<sup>(1)</sup>** | 44.8 | 44.8 | 57.9 | 62.1 | 43.4 |
| &nbsp;&nbsp;&nbsp; *per cent of GDP* | 2.6 | 2.5 | 3.2 | 3.7 | 2.4 |
| Goods&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 54.4 | 45.9 | 60.7 | 68.2 | 53.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-energy products | 85.9 | 85.4 | 96.3 | 88.8 | 94.8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Energy products | (31.5) | (39.5) | (35.6) | (20.5) | (41.9) |
| Services&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (3.8) | (2.9) | (0.4) | (7.4) | (11.4) |
| Primary Income&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 9.3 | 19.2 | 14.7 | 20.4 | 21.2 |
| Secondary Income&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (15.1) | (17.4) | (17.2) | (19.1) | (19.4) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *EU* Institutions | (11.7) | (14.7) | (13.9) | (15.7) | (16.6) |
| **Capital Account<sup>(1)</sup>** | 1.2 | **(0.3)** | **(1.8)** | **(0.7)** | **(2.3)** |
| Intangible assets&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (1.2) | (1.5) | (2.6) | (1.4) | (3.8) |

---

------

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| Transfers&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 2.4 | 1.2 | 0.8 | 0.7 | 1.5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *EU* Institutions *and Italian PPAA*<br>| 3.9 | 2.4 | 2.7 | 2.7 | 4.3 |
| **Financial Account<sup>(1)</sup>** | 47.6 | 32.8 | 54.3 | 62.7 | 25.7 |
| Direct investment | 0.4 | (5.2) | 1.5 | 19.1 | 2.8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Outward&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 10.9 | 32.7 | 29.3 | 0.3 | 14.7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Inward | 10.5 | 37.9 | 27.8 | (18.8) | 12.0 |
| Portfolio investment<br>| 84.1 | 132.5 | (51.8) | 108.5 | 123.9 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Equity and investment funds | 85.8 | 41.0 | 36.4 | 58.0 | 79.1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Debt Securities&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 29.3 | 17.7 | 33.6 | 33.2 | 44.8 |
| Financial Derivatives | (7.2) | (2.8) | 2.6 | (2.9) | - |
| Other investment | (32.3) | (94.4) | 98.8 | (65.9) | (121.7) |
| Change in official reserves | 2.7 | 2.6 | 3.2 | 4.0 | 20.7 |
| **Errors and omissions** | 1.6 | **(11.6)** | **(1.8)** | 1.3 | **(15.4)** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) At current prices.

Source: Bank of Italy.

#### Current Account
Italy has continued to maintain a current account surplus since 2013. In 2021, Italy's current account surplus decreased to €43.4 billion (2.4 per cent of GDP) compared to a current account surplus of €62.1 billion (3.8 per cent of GDP) in 2020. The decline in the current account balance is mainly attributable to increased energy costs in the second half of the year which were only partially offset by improved non-energy-related costs. In the first quarter of 2022, the current account balance decreased to a €8.6 billion deficit, compared to a €7.4 billion surplus in the first quarter of 2021, mostly due to the steep increase in the cost of energy.

**Visible Trade**. Italy's fob-fob goods trade surplus decreased to €53.0 billion (3.0 per cent of GDP) in 2021 compared to €68.2 billion (4.1 per cent of GDP) in 2020. The non-energy component recorded a surplus of €94.8 billion or 5.3 per cent of GDP in 2021, compared to a surplus of €88.8 billion or 5.3 per cent of GDP in 2020. The energy deficit increased to €41.9 billion or 2.4 per cent of GDP in 2021 from €20.5 billion or 1.2 per cent of GDP in 2020. In the first quarter of 2022, Italy's fob-fob goods trade surplus decreased to a €3.7 billion deficit compared to €13.0 billion surplus in the first quarter of 2021, with the non-energy component recording a surplus of €16.6 billion and the energy deficit increasing to €20.3 billion in the first quarter of 2022, respectively, compared to a surplus of €19.8 billion and a deficit of €6.8 billion in the first quarter of 2021, respectively. 

**Invisible Trade**. The deficit in services increased to €11.4 billion in 2021, compared to €7.4 billion in 2020. The higher deficit mainly resulted from a sharp decrease in spending on transports. In the first quarter of 2022, the deficit in services increased to €4.7 billion, compared to €4.5 billion in the first quarter of 2021, with the surplus in tourism services increasing to a surplus of €1.6 billion from a deficit of €0.3 billion in the first quarter of 2021, partially offset by the increase in the transport services deficit, to €2.1 billion from €4.0 billion.

**Primary Income**. For a sixth consecutive year, the primary income account ran a surplus in 2021, which increased to €21.2 billion, compared to €20.4 billion in 2020. In the first quarter of 2022, the primary income surplus increased to €6.8 billion compared to the first quarter of 2021 at €6.2 billion. The primary income surplus increase was driven by the income component from capital, and an increase in direct investments.

------

**Secondary Income**. In 2021, the deficit on the secondary income account increased to €19.4 billion, compared to €19.1 billion in 2020. The increase in the deficit was mainly caused by the increase of payments by EU institutions, which increased from €1.6 billion in 2020 to €2.0 billion in 2021. In the first quarter of 2022, the secondary income deficit decreased to €7.0 billion, compared to €7.2 billion in the first quarter of 2021.

#### Capital Account
In 2021, the capital account ran a deficit of €2.3 billion, compared to a deficit of approximately €0.7 billion in 2020. In the first quarter of 2022, the capital account deficit decreased to €0.8 billion, compared to €1.7 billion in the first quarter of 2021.

#### Financial Account and the Net External Position
In 2021, the financial account surplus decreased to €25.7 billion from €62.7 billion in 2020 due to a decrease in other investments which decreased by €55.8 billion from 2020, partially offset by a net increase in portfolio investment, which increased by €15.4 billion from 2020. The financial account showed that, at the end of 2021, Italy's net external debtor position amounted to positive €132 billion, or 7.4 per cent of GDP, increasing by €101.6 billion compared to 2020, mainly due to the current and capital account surplus. In the first quarter of 2022, the financial account decreased to a €15.6 billion deficit, compared to a €6.3 billion surplus in the first quarter of 2021.

**Direct Investment**. Italian direct investment abroad increased to €14.7 billion in 2021, compared to €0.3 billion in 2020, mainly due to the decrease of net investment in EU Member States. Foreign direct investment in Italy, in the form of intra-company loans from foreign parent companies to Italian subsidiaries, increased to €12.0 billion in 2021 from negative €18.8 billion in 2020.

The following table shows total direct investment abroad by Italian entities and total direct investment in Italy by foreign entities for the periods indicated.

#### Direct Investment by Country<sup>(1)</sup>

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **(in € millions)** | **(in € millions)** | **(in € millions)** | **(in € millions)** | |
| **Direct investment abroad** |  |  |  |  |  |
| Netherlands&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 2564 | 3237 | (192) | (8312) | 3317 |
| Luxembourg&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 214 | 3318 | 99 | 3274 | 9726 |
| United States | 1376 | 4035 | 1634 | 807 | 4938 |
| United Kingdom | (1726) | 27 | 1045 | 5770 | 1867 |
| France&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 769 | 2747 | 1722 | 2179 | 2622 |
| Switzerland&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (602) | 113 | 1856 | 1333 | 57 |
| Germany&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (1228) | 2636 | 24 | (4571) | (652) |
| Spain&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (6096) | 6050 | 2420 | (1136) | (2201) |
| Brazil&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 287 | 733 | 535 | 710 | 172 |
| Belgium&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (3053) | (2460) | 1987 | (575) | (3519) |
| Argentina&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 241 | 83 | (39) | 125 | 183 |
| Sweden&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (383) | 785 | (11) | 116 | 89 |
| Other&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 18549 | 11433 | 18204 | 554 | -1852 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total** | **10912** | **32737** | **29284** | **274** | **14747** |
| **Direct investment in Italy** |  |  |  |  |  |
| Netherlands&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 6065 | 4296 | 12735 | -5202 | 5373 |
| Luxembourg&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (3775) | (5502) | 7711 | (10064) | 4484 |
| United States | 724 | 136 | -497 | 1444 | (401) |

---

------

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **(in € millions)** | **(in € millions)** | **(in € millions)** | **(in € millions)** | |
| United Kingdom&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (1086) | 3791 | (3380) | (4369) | (1184) |
| France&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | (1573) | 31214 | 1304 | (2757) | (1332) |
| Switzerland&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 2265 | 1496 | 2558 | (220) | 673 |
| Germany&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 3072 | 3141 | 5195 | (3447) | (1057) |
| Spain&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 740 | (637) | 912 | 2427 | 3826 |
| Brazil&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 84 | 38 | (30) | (68) | (29) |
| Belgium&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 1364 | (391) | (1271) | 494 | 808 |
| Argentina&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 73 | 147 | 37 | 15 | 46 |
| Sweden&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 305 | 791 | 1353 | (392) | 168 |
| Other&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | 2226 | -585 | 1190 | 3357 | 606 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | **10484** | **37935** | **27817** | **(18782)** | **11981** |

---

_____________________

<sup>(1)</sup> Figures do not include real estate investment, investments made by Italian banks abroad and investments made by foreign entities in Italian banks. Data for the period 2015-2019 is calculated in accordance with the sixth edition of the IMF *Balance of Payments and International Investment Position Manual*.<br>

Source: ISTAT and National Institute for International Trade.

**Portfolio Investment***.* In 2021, the balance of portfolio investment registered net inflows of €123.9 billion compared to net inflows of €108.5 billion in 2020. In addition to Italian residents purchasing of foreign securities for €123.9 billion in 2021 (compared to purchases for €91.2 billion in 2020), foreign investors purchases of Italian securities for €18.0 billion in 2021 (compared to disposals for €17.2 billion in 2020).

Following significant disposals in 2020 of both shares (disposals of €4.0 billion, compared to €15.3 billion invested in 2019) and debt securities (disposals of €13.2 billion, compared to €106.5 billion invested in 2019), in 2021 Italian securities experienced investment in shares (€3.3 billion) and disposals of debt securities (€3.2 billion).

In the first quarter of 2022, the balance of portfolio investment registered net inflows of €43.2 billion, compared to net inflows of €3.9 billion in the first quarter of 2021.

**Other Investment***.* Other investment includes trade receivables, deposits and other transactions, recording a net decrease of €121.7 billion in 2021, compared to a net decrease of €65.9 billion in 2020. In 2021, Italy's cumulative contributions to financial support of EMU countries stood at €57.3 billion (decreasing from €57.7 in 2020 and €57.8 billion in 2019). This amount includes Italy's exposure in the financial assistance operations of the European Financial Stability Facility, which also involved entering into bilateral loans (€42.9 billion) as well as capital contributions to the European Stability Mechanism (€14.3 billion). 

The Bank of Italy's Trans-European Automated Real-Time Gross Settlement Express Transfer ("**TARGET2**") debtor position increased in 2021 by approximately €74.0 billion. This increase was mainly caused by an increase in portfolio outflows in the second half of 2021 in conjunction with the reduction of net deposits collected by resident banks, partially offset by the surplus of the current account.

**Errors and Omissions**. In 2021, the item "errors and omissions" amounted to a negative €15.4 billion, compared to a positive €1.2 billion in 2020. The amount recorded in the errors and omissions account typically reflects unreported international transactions, such as unreported funds transferred abroad by Italian residents and exporters' unreported payments by non-residents to accounts held abroad.

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#### Reserves and Exchange Rates
The following table sets forth, for the periods indicated, certain information regarding the U.S. Dollar/Euro reference rate, as reported by the European Central Bank, expressed in U.S. dollar per euro.

#### US Dollar/Euro Exchange Rate

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Period** | **Period End** | **Yearly Average Rate<sup>(1)</sup>** | **High** | **Low** |
|  | **(U.S.$ per €1.00)** | **(U.S.$ per €1.00)** | **(U.S.$ per €1.00)** | **(U.S.$ per €1.00)** |
| 2017<br>| 1.1993 | 1.1297 | 1.2060 | 1.0385 |
| 2018 | 1.1145 | 1.1711 | 1.3953 | 1.0364 |
| 2019 | 1.1234 | 1.1195 | 1.1535 | 1.0899 |
| 2020 | 1.2271 | 1.1422 | 1.2281 | 1.0707 |
| 2021 | 1.1326 | 1.1827 | 1.2338 | 1.1206 |

---

_____________________

<br> (1) Average of the reference rates for the period.

Source: European Central Bank.

The following table sets forth information relating to euro exchange rates for certain other major currencies for the periods indicated.

#### Euro Exchange Rates

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Yearly Average Rate<sup>(2)</sup> per €1.00** | **Yearly Average Rate<sup>(2)</sup> per €1.00** | **Yearly Average Rate<sup>(2)</sup> per €1.00** | **Yearly Average Rate<sup>(2)</sup> per €1.00** | **Yearly Average Rate<sup>(2)</sup> per €1.00** |
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
| Japanese Yen <br>| 126.71 | 130.40 | 122.02 | 121.85 | 129.88 |
| British Pound <br>| 0.8767 | 0.8847 | 0.8778 | 0.8897 | 0.8596 |
| Swiss Franc | 1.1117 | 1.1550 | 1.1124 | 1.0705 | 1.0811 |
| Czech Koruna | 26.326 | 25.647 | 25.670 | 26.455 | 25.640 |

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_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(2) Average of the reference rates for the period.

Source: European Central Bank.

As of December 31, 2021, gold reserves were worth €126.9 billion, compared to €121.7 billion in 2020.

The following table illustrates the official reserves of Italy as of the end of each of the periods indicated.

#### Official Reserves

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **(in € billion)** | **(in € billion)** | **(in € billion)** | **(in € billion)** | **(in € billion)** |
| Gold<sup>(1)</sup> | 85.3 | 88.4 | 106.7 | 121.7 | 126.9 |
| Special Drawing Rights | 6.4 | 6.7 | 7.1 | 6.9 | 25.3 |

---

------

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| Total position with IMF | 2.2 | 3.0 | 3.4 | 4.7 | 4.9 |
| Other reserves | 32.3 | 35.1 | 38.8 | 38.7 | 44.0 |
| **Total reserves** | 126.1 | 133.2 | 156.0 | 172.0 | 201.1 |

---

_____________________

<br> (1) Valued at market exchange rates and prices.

Source: Bank of Italy.

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#### PUBLIC FINANCE

#### The Budget Process
Italy's fiscal year is the calendar year. The budget and financial planning process of the Government is governed by Law No. 196 of December 31, 2009, as amended by Law No. 39 of April 7, 2011 and Law No. 163 of August 4, 2016.

**Budget Process**. The budget process complies with European requirements, whose principal aim is to allow the EU to review all Member States' budgetary policies and reform strategies simultaneously. The "European Semester" is the first phase of the EU's annual cycle of economic policy guidance and surveillance. Following certain changes enacted by the Commission in October 2015, the European Semester starts in November with the publication by the Commission of the Annual Growth Survey, following which the Commission issues recommendations and opinions on draft budgetary plans, identifying the Member States for which a further analysis is required (i.e., the Alert Mechanism Report). During the period from December to January, bilateral meetings with Member States and discussions with the EU Council take place. During the same period, among other things, each Member State adopts the relevant budget law. In February, the Commission issues country-specific reports, analyzing the economic situation and policies of each Member State and assessing whether imbalances exist in the Member States for which a further analysis is required. In March, the EU Council, based on the Annual Growth Survey (after consulting the Economic and Financial Committee), identifies the main economic goals and strategies of the EU and the euro area and provides strategic guidance on policies. In April, the Member States, following bilateral meetings with the Commission and taking the EU Council's guidelines into account, provide to the Commission their medium-term budgetary and economic strategies by submitting their updated stability programs and national reform programs. In May, the Commission makes country-specific recommendations and, in June or July, the EU Parliament and the EU Council discuss such country-specific recommendations before a definitive endorsement is made by the EU Council. These policy recommendations are incorporated by governments into their national budgets and other reform plans during the "National Semester" (i.e. the second phase of the EU's annual cycle of economic policy guidance and surveillance). Following the adoption in May 2013 of European Union Regulations No. 472/2013 and No. 473/2013 (Two Pack Regulation), Member States are required to submit by October 15 a draft budgetary plan for the following year. The Commission then delivers an opinion on each draft budgetary plan by November 30 of that year.

Consistent with the European Semester, the Government submits to Parliament, by April 10, the Economic and Financial Document (*Documento di Economia e Finanza* or "**EFD**"), which consists of three sections: (i) the stability program, which establishes public finance targets; (ii) the analysis and tendencies in public finance, which contains data and information regarding the prior fiscal year, any discrepancies from previous program documents, and projections for at least the three following years; and (iii) the national reform program, which sets forth the country's priorities and main structural reforms to be effected in the following year. Following Parliament's approval of the EFD, the stability program and the national reform program are submitted to the EU Council and the Commission by April 30. Following the EU Council's review, by September 27, the Government submits to Parliament an update note to the EFD, which provides updates to the macroeconomic and financial projections and program targets contained in an EFD and incorporates any requests of the EU Council.

Subsequently, the Government submits (i) to the Commission, by October 15, a Draft Budgetary Plan for the following year, and (ii) to Parliament, by October 20, the final budgetary package, which consists of the *Legge di Bilancio* ("**Budget Law**") and the *Legge di Stabilità* ("**Stability Law**"). The Budget Law authorizes general government revenues and expenditures for the upcoming three-year period. The Stability Law includes legal and financial measures for the three-year period covered by the

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Budget Law, implementing the budget and the targets contemplated in an EFD. The Ministry of Economy and Finance ("**MEF**") submits to Parliament by April of the subsequent year the Report on the General Economic Situation of the Country, which details the performance of the Italian economy of the previous year.

**Approval of financial year**. In addition, by May 31 of the following year, the MEF is required to submit the "*Rendiconto Generale dello Stato*" (the "**Rendiconto**") to the Court of Auditors (*Corte dei Conti*). The Rendiconto contains the statement of income and the balance sheet of Italy for the previous fiscal year. The *Corte dei Conti* verifies that the Rendiconto is consistent with the budget provisions contained in the Budget Law of the previous year. Upon completion of the *Corte dei Conti*'s review, the MEF submits the Rendiconto to Parliament by June 30 for approval.

#### European Economic and Monetary Union
Under the terms of the Maastricht Treaty, Member States participating in the EMU, or "**Participating States**", are required to avoid excessive government deficits. In particular, they are required to maintain:

<br> • a government deficit, or net borrowing, that does not exceed 3.0 per cent of GDP, unless the excess is exceptional and temporary and the actual deficit remains close to the 3.0 per cent ceiling; and

<br> • a gross accumulated public debt that does not exceed 60.0 per cent of GDP or is declining at a satisfactory pace toward this reference value (defined as a decrease of the excess debt by 5.0 per cent per year on average over three years).

For additional information on Italy's status under these covenants, see "—The 2020 Economic and Financial Document."

Although Italy's public debt exceeded 60.0 per cent of GDP in 1998, Italy was included in the first group of countries to join the EMU on January 1, 1999 on the basis that public debt was declining at a satisfactory pace toward the 60.0 per cent reference value.

In order to ensure the ongoing convergence of the economies participating in the EMU, to consolidate the single market and maintain price stability, effective on July 1, 1998, the Participating States agreed to a Stability and Growth Pact (the "**SGP**"). The SGP is an agreement among the Participating States aimed at clarifying the Maastricht Treaty's provisions for an excessive deficit procedure and strengthening the surveillance and co-ordination of economic policies. The SGP also calls on Participating States to target budgetary positions aimed at a balance or surplus in order to adjust for potential adverse fluctuations, while keeping the overall government deficit below a reference value of 3.0 per cent of GDP.

Under SGP regulations, Participating States are required to submit each year a stability program and non-participating Member States are required to submit a convergence program. These programs cover the current year, the preceding year and at least the three following years, and are required to set forth:

• projections for a medium-term budgetary objective (a country-specific target which, for Participating States having adopted the euro, must fall within 1.0 per cent of GDP and balance or surplus, net of one-off and temporary measures) and the adjustment path towards this objective, including information on expenditure and revenues ratios and on their main components;

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<br> • the main assumptions about expected economic developments and the variables (and related assumptions) that are relevant to the realization of the stability program such as government investment expenditure, real GDP growth, employment and inflation;

• the budgetary strategy and other economic policy measures to achieve the medium-term budgetary objective comprising detailed cost-benefit analysis of major structural reforms having direct cost-saving effects and concrete indications on the budgetary strategy for the following year;

<br> • an analysis of how changes in the main economic assumptions would affect the budgetary and debt position, indicating the underlying assumptions about how revenues and expenditures are projected to react to variations in economic variables; and

<br> • if applicable, the reasons for a deviation from the adjustment path towards the budgetary objective.

Based on assessments by the Commission and the Economic and Financial Committee, the EU Council delivers an opinion on whether:

<br> • the economic assumptions on which the program is based are plausible;

<br> • the adjustment path toward the budgetary objective is appropriate; and

<br> • the measures being taken and/or proposed are sufficient to achieve the medium-term budgetary objective.

The EU Council can issue recommendations to the Participating State to take the necessary adjustment measures to reduce an excessive deficit. When assessing the adjustment path taken by Participating States, the EU Council will examine whether the Participating State concerned pursued the annual improvement of its cyclically adjusted balance, net of one-off and other temporary measures, with 0.5 per cent of GDP as a benchmark. When defining the adjustment path for those Participating States that have not yet reached the respective budgetary objective, or in allowing those that have already reached it to temporarily depart from it, the EU Council will take into account structural reforms which have long-term cost-saving effects, implementation of certain pension reforms and whether higher adjustment effort is made in economic "good times." If the Participating State repeatedly fails to comply with the EU Council's recommendations, the EU Council may require the Participating State to make a non-interest-bearing deposit equal to the sum of:

<br> • 0.2 per cent of the Participating State's GDP, and

• one tenth of the difference between the government deficit as a percentage of GDP in the preceding year and the reference value of 3.0 per cent of GDP.

This deposit may be increased in subsequent years if the Participating State fails to comply with the EU Council's recommendations, up to a maximum of 0.5 per cent of GDP, and may be converted into a fine if the excessive deficit has not been corrected within two years after the decision to require the Participating State to make the deposit. In addition to requiring a non-interest-bearing deposit, in the event of repeated non-compliance with its recommendations, the EU Council may require the Participating State to publish additional information, to be specified by the EU Council, before issuing bonds and securities and invite the European Investment Bank to reconsider its lending policy towards the Participating State. If the Participating State has taken effective action in compliance with the

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recommendation, but unexpected adverse economic events with major unfavorable consequences for government finances occur after the adoption of that recommendation, the EU Council may adopt a revised recommendation, which may extend the deadline for correction of the excessive deficit by one year.

Finally, the Fiscal Compact contained within the inter-governmental Treaty on Stability, Coordination and Governance (the "**TSCG**") complements, and in some areas enhances further, key provisions of the SGP. Specifically, the Fiscal Compact requires Member States to enshrine in national law a balanced budget rule with a lower limit of a structural deficit of 0.5 per cent of GDP, centered on the concept of the country-specific medium-term objective ("**MTO**") as defined in the SGP. The Fiscal Compact's provisions also increase the role of independent bodies, which are given the task of monitoring compliance with national fiscal rules, including the national correction mechanism in case of deviation from the MTO or the adjustment path towards it. The TSCG entered into force on January 1, 2013 and is binding for all euro area Member States that have ratified it, while other contracting parties will be bound only once they adopt the euro or earlier if they sign it. Italy ratified the TSCG in July 2012.

#### Accounting Methodology
Pursuant to Law No. 196 of December 31, 2009 and its implementing regulation, Italy utilizes the system of "general government accounting." European Union countries are required to use general government accounting for purposes of financial reporting. EUROSTAT is the European Union entity responsible for decisions with respect to the application of such general government accounting criteria. General government accounting includes revenues and expenditures from both central and local government and from social security funds, or those institutions whose principal activity is to provide social benefits. Italy utilizes general government accounting on both an accrual and cash-basis.

**ESA2010 National Accounts**. Effective September 2014, ISTAT adopted a new system of national accounts in accordance with the new European System of National and Regional Accounts (ESA2010) as set forth in European Union Regulation 549/2013. ESA2010 introduced several key changes to its predecessor European System of Accounts (ESA95), reflecting developments in the methodological and statistical tools widely used at international level to measure modern economies. Among others, changes are aimed at the harmonization of accounting methods among EU Members States and include the following: (i) research and development expenditure have been recognized as capital assets; (ii) goods sent abroad, or received from abroad, for processing without change in ownership have been excluded from the corresponding export and import figures, which only include the related processing activity; (iii) public defense spending has been reclassified from intermediate consumption to gross fixed investment; (iv) the list of institutional units belonging to the general government sector has been revised; and (v) interest accruing on financial derivatives (including public debt swaps) has been excluded from net borrowing.

#### Measures of Fiscal Balance
Italy reports its fiscal balance using two principal methods:

• *Net borrowing*, or government deficit, which is consolidated revenues less consolidated expenditures of the general government. This is the principal measure of fiscal balance, and is calculated in accordance with European Union accounting requirements. Italy also reports its structural net borrowing, which is a measure, calculated in accordance with methods adopted by the Commission, of the level of net borrowing after the effects of the business cycle have been taken into account. Structural net borrowing assumes that the output gap, which measures how much the economy is outperforming or underperforming its actual capacity, is zero. As there can

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be no precise measure of the output gap, there can be no precise measure of the structural government deficit. Accordingly, the structural net borrowing figures shown in this document are necessarily estimates.

• *Primary balance*, which is consolidated revenues less consolidated expenditures of the general government excluding interest payments and other borrowing costs of the general government. The primary balance is used to measure the effect of discretionary actions taken to control expenditures and increase revenues.

The table below shows selected public finance indicators for the periods indicated.

#### Selected Public Finance Indicators<sup>(\*)</sup>

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | (in € millions, except percentage) | (in € millions, except percentage) | (in € millions, except percentage) | (in € millions, except percentage) | (in € millions, except percentage) |
| General government expenditure<sup>(1)</sup> | 846821 | 857247 | 870888 | 944420 | 985961 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *General government expenditure, as a percentage of GDP*<sup>(2)</sup> | 48.8 | 48.4 | 48.5 | 57.0 | 55.5 |
|  General government revenues | 804811 | 818521 | 843217 | 785398 | 857643 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *General government revenues, as a percentage of GDP*<sup>(2)</sup> | 46.3 | 46.2 | 46.9 | 47.4 | 48.3 |
|  Net borrowing | 42010 | 38726 | 27671 | 159022 | 128327 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Net borrowing, as a percentage of GDP* | 2.4 | 2.2 | 1.5 | 9.6 | 7.2 |
|  Primary balance | 23448 | 25870 | 32691 | (101705) | (65464) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Primary balance, as a percentage of GDP* | 1.4 | 1.5 | 1.8 | *(6.1)* | *(3.7)* |
|  Public debt | 2329857 | 2381509 | 2410004 | 2572727 | 2677910 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Public debt as a percentage of GDP*<sup>(2)</sup> | 134.2 | 134.4 | 134.1 | 155.3 | 150.8 |
|  GDP (nominal value) | 1724070 | 1752671 | 1779951 | 1634232 | 1772502 |

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_____________________

<sup>(\*)</sup> Figures are taken from the data published in the 2021 Bank of Italy Annual Report and the warehouse of statistics produced by ISTAT. Accordingly, figures do not necessarily match GDP and Public Debt data included elsewhere in this Annual Report.

&nbsp;&nbsp;&nbsp;&nbsp;(1) Includes revenues from the divestiture of state-owned real estate (deducted from capital expenditures).

&nbsp;&nbsp;&nbsp;&nbsp;(2) Figures are gross of euro area financial support.

Source: Bank of Italy and ISTAT.

Large net borrowing requirements and high levels of public debt were features of the Italian economy until the early 1990s. In accordance with the Maastricht Treaty, the reduction of net borrowing and public debt became a national priority for Italy. Italy gradually reduced its net borrowing as a percentage of GDP to comply with the 3.0 per cent threshold set by the Maastricht Treaty. In 2017, net borrowing as a percentage of GDP reached 2.4 per cent. In 2018 and 2019, net borrowing as a percentage of GDP decreased to 2.2 per cent and 1.5 per cent, respectively. In 2020, net borrowing as a percentage of GDP increased to 9.6 per cent, mainly as a result of the additional indebtedness incurred to implement the support and budgetary expansion measures adopted in connection with the Coronavirus pandemic. As of December 31, 2021, Italy's net borrowing had decreased to approximately €128.3 billion, equal to approximately 7.2 per cent of GDP.

Since 2010, the Government has provided financial support in respect of Greece and other Participating States, via bilateral loans, participation to the ESFS and direct contributions to the ESM. In 2021, government cumulative expenditure on euro area financial support decreased by 0.7 per cent to

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€57.3 billion, of which €43.0 billion via bilateral loans and participation to the EFSF and €14.3 billion through contributions to the ESM programme.

Since 1999, the Government has taken steps to lengthen the average maturity of debt and reduce the floating rate portion. This element, together with the introduction of the single currency, made government debt less sensitive to variations in short-term interest rates and exchange rates. Consistent with the past, the government's debt management policy in 2021 was to maintain exposure to market risks, mainly interest rate and refinancing risks, within the limits set out in 2014. For additional information on Italy's debt-to-GDP ratio, see "Public Debt."

#### The 2021 Economic and Financial Document
On April 7, 2021, the Italian Council of Ministers approved the 2021 Economic and Financial Document.

**The 2021 Stability Programme**. The table below presents the main public finance objectives (taking into account the expected effects resulting from the implementation of new policies) and the public finance trends (estimated at unchanged legislation) included in the 2021 Stability Programme, as well as the difference (if any) between these two scenarios.

#### Public Finance Objectives and Trends (in per cent of GDP)

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **2021 Stability Programme** | **2020** | **2021** | **2022** | **2023** | **2024** |
| **Net Borrowing** |  |  |  |  |  |
| Objectives | (9.5) | (11.8) | (5.9) | (4.3) | (3.4) |
| Trends | (9.5) | (9.5) | (5.4) | (3.7) | (3.4) |
| *Difference* | 0.0 | 2.3 | 0.5 | 0.6 | 0.0 |
| **Primary Balance** |  |  |  |  |  |
| Objectives | (6.0) | (8.5) | (3.0) | (1.5) | (0.8) |
| Trends | (6.0) | (6.2) | (2.5) | (0.8) | (0.8) |
| *Difference* | 0.0 | 2.3 | 0.5 | 0.7 | 0.0 |
| **Interest Expenditure** |  |  |  |  |  |
| Objectives | 3.5 | 3.3 | 3.0 | 2.8 | 2.6 |
| Trends | 3.5 | 3.3 | 3.0 | 2.8 | 2.6 |
| *Difference* | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| **Structural Net Borrowing** |  |  |  |  |  |
| Objectives | (4.7) | (9.3) | (5.4) | (4.4) | (3.8) |
| Trends | (4.9) | (7.2) | (5.0) | (3.8) | (3.9) |
| *Difference* | *(0.2)* | 2.1 | 0.4 | 0.6 | *(0.1)* |
| **Structural Change** |  |  |  |  |  |
| Objectives | (3.0) | (4.5) | 3.8 | 1.0 | 0.6 |
| Trends | (3.1) | (2.2) | 2.2 | 1.1 | (0.1) |
| *Difference* | *(0.1)* | 2.3 | *(1.6)* | 0.1 | *(0.7)* |
| **Public Debt, gross of euro area financial support** |  |  |  |  |  |
| Objectives | 155.8 | 159.8 | 156.3 | 155.0 | 152.7 |
| Trends | 155.8 | 157.8 | 154.7 | 153.1 | 150.9 |
| *Difference* | 0.0 | *(2.0)* | *(1.6)* | *(1.9)* | *(1.8)* |
| **Public Debt, net of euro area financial support** |  |  |  |  |  |
| Objectives | 152.3 | 156.5 | 153.2 | 152.0 | 149.9 |
| Trends | 152.3 | 154.5 | 151.6 | 150.2 | 148.1 |
| *Difference* | 0.0 | *(2.0)* | *(1.6)* | *(1.8)* | *(1.8)* |

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_____________________

Source: Ministry of Economy and Finance.

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The table below sets out the macroeconomic forecasts prepared by Italy through 2024 in connection with the 2021 Stability Programme.

#### Macroeconomic Forecasts (in per cent)

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **2021 Stability Programme** | **2020** | **2021** | **2022** | **2023** | **2024** |
| Real GDP | (8.9) | 4.5 | 4.8 | 2.6 | 1.8 |
| Nominal GDP | (7.8) | 5.6 | 6.2 | 4.0 | 3.2 |
| Private consumption | (10.7) | 4.1 | 5.2 | 2.5 | 1.9 |
| Public consumption | 1.6 | 2.6 | 0.2 | (0.1) | (0.3) |
| Gross fixed investment | (9.1) | 8.7 | 9.0 | 4.7 | 3.4 |
| Inventories (per cent of GDP) | (0.3) | 0.1 | 0.1 | 0.0 | 0.0 |
| Exports of goods and services | (13.8) | 8.2 | 5.7 | 4.0 | 3.4 |
| Imports of goods and services | (12.6) | 9.4 | 6.6 | 3.8 | 3.3 |
| Domestic demand | (7.9) | 4.5 | 4.8 | 2.4 | 1.7 |
| Change in inventories | (0.3) | 0.1 | 0.1 | 0.0 | 0.0 |
| Net exports | (0.7) | (0.1) | (0.1) | 0.1 | 0.1 |

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_____________________

Source: Ministry of Economy and Finance.

**The 2021 National Reform Programme**. The 2021 Economic and Financial Document did not contain the National Reform Programme, which was intended to be absorbed by the measures included in the National Recovery and Resilience Plan ("**NRRP**"). These measures are divided by 'Missions', in accordance with the guidelines set forth by the EU Commission. For additional information on the NRRP, see "The Italian Economy – Financial Assistance to EU Member States – The National Recovery and Resilience Plan."

The following table compares the main finance indicators included in the Update of the 2020 Economic and Financial Document against the main finance indicators included in the 2021 Economic and Financial Document.

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#### Main Finance Indicators – Update of the 2020 Economic and Financial Document v. 2021 Economic and Financial Document

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2020** | **2021** | **2022** | **2023** | **2024** |
| **Nominal GDP growth rate** |  |  |  |  |  |
| Update of the 2020 Economic and Financial Document | (8.0) | 6.8 | 5.1 | 3.7 | N/A |
| 2021 Economic and Financial Document | (7.8) | 5.6 | 6.2 | 4.0 | 3.2 |
| *Difference* | 0.2 | *(1.2)* | 1.1 | 0.3 | *N/A* |
| **Net Borrowing, as a % of GDP** |  |  |  |  |  |
| Update of the 2020 Economic and Financial Document | (10.8) | (7.0) | (4.7) | (3.0) | N/A |
| 2021 Economic and Financial Document | (9.5) | (11.8) | (5.9) | (4.3) | (3.4) |
| *Difference* | 1.3 | *(4.8)* | *(1.2)* | *(1.3)* | *N/A* |
| **Public Debt, as a % of GDP** |  |  |  |  |  |
| Update of the 2020 Economic and Financial Document | 158.0 | 155.6 | 153.4 | 151.5 | N/A |
| 2021 Economic and Financial Document | 155.8 | 159.8 | 156.3 | 155.0 | 152.7 |
| *Difference* | *(2.2)* | 4.2 | 2.9 | 3.5 | *N/A* |

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_____________________

Source: Ministry of Economy and Finance.

#### The Update of the 2021 Economic and Financial Document
On September 29, 2021, Italy published its Update of the 2021 Economic and Financial Document, which included revised projections and forecasts on the economic situation in Italy and Europe.

The table below presents the main public finance objectives (taking into account the expected effects resulting from the implementation of new policies) and the public finance trends (estimated at unchanged legislation) included in the Update of the 2021 Economic and Financial Document, as well as the difference (if any) between these two scenarios.

#### Public Finance Objectives and Trends (in % of GDP)

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Update of the 2021 Economic and Financial Document** | **2020** | **2021** | **2022** | **2023** | **2024** |
| **Net Borrowing** |  |  |  |  |  |
| Objectives | (9.6) | (9.4) | (5.6) | (3.9) | (3.3) |
| Trends | (9.6) | (9.4) | (4.4) | (2.4) | (2.1) |
| *Difference* | 0.0 | 0.0 | 1.2 | 1.5 | 1.2 |
| **Primary Balance** |  |  |  |  |  |
| Objectives | (6.1) | (6.0) | (2.7) | (1.2) | (0.8) |
| Trends | (6.1) | (6.0) | (1.5) | 0.3 | (0.4) |
| *Difference* | 0.0 | 0.0 | 1.2 | 1.5 | 0.4 |
| **Interest Expenditure** |  |  |  |  |  |
| Objectives | 3.5 | 3.4 | 2.9 | 2.7 | 2.5 |
| Trends | 3.5 | 3.4 | 2.9 | 2.7 | 2.5 |

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---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| *Difference* | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| **Structural Net Borrowing** |  |  |  |  |  |
| Objectives | (4.7) | (7.6) | (5.5) | (4.5) | (3.9) |
| Trends | (4.8) | (7.6) | (4.2) | (2.8) | (2.6) |
| *Difference* | *(0.1)* | 0.0 | 1.3 | 1.7 | 1.3 |
| **Structural Change** |  |  |  |  |  |
| Objectives | (2.9) | (2.9) | 2.1 | 1.0 | 0.6 |
| Trends | (2.9) | (2.9) | 3.4 | 1.4 | 0.2 |
| *Difference* | 0.0 | 0.0 | *(1.3)* | *(0.4)* | *(0.4)* |
| **Public Debt, gross of euro area financial support** |  |  |  |  |  |
| Objectives | 155.6 | 153.5 | 149.4 | 147.6 | 146.1 |
| Trends | 155.6 | 153.5 | 148.8 | 145.9 | 143.3 |
| *Difference* | 0.0 | 0.0 | *(0.6)* | *(1.7)* | *(2.8)* |
| **Public Debt, net of euro area financial support** |  |  |  |  | . |
| Objectives | 152.1 | 150.3 | 146.4 | 144.8 | 143.3 |
| Trends | 152.1 | 150.3 | 145.8 | 143.0 | 140.6 |
| *Difference* | 0.0 | 0.0 | *(0.6)* | *(1.8)* | *(2.7)* |

---

_____________________

Source: Ministry of Economy and Finance.

The table below presents macroeconomic forecasts prepared by Italy through 2024 in connection with the Update of the 2021 Economic and Financial Document.

#### Macroeconomic Forecasts (in per cent)

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Update of the 2021 Economic and Financial Document** | **2020** | **2021** | **2022** | **2023** | **2024** |
| Real GDP | (8.9) | 6.0 | 4.2 | 2.6 | 1.9 |
| Nominal GDP | (7.9) | 7.6 | 5.8 | 4.1 | 3.4 |
| Private consumption | (10.7) | 5.2 | 4.8 | 2.4 | 2.0 |
| Public consumption | 1.9 | 0.7 | 0.4 | 0.3 | 0.1 |
| Investments | (9.2) | 15.5 | 5.8 | 4.3 | 3.9 |
| Exports of goods and services | (14.0) | 11.4 | 6.0 | 4.1 | 3.1 |
| Imports of goods and services | (12.9) | 11.6 | 6.6 | 4.4 | 3.6 |
| Domestic demand | (7.8) | 5.9 | 4.0 | 2.4 | 2.0 |
| Change in inventories | (0.4) | (0.1) | 0.2 | 0.2 | 0.0 |
| Net exports | (0.7) | 0.2 | (0.1) | 0.0 | (0.1) |

---

_____________________

Source: Ministry of Economy and Finance.

The following table compares the main finance indicators included in the 2021 Economic and Financial Document and the Update of the 2021 Economic and Financial Document.

#### Main Finance Indicators – 2021 Economic and Financial Document<br> v. Update of the 2021 Economic and Financial Document

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2020** | **2021** | **2022** | **2023** | **2024** |
|  **Nominal GDP growth rate** |  |  |  |  |  |
|  2021 Economic and Financial Document | (7.8) | 5.6 | 6.2 | 4.0 | 3.2 |
|  Update of the 2021 Economic and Financial Document | (7.9) | 7.6 | 6.4 | 4.3 | 3.6 |
|  Difference | *(0.1)* | 2.0 | 0.2 | 0.3 | 0.4 |

---

------

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2020** | **2021** | **2022** | **2023** | **2024** |
|  **Net Borrowing, as a % of GDP** |  |  |  |  |  |
|  2021 Economic and Financial Document | (9.5) | (11.8) | (5.9) | (4.3) | (3.4) |
|  Update of the 2021 Economic and Financial Document | (9.6) | (9.4) | (5.6) | (3.9) | (3.3) |
|  Difference | *(0.1)* | 2.4 | 0.3 | 0.4 | 0.1 |
|  **Public Debt, as a % of GDP** |  |  |  |  |  |
|  2021 Economic and Financial Document | 155.8 | 159.8 | 156.3 | 155.0 | 152.7 |
|  Update of the 2021 Economic and Financial Document | 155.6 | 153.5 | 149.4 | 147.6 | 146.1 |
|  Difference | *(0.2)* | *(6.3)* | *(6.9)* | *(7.4)* | *(6.6)* |

---

_____________________

Source: Ministry of Economy and Finance.

#### The EU Council's policy recommendations to Italy for the period 2021-2022
As part of the European Semester process, in July 2021, the EU Council, acting through ECOFIN, issued specific recommendations to Italy on its economic, employment and fiscal policies:

<br> • use the Recovery and Resilience Facility to finance additional investment in support of the recovery while pursuing a prudent fiscal policy;

<br> • preserve nationally financed investment;

<br> • limit the growth of nationally financed current expenditure;

<br> • when economic conditions allow, pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability in the medium term;

<br> • at the same time, enhance investment to boost growth potential;

<br> • pay particular attention to the composition of public finances, both on the revenue and expenditure sides of the budget, and to the quality of budgetary measures, to ensure a sustainable and inclusive recovery;

<br> • prioritize sustainable and growth enhancing investment, notably supporting the green and digital transition; and

• give priority to fiscal structural reforms that will help provide financing for public policy priorities and contribute to the long-term sustainability of public finances, including by strengthening the coverage, adequacy, and sustainability of health and social protection systems for all.

#### The 2022 Economic and Financial Document
On April 6, 2022, the Italian Council of Ministers approved the 2022 Economic and Financial Document.

------

**The 2022 Stability Programme**. The table below presents the main public finance objectives (taking into account the expected effects resulting from the implementation of new policies) and the public finance trends (estimated at unchanged legislation) included in the 2022 Stability Programme, as well as the difference (if any) between these two scenarios.

#### Public Finance Objectives and Trends (in per cent of GDP)

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **2022 Stability Programme** | **2021** | **2022** | **2023** | **2024** | **2025** |
| **Net Borrowing** |  |  |  |  |  |
| Objectives | (7.2) | (5.6) | (3.9) | (3.3) | (2.8) |
| Trends | (7.2) | (5.1) | (3.7) | (3.2) | (2.7) |
| *Difference* | 0.0 | 0.5 | 0.2 | 0.1 | 0.1 |
| **Primary Balance** |  |  |  |  |  |
| Objectives | (3.7) | (2.1) | (0.8) | (0.3) | 0.2 |
| Trends | (3.7) | (1.6) | (0.6) | (0.2) | 0.2 |
| *Difference* | 0.0 | 0.5 | 0.2 | 0.1 | 0.0 |
| **Interest Expenditure** |  |  |  |  |  |
| Objectives | 3.5 | 3.5 | 3.1 | 3.0 | 3.0 |
| Trends | 3.5 | 3.5 | 3.1 | 3.0 | 3.0 |
| *Difference* | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| **Structural Net Borrowing** |  |  |  |  |  |
| Objectives | (6.1) | (5.9) | (4.5) | (4.0) | (3.6) |
| Trends | (6.1) | (5.3) | (4.3) | (3.8) | (3.4) |
| *Difference* | 0.0 | 0.6 | 0.2 | 0.2 | 0.2 |
| **Structural Change** |  |  |  |  |  |
| Objectives | (1.1) | 0.2 | 1.4 | 0.5 | 0.4 |
| Trends | (1.1) | 0.8 | 1.1 | 0.5 | 0.3 |
| *Difference* | 0.0 | 0.6 | *(0.3)* | *(0.0)* | *(0.1)* |
| **Public Debt, gross of euro area financial support** |  |  |  |  |  |
| Objectives | 150.8 | 147.0 | 145.2 | 143.4 | 141.4 |
| Trends | 150.8 | 146.8 | 145.0 | 143.2 | 141.2 |
| *Difference* | 0.0 | *(0.2)* | *(0.2)* | *(0.2)* | *(0.2)* |
| **Public Debt, net of euro area financial support** |  |  |  |  |  |
| Objectives | 147.6 | 144.0 | 142.3 | 140.7 | 138.8 |
| Trends | 147.6 | 143.8 | 142.1 | 140.5 | 138.6 |
| *Difference* | 0.0 | *(0.2)* | *(0.2)* | *(0.2)* | *(0.2)* |

---

_____________________

Source: Ministry of Economy and Finance

The table below sets out the macroeconomic forecasts prepared by Italy through 2025 in connection with the 2022 Stability Programme.

#### Macroeconomic Forecasts (in per cent)

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **2022 Stability Programme** | **2021** | **2022** | **2023** | **2024** | **2025** |
| Real GDP | 6.6 | 3.1 | 2.4 | 1.8 | 1.5 |
| Nominal GDP | 7.2 | 6.3 | 4.6 | 3.7 | 3.3 |
| Private consumption | 5.2 | 3.0 | 2.1 | 1.6 | 1.6 |
| Public consumption | 0.6 | 2.3 | 0.3 | 0.6 | 0.2 |
| Gross fixed investment | 17.0 | 7.3 | 5.5 | 4.0 | 2.2 |

---

------

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **2022 Stability Programme** | **2021** | **2022** | **2023** | **2024** | **2025** |
| Inventories (per cent of GDP) | 0.3 | (0.2) | 0.1 | 0.0 | 0.0 |
| Exports of goods and services | 13.3 | 4.4 | 3.4 | 3.1 | 2.9 |
| Imports of goods and services | 14.2 | 5.4 | 4.0 | 3.3 | 2.9 |
| Domestic demand | 6.3 | 3.5 | 2.5 | 1.9 | 1.5 |
| Change in inventories | 0.3 | (0.2) | 0.1 | 0.0 | 0.0 |
| Net exports | 0.0 | (0.2) | (0.1) | 0.0 | 0.1 |

---

_____________________

Source: Ministry of Economy and Finance.

**The 2022 National Reform Programme**. The 2022 National Reform Programme and the NRRP are closely integrated such that the 2022 National Reform Programme provides an update on the reforms, investment and policy initiatives set forth in the NRRP. For additional information on the NRRP, see "The Italian Economy—Key Measures Related to the Italian Economy—The National Recovery and Resilience Plan."

The following table compares the main finance indicators included in the Update of the 2021 Economic and Financial Document and the 2022 Economic and Financial Document.

#### Main Finance Indicators – Update of the 2021 Economic and Financial Document v. 2022 Economic and Financial Document

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2021** | **2022** | **2023** | **2024** | **2025** |
| **Nominal GDP growth rate** |  |  |  |  |  |
| Update of the 2021 Economic and Financial Document | 7.6 | 6.4 | 4.3 | 3.6 | N/A |
| 2022 Economic and Financial Document | 7.2 | 6.3 | 4.6 | 3.7 | 3.3 |
| Difference | *(0.4)* | *(0.1)* | 0.3 | 0.1 | N/A |
| **Net Borrowing, as a % of GDP** |  |  |  |  |  |
| Update of the 2021 Economic and Financial Document | (9.4) | (5.6) | (3.9) | (3.3) | N/A |
| 2022 Economic and Financial Document | (7.2) | (5.6) | (3.9) | (3.3) | (2.8) |
| Difference | 2.2 | 0.0 | 0.0 | 0.0 | *N/A* |
| **Public Debt, as a % of GDP** |  |  |  |  |  |
| Update of the 2021 Economic and Financial Document | 153.5 | 149.4 | 147.6 | 146.1 | N/A |
| 2022 Economic and Financial Document | 150.8 | 147.0 | 145.2 | 143.4 | 141.4 |
| Difference | *(2.7)* | *(2.4)* | *(2.4)* | *(2.7)* | *N/A* |

---

_____________________

Source: Ministry of Economy and Finance.

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#### The Update of the 2022 Economic and Financial Document
On September 30, 2022, Italy published its Update of the 2022 Economic and Financial Document, which included revised projections and forecasts on the economic situation in Italy and Europe. The Update of the 2022 Economic and Financial Document was subsequently amended and supplemented by Italy on November 4, 2022. Accordingly, all references in this Annual Report to the Update of 2022 Economic and Financial Document are intended as references to the Update of 2022 Economic and Financial Document as so amended and supplemented.

The table below presents the main public finance trends (estimated at unchanged legislation) included in the Update of 2022 Economic and Financial Document.

#### Public Finance Objectives and Trends (in % of GDP)

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Update of the 2022 Economic and Financial Document** | **2021** | **2022** | **2023** | **2024** | **2025** |
| **Net Borrowing** |  |  |  |  |  |
| Objectives | (7.2) | (5.6) | (4.5) | (3.7) | (3.0) |
| Trends | (7.2) | (5.1) | (3.4) | (3.6) | (3.3) |
| *Difference* | 0.0 | 0.5 | 1.1 | 0.1 | *(0.3)* |
| **Primary Balance** |  |  |  |  |  |
| Objectives | (3.7) | (1.5) | (0.4) | 0.2 | 1.1 |
| Trends | (3.7) | (1.1) | 0.7 | 0.2 | 0.8 |
| *Difference* | 0.0 | 0.4 | 1.1 | 0.0 | *(0.3)* |
| **Interest Expenditure** |  |  |  |  |  |
| Objectives | 3.6 | 4.1 | 4.1 | 3.9 | 4.1 |
| Trends | 3.6 | 4.1 | 4.1 | 3.9 | 4.0 |
| *Difference* | 0.0 | 0.0 | 0.0 | 0.0 | *(0.1)* |
| **Structural Net Borrowing** |  |  |  |  |  |
| Objectives | (6.3) | (6.1) | (4.8) | (4.2) | (3.6) |
| Trends | (6.4) | (5.6) | (3.6) | (4.0) | (3.8) |
| *Difference* | *(0.1)* | 0.5 | 1.2 | 0.2 | *(0.2)* |
| **Structural Change** |  |  |  |  |  |
| Objectives | (1.3) | 0.2 | 1.3 | 0.6 | 0.6 |
| Trends | (1.2) | 1.2 | 2.1 | (0.6) | 0.4 |
| *Difference* | 0.1 | 1.0 | 0.8 | *(1.2)* | *(0.2)* |
| **Public Debt, gross of euro area financial support** |  |  |  |  |  |
| Objectives | 150.3 | 145.7 | 144.6 | 142.3 | 141.2 |
| Trends | 150.3 | 145.2 | 143.3 | 141.4 | 140.2 |
| *Difference* | 0.0 | *(0.5)* | *(1.3)* | *(0.9)* | *(1.0)* |
| **Public Debt, net of euro area financial support** |  |  |  |  |  |
| Objectives | 147.1 | 142.7 | 141.8 | 139.6 | 138.6 |
| Trends | 147.1 | 142.2 | 140.5 | 138.7 | 137.6 |

---

------

*Difference* 0.0 *(0.5)* *(1.3)* *(0.9)* *(1.0)*

_____________________

Source: Ministry of Economy and Finance.

The table below presents macroeconomic forecasts prepared by Italy through 2025 in connection with the Update of the 2022 Economic and Financial Document.

#### Macroeconomic Forecasts (in per cent)

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Update of the 2022 Economic and Financial Document** | **2021** | **2022** | **2023** | **2024** | **2025** |
| Real GDP | 6.7 | 3.7 | 0.6 | 1.9 | 1.3 |
| Nominal GDP | 7.3 | 6.8 | 4.8 | 4.7 | 3.4 |
| Private consumption | 5.2 | 3.9 | 0.6 | 1.3 | 1.4 |
| Public consumption | 1.5 | 0.7 | (1.8) | (0.5) | 0.2 |
| Investments | 16.5 | 9.2 | 3.0 | 4.1 | 2.7 |
| Exports of goods and services | 13.4 | 10.4 | 1.5 | 4.2 | 3.3 |
| Imports of goods and services | 14.7 | 14.3 | 1.9 | 4.3 | 3.4 |
| Domestic demand | 6.3 | 4.1 | 0.7 | 1.6 | 1.5 |
| Change in inventories | 0.3 | 0.2 | 0.0 | 0.1 | 0.1 |
| Net exports | 0.1 | (1.0) | (0.1) | 0.0 | 0.0 |

---

_____________________

Source: Ministry of Economy and Finance.

The following table compares the main finance indicators included in the 2022 Economic and Financial Document and the Update of the 2022 Economic and Financial Document.

#### Main Finance Indicators – 2022 Economic and Financial Document<br> v. Update of the 2022 Economic and Financial Document

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2021** | **2022** | **2023** | **2024** | **2025** |
|  **Nominal GDP growth rate** |  |  |  |  |  |
|  2022 Economic and Financial Document | 7.2 | 6.0 | 4.4 | 3.6 | 3.3 |
|  Update of the 2022 Economic and Financial Document | 7.3 | 6.8 | 4.8 | 4.7 | 3.4 |
|  Difference | 0.1 | 0.8 | 0.4 | 1.1 | 0.1 |

---

_____________________

Source: Ministry of Economy and Finance.

#### The EU Council's policy recommendations to Italy for the period 2022-2023
As part of the European Semester process, in May 2022, the EU Council, acting through ECOFIN, issued specific recommendations to Italy on its economic, employment and fiscal policies:

------

<br> • ensure prudent fiscal policy, including by limiting nationally-financed current expenditure so that it remains below medium-term potential growth output;

<br> • stand ready to adjust current spending to the evolving situation in relation to the conflict between Russia and Ukraine;

<br> • expand public investment for the green and digital transition and for energy security, including by making use of the available EU funding;

<br> • pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring credible and gradual debt reduction and fiscal sustainability in the medium term through gradual consolidation, investment and reforms;

<br> • adopt and appropriately implement the enabling law on tax reform, particularly by reviewing effective marginal tax rates, aligning cadastral values to current market values, streamlining and reducing tax expenditures and environmentally harmful subsidies;

<br> • proceed with the implementation of the NRRP, in line with the milestones and targets outlined in the NRRP;

<br> • swiftly finalize the negotiations with the EU Commission of the 2021-2027 cohesion policy programming documents with a view to starting their implementation;

<br> • reduce reliance on fossil fuels and diversify energy import; and

<br> • overcome bottlenecks to increase capacity of internal gas transmission, develop electricity interconnections, accelerate the deployment of additional renewable energy capabilities and adopt measures to increase energy efficiency and to promote sustainable mobility.

#### Revenues and Expenditures
The following table sets forth general government revenues and expenditures and certain other key public finance measures for the periods indicated. This data is prepared on an accrual basis. The table does not include revenues from privatizations, which are deposited into a special fund for the repayment of Treasury outstanding securities and cannot be used to finance current expenditures. While proceeds from privatizations do not affect the primary balance, they contribute to a decrease in the public debt and consequently the debt-to-GDP ratio.

#### General Government Revenues and Expenditures

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  |  | **(in € millions, except percentages)** | **(in € millions, except percentages)** | **(in € millions, except percentages)** | **(in € millions, except percentages)** |
| **Expenditures** |  |  |  |  |  |
| Compensation of employees | 167221 | 172642 | 172921 | 173484 | 176309 |
| Intermediate consumption | 98802 | 100544 | 101174 | 103633 | 110438 |
| Market purchases of social benefits in kind | 45121 | 46036 | 45725 | 46148 | 47060 |
| Social benefits in cash | 341404 | 348474 | 361203 | 399169 | 399192 |
| Subsidies to firms | 26601 | 27550 | 27903 | 32701 | 35756 |
| Interest payments | 65458 | 64596 | 60362 | 57317 | 62863 |
| Other expenditures | 35414 | 39021 | 39564 | 43387 | 47511 |

---

------

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  |  | **(in € millions, except percentages)** | **(in € millions, except percentages)** | **(in € millions, except percentages)** | **(in € millions, except percentages)** |
| **&nbsp;&nbsp;&nbsp;&nbsp;Total current expenditures** | 780021 | 798863 | 808852 | 855839 | 879129 |
| Gross fixed investments | 38276 | 37766 | 41469 | 42499 | 50709 |
| Investments grants | 10014 | 13366 | 14276 | 16175 | 20829 |
| Other capital expenditures | 18510 | 7252 | 6291 | 29957 | 35294 |
| **&nbsp;&nbsp;&nbsp;&nbsp;Total capital account expenditures** | 66800 | 58384 | 62036 | 88581 | 106832 |
| **&nbsp;&nbsp;&nbsp;&nbsp;Total expenditures** | 846821 | 857247 | 870888 | 944420 | 985961 |
| *&nbsp;&nbsp;&nbsp;&nbsp;as a per cent of GDP* | 48.8 | 48.4 | 48.5 | *57* | 55.5 |
| **Deficit (surplus) on current expenditures** | 5.4%<br>| 4.8%<br>| 3.4%<br>| 18.6%<br>| 14.6%<br>|
| **Net borrowing** | 42010 | 38726 | 27671 | 159022 | 128327 |
| *&nbsp;&nbsp;&nbsp;&nbsp;as a per cent of GDP* | 2.4 | 2.2 | 1.5 | 9.6 | 7.2 |
| **Revenues** |  |  |  |  |  |
| Direct taxes | 250309 | 248639 | 258133 | 250746 | 267140 |
| Indirect taxes | 248508 | 254430 | 257578 | 227060 | 258308 |
| Actual social security contributions | 221393 | 230414 | 238054 | 225505 | 240511 |
| Imputed social security contributions | 4172 | 4038 | 4170 | 4227 | 4514 |
| Income from capital | 11874 | 13586 | 17601 | 18758 | 17036 |
| Other revenues | 19059 | 19234 | 18751 | 15794 | 18870 |
| **&nbsp;&nbsp;&nbsp;&nbsp;Total current revenues** | 797915 | 814217 | 838902 | 781176 | 850401 |
| Capital taxes | 2325 | 1573 | 1252 | 944 | 1602 |
| Other capital revenues | 4571 | 2731 | 3063 | 3278 | 5631 |
| **&nbsp;&nbsp;&nbsp;&nbsp;Total capital revenues** | 6896 | 4304 | 4315 | 4222 | 7233 |
| **&nbsp;&nbsp;&nbsp;&nbsp;Total revenues** | 804811 | 818521 | 843217 | 785398 | 857634 |
| *&nbsp;&nbsp;&nbsp;&nbsp;as a per cent of GDP* | 46.3 | 46.2 | 46.9 | 47.4 | 48.3 |
| **Primary balance** | 23448 | 25870 | 32691 | -(101705) | (65464) |
| *&nbsp;&nbsp;&nbsp;&nbsp;as a per cent of GDP* | 1.4 | 1.5 | 1.8 | *-6.1* | *-3.7* |

---

_____________________

Source: Bank of Italy.

General government revenues increased by 9.2 per cent or €72.2 billion in 2021, compared to a 6.9 per cent or €57.8 billion decrease in 2020, mainly due to the support and budgetary expansion measures enacted in response to the Coronavirus pandemic. In 2021, the ratio of tax revenues and social contributions to GDP increased to 45.7 per cent compared to 43.0 in 2020 and 42.8 in 2019, respectively, mainly due to a greater proportional increase of tax revenues and certain social contributions compared to GDP. Social security contributions in 2021 increased by 6.7 per cent, while current tax revenues increased by 10.0 per cent.

Direct taxes increased by 6.5 per cent in 2021, driven by a 4.8 per cent increase in personal income taxes partially offset by a 11.0 per cent decrease in corporate income taxes. Indirect taxes increased by 13.8 per cent.

General government expenditures increased by 4.4 per cent in 2021, decreasing to 55.5 per cent of GDP in 2021 from 57.0 per cent of GDP in 2020. The increase in general government expenditures was mainly due to a 42.8 per cent increase in capital account expenditures, from €88.6 billion in 2020 to €106.8 billion in 2021, and an increase in interest payments from €57.3 billion in 2021 to €62.9 billion in 2021, while social benefits in cash remained substantially stable at €399.2 billion compared to 2020.

------

Italy recorded a current account surplus of €43.4 billion in 2021 (2.4 per cent of GDP), mainly due to the recovery in revenue from international tourism being partially offset by the energy deficit caused by marked increases in energy commodity prices, compared to an account surplus of €62.1 billion in 2020 (3.0 per cent of GDP), and an account surplus of €57.4 billion in 2019 (per cent of GDP).

#### Expenditures
**Compensation of employees**. Compensation of employees increased by 1.6 per cent in 2021, compared to a 0.3 per cent increase in 2020, mainly due to the easing of the Coronavirus pandemic. In 2021, compensation of employees as a percentage of GDP decreased to 9.9 per cent compared to 10.5 per cent in 2020.

**Intermediate consumption**. Intermediate consumption, which measures the value of the goods and services consumed as inputs by a process of production, increased by 6.6 per cent in 2021 compared to a 2.4 per cent increase in 2020. This increase was mainly driven by higher expenses of local administrations.

**Market purchases of social benefits in kind**. Expenditure on social benefits in kind increased by €0.9 billion or 2.0 per cent in 2021, compared to an increase of 0.9 per cent in 2020. In 2021, expenditure on social benefits in kind remained substantially stable at 2.6 per cent of GDP.

Expenditure for public health and education are accounted for under wages and salaries, cost of goods and services and production grants.

Italy has a public health service managed principally by regional governments with funds provided by the Government. Local health units adopt their own budgets, establish targets and monitor budget developments. Approximately 7.2 per cent of expenditure on social benefits in kind in 2021 related to health care.

Italy has a public education system consisting of elementary, middle and high schools and universities. Attendance at public elementary, middle and high schools is generally without charge to students, while tuition payments based on income level are required to attend public universities.

**Social benefits in cash***.* Social benefits in cash include expenditures for pensions, disability and unemployment benefits. Social benefits in cash remained substantially stable in 2021 after having increased by 10.5 per cent in 2020. Expenditure on pensions increased by 2.0 per cent and 2.4 per cent in 2021 and 2020, respectively, while the non-pension component decreased by 4.7 per cent following a 36.3 per cent increase in 2020, mainly driven by a reduction in spending on social safety nets only partially offset by an increase in expenditure for other services

**Subsidies to firms**. Subsidies to firms, which are current payments by the Government to resident producers that are not required to be reimbursed, increased by 9.3 per cent in 2021 compared to a 17.2 per cent increase in 2020, mainly due to the implementation of the support measures enacted in response to the Coronavirus pandemic.

**Interest payments**. Interest payments by the Government increased by €5.5 billion or 9.7 per cent in 2021 as compared to the €3.0 billion or 5.0 per cent decrease in 2020. The ratio of interest payments to nominal GDP remained substantially stable at 3.5 per cent both in 2021 and 2020. For additional information on Italy's public debt, see "Public Debt."

------

**Other Expenditures**. Other expenditures, which increased more than threefold in 2020, continued to increase in 2021 by 17.8 per cent. Again, this increase was mainly due to the measures enacted in response to the Coronavirus pandemic.

#### Revenues
**Taxes**. Italy's tax structure includes taxes imposed at the state and local levels and provides for both direct taxation through income taxes and indirect taxation through a VAT and other transaction-based taxes. Indirect taxes include VAT, excise duties, stamp duties and other taxes levied on expenditures. Income taxes consist of an individual tax levied at progressive rates and a corporate tax levied at a flat rate. Corporations also pay local taxes, and the deductibility of those taxes for income tax purposes has been gradually eliminated over the last years.

VAT is imposed on the sale of goods, the rendering of services performed for consideration in connection with business or professions and on all imports of goods or services. In addition to VAT, indirect taxes include customs duties, taxes on real estate and certain personal property, stamp taxes and excise taxes on energy consumption, tobacco and alcoholic beverages.

Italy has entered into bilateral treaties for the avoidance of double taxation with virtually all industrialized countries.

Low taxpayer compliance has been a longstanding concern for the Government, which has adopted measures to increase compliance. Some of these measures are aimed at identifying tax evasion and include systems of cross-checks between the tax authorities and social security agencies, public utilities and others. One of the areas of greatest concern to the Government has been under-reporting of income by self-employed persons and small enterprises. The Government's efforts to increase tax compliance since 2001 have led to an increase in the general tax base and to an improvement in compliance.

Italy's fiscal burden, which is the aggregate of direct and indirect tax revenues and social security contributions as a percentage of GDP, was 43.5 per cent in 2021, compared to 42.8 per cent in 2020. Indirect tax revenues increased by 14.1 per cent in 2021 compared to a 13.3 per cent decrease in 2020, while direct tax revenues increased by 5.2 per cent in 2021, compared to a 0.3 per cent increase in 2020. Further, total tax revenues increased from 29.6 per cent of GDP in 2020 to 28.2 per cent of GDP in 2021.

The following table sets forth the composition of tax revenues for the periods indicated

#### Composition of Tax Revenues<sup>(1)</sup>

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **(in million €)** | **(in million €)** | **(in million €)** | **(in million €)** | **(in million €)** |
| **Direct taxes** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Personal income tax | 183832 | 194467 | 192774 | 190654 | 198025 |
| &nbsp;&nbsp;&nbsp;&nbsp;Corporate income tax | 36906 | 35541 | 35645 | 34410 | 32801 |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment Income tax | 8551 | 8362 | 8130 | 8222 | 10472 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | 20163 | 19908 | 19075 | 23214 | 29410 |
| **&nbsp;&nbsp;&nbsp;&nbsp;Total direct taxes** | **249452** | **258278** | **255624** | **256500** | **270708** |
| **Indirect taxes** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;VAT | 135292 | 141526 | 141166 | 126696 | 151881 |

---

------

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **(in million €)** | **(in million €)** | **(in million €)** | **(in million €)** | **(in million €)** |
| &nbsp;&nbsp;&nbsp;&nbsp;Other transaction-based taxes | 20107<br>| 21451<br>| 21000<br>| 19442<br>| 21571<br>|
| &nbsp;&nbsp;&nbsp;&nbsp;Taxes on production of mineral oil | 25738 | 25670 | 25383 | 21354 | 23790 |
| &nbsp;&nbsp;&nbsp;&nbsp;Taxes on production of methane gas | 4087 | 4102 | 4220 | 3589 | 3704 |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax on electricity consumption | 2568 | 2599 | 2752 | 2683 | 2514 |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax on tobacco consumption | 10508 | 10515 | 10548 | 10603 | 10763 |
| &nbsp;&nbsp;&nbsp;&nbsp;Taxes on lotto and lotteries | 13254 | 13610 | 14540 | 9393 | 11184 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other<sup>(2)</sup> | 4854<br>| 5158<br>| 4396<br>| 3937<br>| 4775<br>|
| **&nbsp;&nbsp;&nbsp;&nbsp; Total indirect taxes** | **216127** | **224002** | **224005** | **197697** | **230182** |
| **&nbsp;&nbsp;&nbsp;&nbsp; Total taxes** | **465579** | **482280** | **479629** | **454197** | **500890** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) The data presented in this "Composition of Tax Revenues" table does not correspond to the general government direct and indirect tax revenues figures contained in the preceding
 table entitled "General Government Revenues and Expenditures," primarily because the "Composition of Tax Revenues" table is prepared on a cash basis while the "General Government Revenues and Expenditures" table is prepared on an accrual
 basis in accordance with ESA2010. Generally, State sector accounting does not include indirect taxes levied by, and certain amounts allocable to, regional and other local governments and entities. However, because this "Composition of Tax
 Revenues" table is prepared on a cash basis, it reflects tax receipts of entities that are excluded from State sector accounting (such as local government entities) that are collected on their behalf by the State (and subsequently transferred
 by the State to those entities).

&nbsp;&nbsp;&nbsp;&nbsp;(2) Taxes classified as "other" are non-recurring, therefore highly variable.

Source: Ministry of Economy and Finance.

In 2021, total taxation revenues (as reported in the "Composition of Tax Revenues" table on a cash basis) increased by 10.3 per cent compared to 2020. This was due to a 16.4 per cent increase in indirect tax revenues, mainly driven by an increase in VAT that in 2021 amounted to €151.9 billion as compared to €126.7 billion in 2020 and, to a lower extent, by a 11.4 per cent increase in taxes on oil. Direct tax revenues increased by 5.5 per cent compared to 2020, mainly driven by a 27.4 per cent increase in investment income tax and by an increase in personal income tax of 3.9 per cent compared to 2020.

**Actual social security contributions**. Actual social security contributions, which consist of payments made for the benefit of employees, increased by 6.7 per cent in 2021 compared to a 5.3 per cent increase in 2020.

**Imputed social security contributions**. Imputed social security contributions, which represent the counterpart to unfunded social benefits paid directly to employees and former employees and other eligible persons without involving an insurance company or autonomous pension fund, and without creating a special fund or segregated reserve for the purpose, increased by 6.8 per cent in 2021 compared to a decrease of 1.4 per cent in 2020.

**Income from capital**. Income from capital decreased by 9.2 per cent in 2021 compared to an increase of 6.6 per cent in 2020.

**Other Revenues**. Other revenues increased by 19.5 per cent in 2021 compared to a 15.8 per cent decrease in 2020.

------

#### Government Enterprises
The following chart summarizes certain basic data regarding the largest companies in which the Government holds an interest, for the periods indicated. The Government continues to participate in the election of the boards of directors, but does not directly participate in the management, of these companies.

#### Largest Government Companies<sup>(1)(2)</sup>

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **Company** | **Industry Sector** | **Per cent of Government Ownership as of December 31, 2021** | **Total Assets** | **Total Liabilities** | **Net profit (loss)** | **Net profit (loss)** | **Net profit (loss)** |
| **Company** | **Industry Sector** | **Per cent of Government Ownership as of December 31, 2021** | **At December 31,** | **At December 31,** | **For the year ended December 31,** | **For the year ended December 31,** | **For the year ended December 31,** |
| **Company** | **Industry Sector** | **Per cent of Government Ownership as of December 31, 2021** | **2021** | **2021** | **2019** | **2020** | **2021** |
|  |  | **(in € millions, except percentages)** | **(in € millions, except percentages)** | **(in € millions, except percentages)** | **(in € millions, except percentages)** | **(in € millions, except percentages)** | **(in € millions, except percentages)** |
| Cassa Depositi e Prestiti S.p.A.<sup>(3)</sup> | Financial Services | 82.77 | 517094 | 517094 | 1784 | (369) | 2980 |
| ENEL S.p.A. | Electricity | 23.60 | 206940 | 164598 | 2174 | 2610 | 3189 |
| ENI S.p.A.<sup>(4)</sup> | Oil and Gas | 30.62 | 137765 | 93246 | 148 | (8635) | 5821 |
| Ferrovie dello Stato Italiane S.p.A. | Railroads | 100.00 | 3021 | 13122 | 573 | (570) | 194 |
| Leonardo S.p.A.<sup>(5)</sup> | Defense/Aerospace | 30.20 | 28379 | 21924 | 822 | 243 | 587 |
| Monte dei Paschi di Siena S.p.A. | Banking | 64.23 | 137869 | 137869 | (1033) | (1687) | 310 |
| Poste Italiane S.p.A.<sup>(6)</sup> | Post/Financial Services | 64.26 | 284728 | 284728 | 1342 | 1206 | 1580 |
| ENAV S.p.A. | Aviation | 53.28 | 2111 | 2191 | 118269 | 53972 | 78031 |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) Percentages refer to the relevant holding company, while financial data is presented on a consolidated basis.

&nbsp;&nbsp;&nbsp;&nbsp;(2) Including shares indirectly owned by the Government through CDP.

&nbsp;&nbsp;&nbsp;&nbsp;(3) As of December 31, 2021, the residual 15.93 per cent of CDP was owned by various banking foundations.

&nbsp;&nbsp;&nbsp;&nbsp;(4) As of December 31, 2021, 26.21 per cent of ENI S.p.A. was owned indirectly through Cassa Depositi e Prestiti S.p.A., with 4.4 per cent owned directly by the Government.

&nbsp;&nbsp;&nbsp;&nbsp;(5) Finmeccanica S.p.A. has changed its name to Leonardo S.p.A. with effect as of January 1, 2017.

&nbsp;&nbsp;&nbsp;&nbsp;(6) As of December 31, 2021, 35.00 per cent of Poste Italiane S.p.A. was owned indirectly through Cassa Depositi e Prestiti S.p.A., with 29.26 per cent owned directly by the
 Government.

Source: Ministry of Economy and Finance.

------

#### PUBLIC DEBT

#### General
Italy's public debt includes debt incurred by the Government (including Treasury securities and other borrowings), local governments, social security funds and other public agencies.

The Treasury manages the Government debt and the financial assets of Italy. The Bank of Italy provides technical assistance to the Treasury in connection with auctions for domestic bonds and acts as paying agent for Treasury securities. The Stability Law and the Budget Law authorize the incurrence of debt by the Government. For additional information on Italy's budget and financial planning process and the Stability Law and the Budget Law, see "Public Finance—The Budget Process."

The aggregate amount of government bonds issued in 2021 was approximately €447.3 billion, compared to an aggregate amount of approximately €550.7 billion in 2020. In both cases such amounts include bonds issued in switch-bond transactions. The aggregate amount of government bonds with maturity in 2021 increased to €389.5 billion from €376.0 billion in 2020.

The following table summarizes Italy's public debt as of the dates indicated, that is mainly represented by debt incurred by the Treasury.

#### Total Public Debt<sup>(\*)</sup>

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31** | **December 31** | **December 31** | **December 31** | **December 31** |
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | Millions of Euro | Millions of Euro | Millions of Euro | Millions of Euro | Millions of Euro |
|  **Debt incurred by the Treasury:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Short term bonds (BOT)<sup>(1)</sup> | 106601 | 107453 | 113929 | 121283 | 113491 |
| &nbsp;&nbsp;&nbsp; Medium- and long-term bonds (initially incurred or issued in Italy) | 1755585 | 1810949 | 1846270 | 1975511 | 2075915 |
| &nbsp;&nbsp;&nbsp; External bonds (initially incurred or issued outside Italy) <sup>(2)</sup> | 35589 | 32399 | 36867 | 45090 | 39197 |
| &nbsp;&nbsp;&nbsp; **Total Treasury Issues** | **1897776** | **1950802** | **1997066** | **2141884** | **2228603** |
|  Postal savings<sup>(3)</sup> | 74432 | 72307 | 67586 | 65066 | 57490 |
|  Treasury accounts<sup>(4)</sup> | 159012 | 107084 | 159706 | 163863 | 166654 |
|  **Other debt incurred by:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; ISPA (bonds and other loans)<sup>(5)</sup> | 10114 | 10127 | 9200 | 9200 | 9167 |
| &nbsp;&nbsp;&nbsp; Central Government entities<sup>(6)</sup> | 101975 | 98474 | 93573 | 110239 | 133587 |
| &nbsp;&nbsp;&nbsp; Other general Government entities<sup>(7)</sup> | 86529 | 142720 | 82880 | 82505 | 82597 |
|  **Total public debt** | **2329838** | **2381513** | **2410011** | **2572727** | **2678098** |
|  *as a percentage of GDP* | 134.2% | 134.4% | 134.1% | 154.9% | 150.3% |
|  Liquidity buffer<sup>(8)</sup> | (29323) | (35078) | (32918) | (42475) | (47472) |

---

------

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31** | **December 31** | **December 31** | **December 31** | **December 31** |
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | Millions of Euro | Millions of Euro | Millions of Euro | Millions of Euro | Millions of Euro |
|  **Total public debt net of liquidity buffer** | 2300515 | 2346435 | 2377093 | 2530282 | 2630626 |

---

_____________________

---

| | |
|:---|:---|
| <sup>(\*)</sup> | Figures in this table have not been restated and, therefore, are not comparable to the figures in the table entitled "Selected Public Finance Indicators" in "Public Finance" and to the figures presented in the sections "Italian Economy" and "Public Debt". |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) BOTs (*Buoni Ordinari del Tesoro*) are short-term, zero-coupon notes with a maturity up to twelve months.

&nbsp;&nbsp;&nbsp;&nbsp;(2) Italy ordinarily enters into currency swap agreements for hedging purposes. The total amount of external bonds shown above takes into account the effect of these arrangements.

&nbsp;&nbsp;&nbsp;&nbsp;(3) Postal savings are medium and long-term certificates issued by CDP that may be withdrawn by the holder prior to maturity with nominal penalties. As of the date of conversion of
 CDP into a joint stock company in 2003, the Ministry of Economy and Finance assumed part of the postal savings liabilities of CDP in the amount that is referred to in the table.

&nbsp;&nbsp;&nbsp;&nbsp;(4) Treasury accounts are short- and medium-term deposit accounts held by non-central Government entities at the Treasury. Treasury accounts also include liabilities for Euro coins
 minted by Italy.

&nbsp;&nbsp;&nbsp;&nbsp;(5) The liabilities of *Infrastrutture S.p.A.,* or "ISPA," in relation to the *TAV* project
 (high-speed railroad infrastructure), have been included in the Government debt since 2006, when such liabilities were assumed by the Government following their reclassification.

&nbsp;&nbsp;&nbsp;&nbsp;(6) The line item includes all internal and external liabilities incurred by other central Government entities.

&nbsp;&nbsp;&nbsp;&nbsp;(7) The line item includes all internal and external liabilities incurred by local authorities.

&nbsp;&nbsp;&nbsp;&nbsp;(8) The line item includes all the funds of the Treasury deposited with the Bank of Italy and the sinking fund, which is mainly funded by privatization proceeds, as well as
 liquidity invested in the money market through operations on behalf of the Italian Treasury ("OPTES"). OPTES are overnight or very short-term transactions involving non collateralized deposits, conducted through auctions or bilateral trades
 undertaken between the Italian Ministry of Economy and Finance and OPTES counterparties.

Source: Ministry of Economy and Finance and Bank of Italy.

In the period from 2017 to 2020, Italy's debt-to-GDP ratio increased from 127.9 per cent net of euro area financial support (and 131.4 per cent gross of euro area financial support) to 151.4 per cent net of euro area financial support (and 154.9 per cent gross of euro area financial support). This growth trend resulted from Italy's budget deficit (primarily resulting from the cost of servicing Italy's debt) and its substantially unchanged nominal GDP from 2017 to 2019, and significant GDP contraction in 2020 for the Coronavirus pandemic. In 2021, Italy's debt-to-GDP ratio decreased to 147.1 per cent net of euro area financial support (and 150.3 per cent gross of euro area financial support), mainly due to a general cut back in spending in the public sector relative to 2020. For additional information on the GDP trends, see "The Italian Economy—General."

The Government's latest forecasts of the debt-to-GDP ratio are included in the Economic and Financial Document of 2022. The table below shows the Government's forecasts of the debt-to-GDP ratio for the period 2021-2025. Based on preliminary estimates, Italy's debt-to-GDP ratio gross of euro area financial support is expected to set at 147.0 per cent in 2022, decreasing from 2021 level, to then continue decreasing to 145.2 per cent in 2023, as a consequence of the expected increase in the GDP level.

#### Forecasted Debt-to-GDP Ratios

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2021** | **2022** | **2023** | **2024** | **2025** |
| Public Debt, gross of euro area financial support | 150.3 | 145.7 | 144.6 | 142.3 | 141.2 |

---

_____________________

Source: Ministry of Economy and Finance.

**Government Guarantees**. Government guarantees on liabilities or assets of third parties are contingent liabilities that may become actual government liabilities if specific conditions are met. They

------

include (i) standardised government guarantees, which are guarantees issued in large number, usually for fairly small amounts, among identical lines, and (ii) one-off government guarantees, which are provided on a case-by-case basis, generally for rather significant amounts and under individual contractual arrangements.

The table below shows data on Government standardised and one-off guarantees as a percentage of GDP in the years 2017 to 2021.

#### Government Guarantees

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **% of GDP** | **% of GDP** | **% of GDP** | **% of GDP** | **% of GDP** |
|  Standardised Government guarantees | 1.4 | 1.7 | <br> 1.9 | <br> 7.6 | 10.0 |
| One-off Government guarantees<sup>(1)</sup> | 2.5 | 2.6 | 2.9 | 5.6 | 6.0 |
|  **Total Government guarantees** | 3.9 | 4.3 | 4.8 | 13.2 | 16.0 |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) Including back-to-back State guarantees related to SACE guarantees.

Source: Eurostat.

**SACE Guarantees.** Pursuant to the Cure Italy Decree and the Liquidity Decree, SACE has provided certain guarantees in favor of banks and other national and international financial institutions that have disbursed loans to businesses meeting certain requirements during the Coronavirus pandemic. SACE was a wholly owned subsidiary of CDP, prior to being reorganized in 2022. Pursuant to Article 67 of Law Decree No. 104 of August 14, 2020, converted with amendments into Law No. 126 of October 13, 2020, CDP transfered its stake in SACE to MEF in return for the transfer from MEF to CDP of certain government bonds issued as consideration for the transaction and with settlement on March 21, 2022. After the reorganisation, the MEF holds a stake in SACE equal to 100% of its share capital. SACE offers a wide range of financial services to the general public. All loans that apply and successfully qualify for a SACE guarantee also benefit from a back-to-back State guarantee (up to the full principal amount and accrued interest and charges under the relevant loan). As of June 30, 2022, SACE had received guarantee applications for loans totaling approximately €256.8 billion and had issued guarantees for loans totaling approximately €42.0 billion.

**Public Debt Management.** Debt management continues to be geared towards lengthening the average residual maturity of public debt. The average maturity of government debt increased from 7.0 years at the end of 2020 to 7.1 years at the end of 2021. The average refixing period, the main index for measuring interest risk, also increased from 6.0 years in 2020 to 6.2 years in 2021.

Public Debt Management for 2021 was regulated by (i) the general management directive of the Ministry of Economy and Finance, and (ii) the Decree of the Ministry of Economy and Finance of December 30, 2021 (so-called *Decreto Cornice*), setting forth the objectives for the management of public debt as follows:

<br> 1. guarantee that demand is met in line with market prices;

<br> 2. maintain exposure to main risks, especially interest rate and refinancing risks, in line with previous years;

<br> 3. contribute to improving the liquidity of the secondary market; and

<br> 4. improve the efficiency of the management of cash, also through diversification of instruments.

These objectives translated into the following guidelines for 2021:

------

<br> 1. ensure foreseeability and regularity of domestic issuances;

<br> 2. adapt the volumes offered in order to favorite the secondary market sectors which are more liquid;

<br> 3. use liability management instruments;

<br> 4. diversify the investor basis also through issuances in other currency, in particular in dollars, continuing the offer dedicated to retail investors to broaden their direct participation; and

<br> 5. implement all organizational and market interventions in order to start the issuance of "green" bonds; and

<br> 6. introduce the Short Term BTP's

At the end of 2021, the debt represented by government bonds was 80.0 per cent of the aggregate public debt of Italy. The table below presents the breakdown of the total government bonds issued in 2019, 2020 and 2021, respectively.

#### Breakdown of Total Issued Government Bonds

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **2019** | **% on total** | **2020** | **% on total** | **2021** | **% on total** |
| BOT mini | 0 | 0.0 | 0 | 0.0 | 0 | 0.0 |
| BOT 3 months | 0 | 0.0 | 6500 | 1.2 | 0 | 0.0 |
| BOT 6 months | 86882 | 21.0 | 82192 | 14.9 | 75847 | 15.9 |
| BOT 12 months | 73957 | 17.9 | 93123 | 16.9 | 83294 | 17.5 |
| Commercial Paper | 0 | 0.0 | 0 | 0.0 | 654 | 0.1 |
| **Total short-term** | **160839** | 38.8 | **181815** | 33.0 | **159795** | 33.5 |
| CTZ | 31156 | 7.5 | 37949 | 6.9 | 5951 | 1.3 |
| CCTeu | 14771 | 3.6 | 16444 | 3.0 | 24499 | 5.1 |
| BTP Short Term | 0 | 0.0 | 0 | 0.0 | 30379 | 6.4 |
| BTP 3 years | 32430 | 7.9 | 47817 | 8.7 | 41367 | 8.7 |
| BTP 5 years | 33686 | 8.1 | 48759 | 8.9 | 40951 | 8.6 |
| BTP 7 years | 29552 | 7.1 | 36369 | 6.6 | 43379 | 9.1 |
| BTP 10 years | 43224 | 10.4 | 63353 | 11.5 | 58136 | 12.2 |
| BTP 15 years | 13600 | 3.3 | 18996 | 3.5 | 14500 | 3.0 |
| BTP 20 years | 8470 | 2.0 | 17505 | 3.2 | 4500 | 0.9 |
| BTP 30 years | 15480 | 3.7 | 23835 | 4.3 | 7720 | 1.6 |
| BTP 50 years | 3000 | 0.7 | 0 | 0.0 | 5000 | 1.1 |
| BTP Green | 0 | 0.0 | 0 | 0.0 | 13500 | 2.8 |
| BTP€i 5 years | 2149 | 0.5 | 6038 | 1.1 | 3450 | 0.7 |
| BTP€i 10 years | 7369 | 1.8 | 4972 | 0.9 | 4836 | 1.0 |
| BTP€i 15 years | 2334 | 0.6 | 600 | 0.1 | 0 | 0.0 |
| BTP€i 30 years | 2018 | 0.5 | 841 | 0.2 | 6803 | 1.4 |
| BTPItalia | 6750 | 1.6 | 22298 | 4.0 | 0 | 0.0 |
| BTP Futura | - | - | 11844 | 2.2 | 8745 | 1.8 |
| Foreign | 7371 | 1.8 | 11255 | 2.0 | 3784 | 0.8 |
| **Total medium/long-term** | **253361** | 61.2 | **368873** | 67.0 | **317500** | 66.5 |
| **Total** | **414200** | **100** | **550688** | **100** | **477295** | **100** |

---

_____________________

Source: 2021 Report on Public Debt.

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The table below presents the percentage of total outstanding government bonds represented by fixed rate securities, the securities indexed to the inflation rate (BTP€i+BTP Italia) and floating rate securities as of December 31, 2019, 2020 and 2021, respectively.

#### Breakdown of Total Outstanding Government Bonds (in %)

---

| | | | |
|:---|:---|:---|:---|
|  | December 31, | December 31, | December 31, |
|  | **2019** | **2020** | **2021** |
| Fixed rate securities | 76.0 | 76.7 | 76.9 |
| Securities indexed to the inflation rate (BTP€i+BTP Italia) | 11.7 | 11.5 | 11.1 |
| Floating rate securities | 12.2 | 11.9 | 11.9 |
| **Total Outstanding Government Bonds** | **100** | **100** | **100** |

---

_____________________

Source: Ministry of Economy and Finance.

In 2021, the weighted average cost at issuance of Government securities decreased to 0.1 per cent from 0.6 per cent in 2020, maintaining financing costs close to a historical minimum low. Such decrease was mainly due to low market rates. Yields on short-term government bonds stood slightly above negative 0.5 continuing to record negative interest rates in 2021, whereas yields on long-term government bonds decreased to 0.4 per cent in 2021 from 1.0 per cent in 2020.

The table below shows the yields on 3-year and 10-year BTPs issued by the Treasury for each quarter of 2020 and 2021 and the first two quarters of 2022.

#### Quarterly Yields on 3-Year and 10-Year BTPs

---

| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **2020** | **2020** | **2020** | **2020** | **2021** | **2021** | **2021** | **2021** | **2022** | **2022** |
|  | **Q1** | **Q2** | **Q3** | **Q4** | **Q1** | **Q2** | **Q3** | **Q4** | **Q1** | **Q2** |
| BTP 3-year | 0.3 | 0.7 | 0.2 | (0.2) | (0.3) | (0.2) | (0.2) | (0.2) | 0.5 | 2.0 |
| BTP 10-year | 1.1 | 1.6 | 1.1 | 0.8 | 0.6 | 0.9 | 0.4 | 1.0 | 1.1 | 2.7 |

---

_____________________

Source: Ministry of Economy and Finance.

*BTP-Bund Spread.* The spread between BTPs and German government bonds, in each case with a maturity of 10 years, increased to approximately 136 bps as of December 31, 2021 from approximately 111 bps as of December 31, 2020, due to a generally worsened perception of credit risk for Italy relative to other countries.

#### Summary of Internal Debt
Internal debt is debt, payable in Euro, initially incurred or issued in Italy. Italy's total internal public debt as of December 31, 2021 was €2,587 million, an increase of €111.7 million from December 31, 2020. The following table summarizes the internal public debt as of December 31 of each of the years indicated.

------

#### Internal Public Debt

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2017** | **2018** | **2019** | **2020** | **2021** |
|  | **(Millions of Euros)** | **(Millions of Euros)** | **(Millions of Euros)** | **(Millions of Euros)** | **(Millions of Euros)** |
| **Debt incurred by the Treasury:** |  |  |  |  |  |
| &nbsp;&nbsp; Short-Term Bonds (BOT)<sup>(1)</sup> | 106601 | 107453 | 113929 | 121283 | 113491 |
| &nbsp;&nbsp; Medium- and Long-Term Bonds |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp; CTZ<sup>(2)</sup> | 40692 | 45591 | 51139 | 54480 | 29260 |
| &nbsp;&nbsp;&nbsp;&nbsp; CCT<sup>(3)</sup> | 132936 | 128876 | 125586 | 126552 | 149643 |
| &nbsp;&nbsp;&nbsp;&nbsp; BTP<sup>(4)</sup> | 1368729 | 1408853 | 1440280 | 1542121 | 1633176 |
| &nbsp;&nbsp;&nbsp;&nbsp; BTP Futura<sup>(5)</sup> |  |  |  | 11844 | 20589 |
| &nbsp;&nbsp;&nbsp;&nbsp; BTP€i<sup>(6)</sup> | 146847 | 155175 | 151707 | 163464 | 165794 |
| &nbsp;&nbsp;&nbsp;&nbsp; BTP Italia<sup>(7)</sup> | 66381 | 72454 | 77558 | 77050 | 77453 |
| **Total** | **1862186** | **1918402** | **1960200** | **2096794** | **2189406** |
| Postal savings | 74432 | 72307 | 67586 | 65066 | 57490 |
| Treasury accounts<sup>(8)</sup> | 159012 | 107084 | 159706 | 163863 | 166654 |
| ISPA loans<sup>(9)</sup> | 500 | 500 | 500 | 500 | 500 |
| Central Government entities | 60521 | 56133 | 51470 | 66576 | 90482 |
| Other general Government entities | 85963 | 142198 | 82357 | 82222 | 82325 |
| **Total internal public debt** | **2242615** | **2296623** | **2321819** | **2475020** | **2586857** |
| Liquidity buffer<sup>(10)</sup> | (29323) | (35078) | (32918) | (42475) | (47472) |
| **Total internal public debt net of liquidity buffer** | **2213292** | **2261545** | **2288901** | **2432545** | **2539385** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) BOTs (*Buoni Ordinari del Tesoro*) are short-term, zero-coupon notes with a maturity up to twelve months.

&nbsp;&nbsp;&nbsp;&nbsp;(2) CTZs (*Certificati del Tesoro Zero-Coupon*) are zero-coupon notes with maturities of twenty-four months.

&nbsp;&nbsp;&nbsp;&nbsp;(3) CCTs (*Certificati di Credito del Tesoro*) are floating rate medium-term notes indexed to the six-month BOT rate with maturities of
 typically seven years and a semiannual coupon. The BOT rate is the interest rate at the BOT auction held at the end of the month prior to the one in which the coupons become payable. CCTs also include CCTEUs, which are indexed to six-month
 Euribor. As of December 31, 2017, no CCTs remain outstanding.

&nbsp;&nbsp;&nbsp;&nbsp;(4) BTPs (*Buoni del Tesoro Poliennali*) are medium- and long-term notes that pay a fixed rate of interest, with a semiannual coupon.

&nbsp;&nbsp;&nbsp;&nbsp;(5) BTPs Futura are government bonds with semi-annual nominal coupons and maturities from 8 to 16 years, exclusively targeted to retail investors, with proceeds being entirely used
 to finance the measures adopted by the Government to counter the economic effects of the Coronavirus pandemic.

&nbsp;&nbsp;&nbsp;&nbsp;(6) BTP€is (*inflation-linked BTPs*) are medium- and long-term notes with a semiannual coupon. Both the principal amount under the notes and
 the coupon are indexed to the euro-zone harmonized index of consumer prices, excluding tobacco.

&nbsp;&nbsp;&nbsp;&nbsp;(7) BTPItalia (*Italian inflation-linked BTPs*) are medium- and long-term notes with a semiannual coupon. Both the principal amount under the
 notes and the coupon are indexed to the Italian inflation rate, excluding tobacco. These notes were first issued by the Treasury in March 2012.

&nbsp;&nbsp;&nbsp;&nbsp;(8) Treasury accounts are demand, short- and medium-term deposit accounts held by non-central Government entities at the Treasury. Treasury accounts also include liabilities for
 Euro coins minted by Italy.

------

&nbsp;&nbsp;&nbsp;&nbsp;(9) The item includes the portion of debt incurred by ISPA in Italy, guaranteed by the State, in connection with the financing of the high-speed railway link between Turin, Milan,
 Rome and Naples.

&nbsp;&nbsp;&nbsp;&nbsp;(10) The item includes all the funds of the Treasury deposited with the Bank of Italy and the sinking fund, which is mainly funded by privatizations, as well as liquidity invested
 on the money market through OPTES. For additional information, see "Monetary System—Monetary Policy".

Source: Ministry of Economy and Finance and Bank of Italy.

In 2020 and 2021, the ratio of short-term bonds to total securities issued by the Treasury was approximately 5.6 per cent and approximately 5.1 per cent, respectively.

The following table divides the internal public debt into floating debt and funded debt as of December 31 of each of the years indicated. Floating debt is debt that has a maturity at issuance of less than one year. Funded debt is debt that has a maturity at issuance of one year or more.

#### Summary of Floating and Funded Internal Debt

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
|  | 2017 | 2018 | 2019 | 2020 | 2021 |
|  | **(Millions of euro)** | **(Millions of euro)** | **(Millions of euro)** | **(Millions of euro)** | **(Millions of euro)** |
|  Floating internal debt<sup>(1)</sup> | 191764 | 140939 | 193606 | 198023 | 196851 |
|  Funded internal debt | 2050850 | 2155684 | 2128213 | 2276997 | 2390006 |
|  **Total internal public debt** | **2242615** | **2296623** | **2321819** | **2475020** | **2586857** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) Includes BOTs with a maturity at issuance of three and six months and postal accounts.

Source: Ministry of Economy and Finance.

#### Summary of External Debt
External debt is debt initially incurred or issued in a currency other than Euro or outside Italy. Total external public debt as of December 31, 2021 was €91,241 million. Historically, Italy has not relied heavily on external debt. The following table summarizes the external public debt as of December 31 of each of the years indicated.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
|  | 2017 | 2018 | 2019 | 2020 | 2021 |
|  | (Millions of euros) | (Millions of euros) | (Millions of euros) | (Millions of euros) | (Millions of euros) |
|  External Treasury Bonds<sup>(1)</sup> | 35589 | 32399 | 36867 | 45090 | 39197 |
|  ISPA (bonds and loans)<sup>(2)</sup> | 9614 | 9627 | 8700 | 8700 | 8667 |
|  Central Government entities | 41454 | 42341 | 42103 | 43663 | 43105 |
|  Other general Government entities | 566 | 522 | 522 | 283 | 272 |
|  **Total external public debt** | **87223** | **84890** | **88192** | **97737** | **91241** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) Italy often enters into currency swap agreements in the ordinary course of the management of its debt. The total amount of external bonds shown above takes into account the
 effect of these arrangements.

&nbsp;&nbsp;&nbsp;&nbsp;(2) The item includes the full amount of ISPA bonds and a portion of loans incurred by ISPA in connection with the financing of the high-speed railway link between Turin, Milan,
 Rome and Naples.

Source: Ministry of Economy and Finance.

------

The following table sets forth a breakdown of the external public debt of Italy, by currency, as of December 31 of each of the years indicated. The amounts shown below are nominal values at issuance, before giving effect to currency swaps, and do not include external public debt of state sector entities and other general Government entities. Italy often enters into currency swap agreements in the ordinary course of the management of its debt.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31** | **December 31** | **December 31** | **December 31** | **December 31** |
|  | 2017 | 2018 | 2019 | 2020 | 2021 |
|  | **(in millions)** | **(in millions)** | **(in millions)** | **(in millions)** | **(in millions)** |
| Euro<sup>(1)</sup> | 26815 | 24456 | 22917 | 28868 | 18879 |
| British Pounds | 1750 | 1750 | 1750 | 1750 | 1750 |
| Swiss Francs | 1000 | 0 | 0 | 0 | 0 |
| U.S. Dollars | 5500 | 5500 | 12500 | 15500 | 20000 |
| Japanese Yen | 110000 | 60000 | 25000 | 25000 | 25000 |
| Norwegian Kroner | 0 | 0 | 0 | 0 | 0 |
| Czech Koruna | 4980 | 4980 | 0 | 0 | 0 |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) The item does not include the amount of debt incurred in euros by ISPA and guaranteed by the State, which is shown in the previous table.

Source: Ministry of Economy and Finance.

Italy accesses the international capital markets through (i) a global bond program registered under the United States Securities Act of 1933 on Schedule B (the "**Global Bond Programme**"), (ii) a US$80 billion medium-term note program established in 1998 and last updated in December 2014, and (iii) a US$15 billion commercial paper program established in 1999 and last updated in July 2020. Italy introduced collective action clauses (CACs) in the documentation of all New York law governed bonds issued after June 16, 2003, including the Global Bond Programme. Italy has included the EU Collective Action Clauses, including Cross Series Modification Clauses, in the documentation of all bonds it has issued after January 1, 2013. For additional information regarding Italy's implementation of Collective Action Clauses, see "The Italian Economy—Key measures related to the Italian Economy—Financial Assistance to EU Member States—Collective Action Clauses."

*Excessive Deficit Procedure.* In accordance with the Treaty on the Functioning of the EU ("**TFEU**"), the EU Commission monitors compliance with budgetary discipline of each Member State, on the basis of two criteria: (1) whether the ratio of the planned or actual government deficit to GDP exceeds the reference value of 3.0 per cent; and (2) whether the ratio of government debt to GDP exceeds the reference value of 60.0 per cent, unless the ratio is diminishing and approaching the reference value at a satisfactory pace. Further, the EU Commission takes into account whether the government deficit exceeds government investment expenditure and all other relevant factors, including the medium-term economic and budgetary position of the Member State. For additional information on the budget process, see "*Public Finance – The Budget Process*."

Between May 2018 and June 2019, the EU Commission issued three different reports to Italy under Article 126(3) of TFEU, at first requesting documents to attest Italy's compliance with budgetary discipline and then to state that Italy's public debt-to-GDP ratio, which stood at 132.2 per cent in 2018, was well above the 60.0 per cent of GDP reference value set for in the TFEU, and that Italy did not comply with the debt reduction benchmark in 2018.

Italy responded to these reports providing the required documentation and confirming its intention to comply with the applicable budgetary rules, to then adopt, in July 2019, certain fiscal correction measures for 2019 in an aggregate amount of €7.6 billion or 0.4 per cent of GDP in nominal terms and €8.2 billion or 0.5 per cent of GDP in structural terms. This intervention allowed for a lower deficit of 2.0 per cent of GDP for 2019, in line with the EU Commission's recommendations. Among

------

others, key measures included a freeze on certain funds (€1.5 billion) which, under the 2019 Budget, were originally allocated to the basic universal income (*Reddito di Cittadinanza*), and the new early retirement scheme (*Quota Cento*) (see "The Italian Economy – Key Measures related to the Italian Economy – Measures adopted in 2019"). Such fiscal correction measures were described in a letter by the Government to the EU Commission dated July 2, 2019.

On July 3, 2019, the EU Commission formally informed the EU Council that the fiscal correction measures for 2019 adopted by Italy on July 1, 2019 were material enough for the EU Commission not to recommend to the EU Council the opening of an excessive deficit procedure against Italy.

In March 2020, the EU Commission activated the general escape clause under the EU fiscal framework, allowing for a coordinated and orderly temporary deviation from the normal requirements for all Member States in a situation of generalised crisis caused by a severe economic downturn of the euro area or the EU as a whole. The general escape clause, however, does not suspend the excessive deficit procedure under the TFEU.

On May 20, 2020, the EU Commission issued a report to Italy under Article 126(3) of TFEU. In this report, the EU Commission stated that Italy's planned deficit for 2020, which stood at 10.4 per cent of GDP, provided evidence of the existence of an excessive deficit. However, the Economic and Financial Committee issued an opinion in June 2020 concluding that, after taking into account Italy's data from 2019, among other things, there was not enough evidence to recommend an excessive deficit procedure against Italy.

On June 2, 2021, the EU Commission issued an omnibus report to 26 Member States, including Italy, under Article 126(3) of TFEU. In this report, the EU Commission stated that Italy's 2020 general government deficit exceeded the 3.0 per cent GDP reference value and that the 2021 spring forecasts indicated that the government deficit would remain above this value. The EU Commission also stated that at the end of 2020, the general government gross debt exceeded the 60.0 per cent of GDP reference value set by the EU. In June 2021, the Economic and Financial Committee issued an opinion concluding that an excessive deficit procedure against several Member States, including Italy, should not be taken given the high degree of uncertainty, caused by the ongoing Coronavirus pandemic, the Member States' fiscal response to it, and after giving consideration to the EU Council's recommendations of July 20, 2020.

On May 23, 2022, the EU Commission issued an omnibus report to 18 Member States, including Italy, under Article 126(3) of TFEU. In this report, the EU Commission confirmed its findings contained in the omnibus report of June 2, 2021 and stated that Italy's 2021 general government deficit exceeded the 3.0 per cent GDP reference value and that the 2022 spring forecasts indicated that the government deficit would remain above this value. The EU Commission also stated that, at the end of 2021, the general government gross debt exceeded 60.0 per cent of GDP reference value set by the EU. The EU Commission concluded that compliance with the debt reduction benchmark was not warranted under the current exceptional economic conditions and, therefore, resolved not to open new excessive deficit procedures against Italy.

#### Debt Record

Since its founding in 1946, Italy has never defaulted in the payment of principal or interest on any of its internal or external indebtedness.

------

#### TABLES AND SUPPLEMENTARY INFORMATION

#### Floating Internal Debt<sup>(1)</sup> as of December 31, 2021

---

| | | | |
|:---|:---|:---|:---|
|  | **Interest<br> Rate** | **Maturity<br> Date** | **Outstanding<br> principal<br> amount** |
|  | **(Millions of euro)** | **(Millions of euro)** | **(Millions of euro)** |
| BOT (3 months) | various | various | 0 |
| BOT (6 months) | various | various | 30197 |
| Treasury accounts | floating |  | 166654 |
| **Total floating internal debt of the Treasury** |  |  | **196851** |
| Liquidity buffer | Floating |  | (47472) |
| **Total floating internal debt net of liquidity buffer** |  |  | **149379** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) Floating debt is debt that has a maturity at issuance of less than one year. Funded debt is debt that has a maturity at issuance of one year or more.

Source: Ministry of Economy and Finance and Bank of Italy.

#### Funded Internal Debt<sup>(1)</sup> as of December 31, 2021

---

| | | | |
|:---|:---|:---|:---|
|  | **Interest<br> Rate** | **Maturity<br> Date** | **Outstanding<br> principal<br> amount** |
|  | **(Millions of euro)** | **(Millions of euro)** | **(Millions of euro)** |
| BOT (12 months) | various | various | 83294 |
| CTZ | various | various | 29260 |
| CCT | various | various | 149643 |
| BTP <sup>(2)</sup> | various | various | 1633176 |
| BTP Futura | various | various | 20589 |
| BTP€I | various | various | 165794 |
| BTP Italia | various | various | 77453 |
| Other funded internal debt | various | various | 230797 |
| **Total funded internal debt of the Treasury** |  |  | **2390006** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) Floating debt is debt that has a maturity at issuance of less than one year. Funded debt is debt that has a maturity at issuance of one year or more. This table does not
 include the loans under the SURE Facility. For further information on the SURE Facility see "*Republic of Italy – EU measures enacted in response to the Coronavirus pandemic* ".

&nbsp;&nbsp;&nbsp;&nbsp;(2) Line item 'BTP' includes 'BTP Green' and 'BTP Short Term'

Source: Ministry of Economy and Finance and Bank of Italy.

#### External Bonds of the Treasury as of December 31, 2021
The following table shows the external bonds of the Treasury issued and outstanding as of December 31, 2021

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Original Currency Nominal Amount** | **Interest Rate** | **Initial Public Offering Price (%)** | **Date of Issue** | **Maturity Date** | **Amount Outstanding** | **Equivalent in Euro** |
| **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** |
| $3500000000 | 6.88% | 98.73 | September 27, 1993 | September 27, 2023 | $3500000000 | €3,090,234,858 |
| $2000000000 | 5.38% | 98.44 | February 27, 2003 | June 15, 2033 | $2000000000 | €1,765,848,490 |
| $2500000000 | 2.38% | 99.72 | October 17, 2019 | October 17, 2024 | $2500000000 | €2,207,310,613 |
| $2000000000 | 2.88% | 99.09 | October 17, 2019 | October 17, 2029 | $2000000000 | €1,765,848,490 |
| $2500000000 | 4.00% | 99.62 | October 17, 2019 | October 17, 2049 | $2500000000 | €2,207,310,613 |

---

------

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Original Currency Nominal Amount** | **Interest Rate** | **Initial Public Offering Price (%)** | **Date of Issue** | **Maturity Date** | **Amount Outstanding** | **Equivalent in Euro** |
| $3000000000 | 1.25% | 99.09 | November 24, 2020 | February 17, 2026 | $3000000000 | €2,648,772,735 |
| $2000000000 | 0.88% | 99.67 | 6-May-21 | 6-May-24 | $2000000000 | €1,765,848,490 |
| $1500000000 | 4.00% | 98.9 | 6-May-21 | 6-May-51 | $1500000000 | €1,324,386,368 |
| $1000000000 | 3.88% | 98.91 | 6-May-21 | 6-May-51 | $1000000000 | €882,924,245 |
|  |  |  |  |  | **$20000000000** | **€17,658,484,902** |
| **Euro <sup>(2)</sup>** |  |  |  |  |  |  |
| €1,000,000,000 | Floating | 101.60 | June 28, 1999 | June 28, 2029 | €905,000,000 | €905,000,000 |
| €150,000,000 | Zero Coupon | 100.00 | February 20, 2001 | February 19, 2031 | €150,000,000 | €150,000,000 |
| €300,000,000 | Floating | 100.00 | May 31, 2005 | May 31, 2035 | €300,000,000 | €300,000,000 |
| €200,000,000 | Floating | 100.00 | November 9, 2005 | November 9, 2025 | €200,000,000 | €200,000,000 |
| €192,000,000 | 4.42% | 100.00 | March 28, 2006 | March 28, 2036 | €192,000,000 | €192,000,000 |
| €215,000,000 | Floating | 100.00 | May 11, 2006 | May 11, 2026 | €215,000,000 | €215,000,000 |
| €1,000,000,000 | 1.85%<br> Inflation<br> Indexed | 99.80 | January 5, 2007 | September 15, 2057 | €1,224,710,000 | €1,224,710,000 |
| €250,000,000 | 2.00%<br> Inflation<br> Indexed | 99.02 | March 30, 2007 | September 15, 2062 | €311,245,000 | €311,245,000 |
| €500,000,000 | 2.20%<br> Inflation<br> Indexed | 98.86 | January 23, 2008 | September 15, 2058 | €611,350,000 | €611,350,000 |
| €258,000,000 | 5.26% | 99.79 | March 16, 2009 | March 16, 2026 | €258,000,000 | €258,000,000 |
| €250,000,000 | 4.85% | 98.50 | June 11, 2010 | June 11, 2060 | €250,000,000 | €250,000,000 |
| €125,000,000 | 4.10% | 99.46 | September 6, 2010 | November 1, 2023 | €125,000,000 | €125,000,000 |
| €125,000,000 | 4.20% | 99.38 | September 6, 2010 | March 3, 2025 | €125,000,000 | €125,000,000 |
| €500,000,000 | 2.85%<br> Inflation<br> Indexed | 99.48 | January 4, 2011 | September 1, 2022 | €581,165,000 | €581,165,000 |
| €2,259,500,000 | 6.07% | 100.00 | July 1, 2011 | December 31, 2027 | €698,065,756 | €698,065,756 |
| €230,000,000 | 4.20%<br> Inflation<br> Indexed | 100.00 | February 1, 2012 | July 25, 2042 | €260,123,100 | €260,123,100 |
| €437,500,000 | 3.44% | 100.00 | February 13, 2012 | December 31, 2024 | €6,093,823 | €6,093,823 |
| €500,000,000 | 4.75% | 99.85 | May 28, 2013 | May 28, 2063 | €500,000,000 | €500,000,000 |
| €500,000,000 | 5.05% | 99.53 | September 11, 2013 | September 11, 2053 | €500,000,000 | €500,000,000 |
| €250,000,000 | 2.97% Inflation Indexed | 100.00 | January 24, 2014 | January 24, 2044 | €272,720,000 | €272,720,000 |
| €1,000,000,000 | 1.51% Inflation Indexed | 100.00 | October 15, 2014 | September 15, 2028 | €1,091,320,000 | €1,091,320,000 |
| €1,000,000,000 | 1.86% | 100.00 | February 2, 2015 | February 2, 2028 | €1,000,000,000 | €1,000,000,000 |
| €500,000,000 | 2.19% | 100.00 | February 2, 2015 | February 2, 2032 | €500,000,000 | €500,000,000 |
| €300,000,000 | 1.19% Inflation Indexed | 96.02 | February 18, 2015 | February 18, 2043 | €326,796,000 | €326,796,000 |
| €500,000,000 | 1.77% | 94.21 | March 5, 2015 | March 5, 2029 | €500,000,000 | €500,000,000 |
| €500,000,000 | 2.00% | 92.16 | March 5, 2015 | September 5, 2032 | €500,000,000 | €500,000,000 |
| €500,000,000 | 1.67% | 100.00 | May 6, 2015 | May 6, 2028 | €500,000,000 | €500,000,000 |
| €700,000,000 | 2.13% | 100.00 | May 22, 2015 | May 22, 2027 | €700,000,000 | €700,000,000 |
| €636,000,000 | 1,48%Inflation Indexed | 100.00 | May 4, 2016 | May 4, 2046 | €700,337,760 | €700,337,760 |
| €700,000,000 | 1.91% | 100.00 | May 18, 2016 | May 18, 2029 | €800,000,000 | €800,000,000 |
| €800,000,000 | 1.90% | 100.00 | June 22, 2016 | June 22, 2031 | €700,000,000 | €700,000,000 |
| €900,000,000 | 1.45% | 100.00 | October 17, 2016 | April 17, 2027 | €900,000,000 | €900,000,000 |
| €801,000,000 | 0.91% Inflation Indexed | 100.00 | December 2, 2019 | September 1, 2039 | €829,976,000 | €829,976,000 |
| €1,400,000,000 | 5.35% | 100.00 | January 27, 2020 | January 27, 2048 | €1,400,000,000 | €1,400,000,000 |
| €725,000,000 | Floating | 100.00 | December 2, 2020 | December 2, 2040 | €725,000,000 | €725,000,000 |
|  |  |  |  |  | **€18,878,902,439** | **€18,878,902,439** |
| **Euro Ispa Bonds<sup>(3)</sup>** | **Euro Ispa Bonds<sup>(3)</sup>** |  |  |  |  |  |
| €3,250,000,000 | 5.12% | 98.93 | February 6, 2004 | July 31, 2024 | €3,250,000,000 | €3,250,000,000 |
| €2,200,000,000 | 5.20% | 105.12 | February 6, 2004 | July 31, 2034 | €2,200,000,000 | €2,200,000,000 |
| €850,000,000 | Floating | 100.00 | March 4, 2005 | July 31, 2045 | €850,000,000 | €850,000,000 |
| €1,000,000,000 | Floating | 100.00 | April 25, 2005 | July 31, 2045 | €1,000,000,000 | €1,000,000,000 |
| €300,000,000 | Floating | 100.00 | June 30, 2005 | July 31, 2035 | €300,000,000 | €300,000,000 |
| €100,000,000 | Floating | 100.00 | June 30, 2005 | July 31, 2035 | €100,000,000 | €100,000,000 |
|  |  |  |  |  | **€7,700,000,000** | **€7,700,000,000** |
| **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** |
| £1,500,000,000 | 6.00% | 98.56 | August 4, 1998 | August 4, 2028 | £1,500,000,000 | €1,785,119,246 |

---

------

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **Original Currency Nominal Amount** | **Interest Rate** | **Initial Public Offering Price (%)** | **Date of Issue** | **Date of Issue** | **Maturity Date** | **Amount Outstanding** | **Equivalent in Euro** |
| £250,000,000 | 5.25% | 99.47 | July 29, 2004 | July 29, 2004 | December 7, 2034 | £250,000,000 | €297,519,874 |
|  |  |  |  |  |  | **£1,750,000,000** | **€2,082,639,120** |
| **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** |
| ¥25,000,000,000 | 0.88% | 100 | 100 | March 29, 2019 | March 29, 2023 | ¥25,000,000,000 | €191,747,200 |
|  |  |  |  |  |  | **¥25,000,000,000** | **€191,747,200** |
| **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** |  |  |  | **€46,511,773,661** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) U.S. dollar amounts have been converted into euro at $1.1326/€1.00, the exchange rate prevailing at December 31, 2021.

&nbsp;&nbsp;&nbsp;&nbsp;(2) External debt denominated in currencies of countries that have adopted the euro have been converted into euro at the fixed rate at which those currencies were converted into
 euro upon their issuing countries becoming members of the European Monetary Union.

&nbsp;&nbsp;&nbsp;&nbsp;(3) Bonds issued by Infrastrutture S.p.A.

&nbsp;&nbsp;&nbsp;&nbsp;(4) Pounds Sterling amounts have been converted into euro at £0.84028/€1.00, the exchange rate prevailing at December 31, 2021.

&nbsp;&nbsp;&nbsp;&nbsp;(5) Japanese Yen amounts have been converted into euro at ¥130.3800/€1.00, the exchange rate prevailing at December 31, 2021.

(\*) The above exchange rates are based on the official exchange rates of the Bank of Italy.

Source: Ministry of Economy and Finance.

---

| | | |
|:---|:---|:---|
|  | **As of December 31, 2021** | **As of December 31, 2021** |
| **Currency** | **Before Swap (in %)** | **After Swap (in %)** |
| US Dollars | 37.96 | 4.24 |
| Euro<sup>(1)</sup> | 57.15 | 95.13 |
| Pounds Sterling | 4.48 | 0.63 |
| Japanese Yen | 0.41 | - |
| **Total External Bonds (in millions of Euro)** | **46511.77** | **46869.69** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) Including Euro ISPA Bonds.

Source: Ministry of Economy and Finance.

As of December 31, 2021, the holdings of General Government debt were as follows: the Bank of Italy held €676,721 million, other Monetary Financial Institutions held €657,755 million, other resident financial institutions held €349,658 million, other residents held €212,023 million, and other non-residents held €781,754 million.

#### Other Debt as of December 31, 2021
The following table sets out the aggregate principal amount disbursed to Italy under NGEU, including the SURE Facility, as of December 31, 2021. For further information, see "The Italian Economy – Financial Assistance to EU Member States".

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **Original Currency Nominal Amount** | **Original Currency Nominal Amount** | **Interest Rate** | **Issue Price (%)** | **Date of Issue** | **Maturity Date** | **Amount Outstanding** | **Equivalent in Euro** |
| 5500000000 | 0.00% | 0.00% | 102396 | October 27, 2020 | October 4, 2030 | €5,500,000,000 | €5,500,000,000 |
| 4500000000 | 0.10% | 0.10% | 99390 | October 27, 2020 | October 4, 2040 | €4,500,000,000 | €4,500,000,000 |
| 3100000000 | 0.00% | 0.00% | 102566 | November 17, 2020 | November 4, 2025 | €3,100,000,000 | €3,100,000,000 |
| 3400000000 | 0.30% | 0.30% | 99520 | November 17, 2020 | November 4, 2050 | €3,400,000,000 | €3,400,000,000 |
| 4450000000 | 0.00% | 0.00% | 103719 | February 2, 2021 | June 2, 2028 | €4,450,000,000 | €4,450,000,000 |
| 3857000000 | 0.20% | 0.20% | 99582 | March 16, 2021 | June 4, 2036 | €3,867,000,000 | €3,867,000,000 |
| 670000000 | 000% | 000% | 102440 | March 30, 2021 | March 4, 2026 | €670,000,000 | €670,000,000 |
| 1200000000 | 0.45% | 0.45% | 99386 | March 30, 2021 | May 2, 2046 | €1,200,000,000 | €1,200,000,000 |
| 751000000 | 0.75% | 0.75% | 99838 | May 25, 2021 | January 4, 2047 | €751,000,000 | €751,000,000 |
| 15938235352 | 0.14% | 0.14% | 100000 | August 13, 2021 | August 13, 2051 | €15,938,235,352 | €15,938,235,352 |
| **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** |  |  | **€ 43,376,235,352** | **€ 43,376,235,352** |

---

------

#### Floating Internal Debt<sup>(1)</sup> as of September 30, 2022

---

| | | | |
|:---|:---|:---|:---|
|  | **Interest<br> Rate** | **Maturity<br> Date** | **Outstanding<br> principal<br> amount** |
|  | **(Millions of euro)** | **(Millions of euro)** | **(Millions of euro)** |
| BOT (3 months) | various | various | 0 |
| BOT (6 months) | various | various | 28859 |
| Treasury accounts | floating |  | 170768 |
| **Total floating internal debt of the Treasury** |  |  | **199627** |
| Liquidity buffer <sup>(2)</sup> | floating |  | (48052) |
| **Total floating internal debt net of liquidity buffer** |  |  | **151575** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) Floating debt is debt that has a maturity at issuance of less than one year. Funded debt is debt that has a maturity at issuance of one year or more.

Source: Ministry of Economy and Finance and Bank of Italy.

#### Funded Internal Debt<sup>(1)</sup> as of September 30, 2022

---

| | | | |
|:---|:---|:---|:---|
|  | **Interest<br> Rate** | **Maturity<br> Date** | **Outstanding<br> principal<br> amount** |
|  | **(Millions of euro)** | **(Millions of euro)** | **(Millions of euro)** |
| BOT (12 months) | various | various | 80746 |
| CTZ | various | various | 0 |
| CCT | various | various | 149002 |
| BTP <sup>(2)</sup> | various | various | 1679667 |
| BTP Futura | various | various | 20589 |
| BTP€I | various | various | 179849 |
| BTP Italia | various | various | 85851 |
| Other funded internal debt <sup>(3)</sup> | various | various | 285803 |
| **Total funded internal debt of the Treasury** |  |  | **2481507** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) Floating debt is debt that has a maturity at issuance of less than one year. Funded debt is debt that has a maturity at issuance of one year or more. This table does not
 include the loans under the SURE Facility. For further information on the SURE Facility see "*Republic of Italy – EU measures enacted in response to the Coronavirus pandemic*" and the table below "*Other Debt as of September 30, 2022* ".

&nbsp;&nbsp;&nbsp;&nbsp;(2) Line item 'BTP' includes 'BTP Green' and 'BTP Short Term'

&nbsp;&nbsp;&nbsp;&nbsp;(3) Data as of September 30, 2022

Source: Ministry of Economy and Finance and Bank of Italy.

#### External Bonds of the Treasury as of September 30, 2022
The following table shows the external bonds of the Treasury issued and outstanding as of September 30, 2022.

------

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Original Currency Nominal Amount** | **Interest Rate** | **Initial Public Offering Price (%)** | **Date of Issue** | **Maturity Date** | **Amount Outstanding** | **Equivalent in Euro** |
| **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** | **United States Dollar<sup>(1)(\*)</sup>** |
| $3500000000 | 6.88% | 98.73 | September 27, 1993 | September 27, 2023 | $3500000000 | €3,590,480,098 |
| $2000000000 | 5.38% | 98.44 | February 27, 2003 | June 15, 2033 | $2000000000 | €2,051,702,913 |
| $2500000000 | 2.38% | 99.72 | October 17, 2019 | October 17, 2024 | $2500000000 | €2,564,628,642 |
| $2000000000 | 2.88% | 99.09 | October 17, 2019 | October 17, 2029 | $2000000000 | €2,051,702,913 |
| $2500000000 | 4.00% | 99.62 | October 17, 2019 | October 17, 2049 | $2500000000 | €2,564,628,642 |
| $3000000000 | 1.25% | 99.64 | November 18, 2020 | February 17, 2026 | $3000000000 | €3,077,554,370 |
| $2000000000 | 0.88% | 99.67 | May 6, 2021 | May 6, 2024 | $2000000000 | €2,051,702,913 |
| $1500000000 | 4.00% | 98.90 | May 6, 2021 | May 6, 2051 | $1500000000 | €1,538,777,185 |
| $1000000000 | 3.88% | 98.91 | May 6, 2021 | May 6, 2051 | $1000000000 | €1,025,851,457 |
|  |  |  |  |  | **$2000000000** | **€20,517,029,134** |
| **Euro <sup>(2)</sup>** |  |  |  |  |  |  |
| €1,000,000,000 | Floating | 101.60 | June 28, 1999 | June 28, 2029 | €905,000,000 | €905,000,000 |
| €150,000,000 | Zero Coupon | 100.00 | February 20, 2001 | February 19, 2031 | €150,000,000 | €150,000,000 |
| €300,000,000 | Floating | 100.00 | May 31, 2005 | May 31, 2035 | €300,000,000 | €300,000,000 |
| €200,000,000 | Floating | 100.00 | November 9, 2005 | November 9, 2025 | €200,000,000 | €200,000,000 |
| €192,000,000 | 4.42% | 100.00 | March 28, 2006 | March 28, 2036 | €192,000,000 | €192,000,000 |
| €215,000,000 | Floating | 100.00 | May 11, 2006 | May 11, 2026 | €215,000,000 | €215,000,000 |
| €1,000,000,000 | 1.85%<br> Inflation<br> Indexed | 99.80 | January 5, 2007 | September 15, 2057 | €1,334,560,000 | €1,334,560,000 |
| €250,000,000 | 2.00%<br> Inflation<br> Indexed | 99.02 | March 30, 2007 | September 15, 2062 | €333,715,000 | €333,715,000 |
| €500,000,000 | 2.20%<br> Inflation<br> Indexed | 98.86 | January 23, 2008 | September 15, 2058 | €655,480,000 | €655,480,000 |
| €258,000,000 | 5.26% | 99.79 | March 16, 2009 | March 16, 2026 | €258,000,000 | €258,000,000 |
| €250,000,000 | 4.85% | 98.50 | June 11, 2010 | June 11, 2060 | €250,000,000 | €250,000,000 |
| €125,000,000 | 4.10% | 99.46 | September 6, 2010 | November 1, 2023 | €125,000,000 | €125,000,000 |
| €125,000,000 | 4.20% | 99.38 | September 6, 2010 | March 3, 2025 | €125,000,000 | €125,000,000 |
| €2,259,500,000 | 6.07% | 100.00 | July 1, 2011 | December 31, 2027 | €698,065,756 | €698,065,756 |
| €230,000,000 | 4.20%<br> Inflation<br> Indexed | 100.00 | February 1, 2012 | July 25, 2042 | €278,900,300 | €278,900,300 |
| €437,500,000 | 3.44% | 100.00 | February 13, 2012 | December 31, 2024 | €3,354,340 | €3,354,340 |
| €500,000,000 | 4.75% | 99.85 | May 28, 2013 | May 28, 2063 | €500,000,000 | €500,000,000 |
| €500,000,000 | 5.05% | 99.53 | September 11, 2013 | September 11, 2053 | €500,000,000 | €500,000,000 |
| €250,000,000 | 2.97% Inflation Indexed | 100.00 | January 24, 2014 | January 24, 2044 | €292,407,500 | €292,407,500 |
| €1,000,000,000 | 1.51% Inflation Indexed | 100.00 | October 15, 2014 | September 15, 2028 | €1,170,100,000 | €1,170,100,000 |
| €1,000,000,000 | 1.86% | 100.00 | February 2, 2015 | February 2, 2028 | €1,000,000,000 | €1,000,000,000 |
| €500,000,000 | 2.19% | 100.00 | February 2, 2015 | February 2, 2032 | €500,000,000 | €500,000,000 |
| €300,000,000 | 1.19% Inflation Indexed | 96.02 | February 18, 2015 | February 18, 2043 | €350,385,000 | €350,385,000 |
| €500,000,000 | 1.77% | 94.21 | March 5, 2015 | March 5, 2029 | €500,000,000 | €500,000,000 |
| €500,000,000 | 2.00% | 92.16 | March 5, 2015 | September 5, 2032 | €500,000,000 | €500,000,000 |
| €500,000,000 | 1.67% | 100.00 | May 6, 2015 | May 6, 2028 | €500,000,000 | €500,000,000 |
| €700,000,000 | 2.13% | 100.00 | May 22, 2015 | May 22, 2027 | €700,000,000 | €700,000,000 |
| €636,000,000 | 1,48%<br> Inflation Indexed | 100.00 | May 4, 2016 | May 4, 2046 | €750,893,400 | €750,893,400 |
| €700,000,000 | 1.91% | 100.00 | May 18, 2016 | May 18, 2029 | €800,000,000 | €800,000,000 |
| €800,000,000 | 1.90% | 100.00 | June 22, 2016 | June 22, 2031 | €700,000,000 | €700,000,000 |
| €900,000,000 | 1.45% | 100.00 | October 17, 2016 | April 17, 2027 | €900,000,000 | €900,000,000 |
| €801,000,000 | 0.91% Inflation Indexed | 100.00 | December 2, 2019 | September 1, 2039 | €889,896,000 | €889,896,000 |
| €1,400,000,000 | 5.35% | 100.00 | January 27, 2020 | January 27, 2048 | €1,400,000,000 | €1,400,000,000 |
| €725,000,000 | Floating | 100.00 | December 2, 2020 | December 2, 2040 | €725,000,000 | €725,000,000 |
|  |  |  |  |  | **€18,702,757,296** | **€18,702,757,296** |
| **Euro Ispa Bonds<sup>(3)</sup>** | **Euro Ispa Bonds<sup>(3)</sup>** |  |  |  |  |  |
| €3,250,000,000 | 5.12% | 98.93 | February 6, 2004 | July 31, 2024 | €3,250,000,000 | €3,250,000,000 |
| €2,200,000,000 | 5.20% | 105.12 | February 6, 2004 | July 31, 2034 | €2,200,000,000 | €2,200,000,000 |
| €850,000,000 | Floating | 100.00 | March 4, 2005 | July 31, 2045 | €850,000,000 | €850,000,000 |
| €1,000,000,000 | Floating | 100.00 | April 25, 2005 | July 31, 2045 | €1,000,000,000 | €1,000,000,000 |
| €300,000,000 | Floating | 100.00 | June 30, 2005 | July 31, 2035 | €300,000,000 | €300,000,000 |
| €100,000,000 | Floating | 100.00 | June 30, 2005 | July 31, 2035 | €100,000,000 | €100,000,000 |

---

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---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **Original Currency Nominal Amount** | **Interest Rate** | **Initial Public Offering Price (%)** | **Date of Issue** | **Date of Issue** | **Maturity Date** | **Amount Outstanding** | **Equivalent in Euro** |
|  |  |  | | |  | **€7,700,000,000** | **€7,700,000,000** |
| **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** | **Pound Sterling<sup>(4)(\*)</sup>** |
| £1,500,000,000 | 6.00% | 98.56 | August 4, 1998 | August 4, 1998 | August 4, 2028 | £1,500,000,000 | €1,698,754,247 |
| £250,000,000 | 5.25% | 99.47 | July 29, 2004 | July 29, 2004 | December 7, 2034 | £250,000,000 | €283,125,708 |
|  |  |  |  |  |  | **£1,750,000,000** | **€1,981,879,955** |
| **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** | **Japanese Yen<sup>(5)(\*)</sup>** |
| ¥25,000,000,000 | 0.88% | 100 | 100 | March 29, 2019 | March 29, 2023 | ¥25,000,000,000 | €177,292,391 |
|  |  |  |  |  |  | **¥25,000,000,000** | **€177,292,391** |
| **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** |  |  |  | **€49,078,958,775** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) U.S. dollar amounts have been converted into euro at $0.9748/€1.00, the exchange rate prevailing at September 30, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;(2) External debt denominated in currencies of countries that have adopted the euro have been converted into euro at the fixed rate at which those currencies were converted into
 euro upon their issuing countries becoming members of the European Monetary Union.

&nbsp;&nbsp;&nbsp;&nbsp;(3) Bonds issued by Infrastrutture S.p.A.

&nbsp;&nbsp;&nbsp;&nbsp;(4) Pounds Sterling amounts have been converted into euro at £0.88300/€1.00, the exchange rate prevailing at September 30, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;(5) Japanese Yen amounts have been converted into euro at ¥141.01/€1.00, the exchange rate prevailing at September 30, 2022.

(\*) The above exchange rates are based on the official exchange rates of the Bank of Italy.

Source: Ministry of Economy and Finance.

---

| | | |
|:---|:---|:---|
|  | **As of September 30, 2022** | **As of September 30, 2022** |
| **Currency** | **Before Swap (in %)** | **After Swap (in %)** |
| US Dollars | 41.81 | 4.90 |
| Euro<sup>(1)</sup> | 53.79 | 94.50 |
| Pounds Sterling | 4.04 | 0.60 |
| Japanese Yen | 0.36 | - |
| **Total External Bonds (in millions of Euro)** | **49078.96** | **47096.86** |

---

_____________________

&nbsp;&nbsp;&nbsp;&nbsp;(1) Including Euro ISPA Bonds.

Source: Ministry of Economy and Finance.

#### Other Debt as of September 30, 2022

The following table sets out the aggregate principal amount disbursed to Italy under NGEU, including the SURE Facility, as of September 30, 2022. For further information, see "The Italian Economy – Financial Assistance to EU Member States".

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Original Currency Nominal Amount** | **Interest Rate** | **Initial Public Offering Price (%)** | **Date of Issue** | **Maturity Date** | **Amount Outstanding** | **Equivalent in Euro** |
| €5,500,000,000 | 0.00% | 102396 | October 27, 2020 | October 4, 2030 | €5,500,000,000 | €5,500,000,000 |
| €4,500,000,000 | 0.10% | 99390 | October 27, 2020 | October 4, 2040 | €4,500,000,000 | €4,500,000,000 |
| €3,100,000,000 | 0.00% | 102566 | November 17, 2020 | November 4, 2025 | €3,100,000,000 | €3,100,000,000 |
| €3,400,000,000 | 0.30% | 99520 | November 17, 2020 | November 4, 2050 | €3,400,000,000 | €3,400,000,000 |
| €4,450,000,000 | 0.00% | 103719 | February 2, 2021 | June 2, 2028 | €4,450,000,000 | €4,450,000,000 |
| €3,867,000,000 | 0.20% | 99582 | March 16, 2021 | June 4, 2036 | €3,867,000,000 | €3,867,000,000 |
| €670,000,000 | 000% | 102440 | March 30, 2021 | March 4, 2026 | €670,000,000 | €670,000,000 |
| €1,200,000,000 | 0.45% | 99386 | March 30, 2021 | May 2, 2046 | €1,200,000,000 | €1,200,000,000 |

---

------

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Original Currency Nominal Amount** | **Interest Rate** | **Initial Public Offering Price (%)** | **Date of Issue** | **Maturity Date** | **Amount Outstanding** | **Equivalent in Euro** |
| €751,000,000 | 0.75% | 99838 | May 25, 2021 | January 4, 2047 | €751,000,000 | €751,000,000 |
| €15,938,235,352 | 0.14% | 100000<br>| August 13, 2021 | August 13, 2051 | €15,938,235,352 | €15,938,235,352 |
| €11,000,000,000 | 0.76%\* | 100000<br>| April 13, 2022 | April 13, 2052 | €11,000,000,000 | €11,000,000,000 |
| *\*Estimation* |  |  |  |  |  |  |
| **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** | **TOTAL OUTSTANDING** |  |  | **€54,376,235,352** |

---

_____________________

Source: Ministry of Economy and Finance.

## Exhibit 99.3

**Exhibit (3)**<br>

![](image0a.jpg)

---

| | |
|:---|:---|
|  | **Italy's Stability Programme** |
|  | **2022** |
| ![](image1.jpg)<br> MINISTERO DELL'ECONOMIA E DELLE FINANZE | Abridged version |

---

------

------

---

| | |
|:---|:---|
|  | **Italy's Stability Programme** |
|  | **2022** |
|  | **Abridged version** |
|  | Submitted by Prime Minister |
|  | **Mario Draghi** |
|  | and Minister of the Economy and Finance |
|  | **Daniele Franco** |
| ![](image1.jpg)<br> MINISTERO DELL'ECONOMIA E DELLE FINANZE | Adopted by the Council of Ministers on 6 April 2022<br> and endorsed by the Parliament on 20 April 2022 |

---

------

------

FOREWORD

In 2021, the Italian economy posted a strong recovery, as GDP grew by 6.6 percent in real terms and the general government deficit and debt ratios to GDP fell more sharply than expected, to 7.2 percent and 150.8 percent, respectively, from 9.6 percent and 155.3 percent in 2020.

Italy's Q4-to-Q4 GDP growth in 2021 was the highest among the large European economies, thanks also to the policies adopted by the Italian Government to support households and businesses and to the success of the anti-Covid vaccination campaign.

In the final months of the year, the economic environment deteriorated, not only because of the surge in Covid-19 infections caused by the spread of the Omicron variant, but also because of the exceptional increase in the price of natural gas, which drove up electricity tariffs and emission rights (ETS) prices. The consequent increase in the inflation rate, which has been shared by all advanced economies, albeit to a varying degree, has led the main central banks to reverse their monetary policy stance towards restriction or, in the case of the European Central Bank, to signal a future move in that direction. As a result, interest rates rose, and the spread between the yield on Italian government bonds and that on German Bunds widened. Even so, the growth outlook at the start of the year, although revised slightly downwards, remained largely favourable.

In February, following a military escalation, Russia launched its invasion of Ukraine, to which the European Union, the G7 and numerous other countries responded with a series of economic sanctions. The war led to a further increase in the prices of energy, foodstuff, metals, and other raw materials and to a further decline in business and household confidence. In Italy, consumer inflation rose to 6.7 percent in March, and core inflation (net of energy products and fresh food), albeit much more moderate, reached 2 percent.

In view of these developments, the growth outlook for the economy is now weaker and much more uncertain than at the beginning of the year. In updating the official forecast of this Document, the worsening of the economic scenario is determined by the trend of exogenous variables - from energy prices to interest rates, from the trade-weighted exchange rate of the euro to the lower expected growth of Italy's export markets. These variables are now all less favourable than they were in September, when the previous official forecast was published in the Update of the Stability Programme and in the Draft Budgetary Plan (DBP) for 2022.

Given a fourth-quarter GDP level closer to the pre-crisis high than previously estimated and to the economic impact of the war in Ukraine, the baseline GDP growth forecast (under existing legislation) for this year is revised down compared to the DBP, from 4.7 percent to 2.9 percent. The one for 2023 is also cut from 2.8 percent to 2.3 percent, while for 2024 the forecast is revised only slightly, i.e.,<br>

---

| | |
|:---|:---|
| MINISTRY OF ECONOMY AND FINANCE | **III** |

---

------

ECONOMIC AND FINANCIAL DOCUMENT 20**22**<br>

from 1.9 percent to 1.8 percent. The forecast for 2025 is set at 1.5 percent, following the approach according to which the three-year projection converges towards the "potential" growth rate of the Italian economy, which is currently estimated at 1.4 percent. This estimate assumes the implementation of the investment and reform programme envisaged in the National Recovery and Resilience Plan (NRRP).

In light of the many unknowns of the current situation, the baseline forecast is characterised by significant downside risks, including the possible interruption of natural gas inflows from Russia, which accounted for 40 percent of Italy's imports in 2021. Although this risk is already partly incorporated in current gas and oil prices, it is reasonable to assume that a complete shutdown of Russian gas would cause further price increases, which would negatively affect GDP and push up inflation further. In such a scenario, average annual growth in 2022 could fall below the 2.3 percent inherited from 2021.

Already last year, the Italian Government responded to the sudden increase in energy prices with measures to contain costs for gas and electricity users. Such measures - which have been implemented since the third quarter of 2021 - amounted to 5.3 billion in terms of general government net borrowing in 2021 and 14.7 billion for the first half of this year, when measures were added also in favour of large companies, including energy-intensive ones, to contain fuel costs and to support the transportation sector. As a result of these measures, the increase in energy bills paid by businesses and households in the first half of the year is estimated to be at least a quarter lower than it would have been without such interventions.

Additional measures were adopted in the early months of the year in favour of specific categories (non-repayable grants and support for business liquidity), measures to cover part of the costs of regions and local authorities, and measures for the health sector (for a total of another 4.1 billion in 2022).

The Italian Government is also working on a broader and more structural response to the energy crisis, both through actions at the national level and through active participation in the formulation of European policies. On the national front, in agreement with the companies in the sector, an effort is being made to broaden and diversify gas supplies by making greater use of Italy's southern pipelines, as well as to increase LPG imports and regasification capacity. An increase in domestic production of natural gas and biomethane will also be promoted.

The commitment of the Italian Government and gas companies to diversify gas supply sources is accompanied by growing efforts to rapidly reduce dependence on fossil energy sources by boosting the installation of electricity generation capacity from renewable sources. This line is consistent with the European Commission's recent *REPowerEU* communication, which emphasises the development of biofuel production and a concerted EU-wide policy for gas acquisition and the imposition of minimum storage levels, while also calling on Member States to curb energy consumption by increasing the energy efficiency of buildings and saving measures, for example on indoor temperatures.

The Commission also proposes, in line with the position expressed by Italy, to revise and improve the mechanisms for the functioning of gas and electricity<br>

**IV** MINISTRY OF ECONOMY AND FINANCE

------

 **FORWARD**

markets, without undermining the principles of transparency and competitiveness on which they are based.

The main objective in responding to the current energy crisis is to accelerate theecological transition while securing gas supplies, which represent the bridge to a decarbonised and sustainable economy, as well as improving the structure and the transparency of the energy markets.

More generally, the difficult phase we are going through should not be a distraction, but rather reinforce the commitment of all administrations and levels of government to effectively implement the NRRP and its largest 'mission' in terms of investments and other outlays, namely ecological transition. The completion of the first instalment of the NRRP at the end of 2021, with the disbursement of the relevant funds by the Commission, was indeed a first important achievement.

The past year was also characterised by bottlenecks in international transport and logistics, as well as shortages of crucial products in modern industrial supply chains such as semiconductors. The automotive industry has been particularly affected, not only because of insufficient availability of electronic components and consumers' uncertainty about the timing of the phasing out of conventional cars, but also because of difficulties in reconverting the conventional car industry.

With regard to industrial policy, new funds have been allocated to support the car industry (both in terms of sales of non-polluting vehicles and support for innovation and reconversion of the production chain) and to sustain investments in the semiconductor industry.

Further measures will be issued in April. However, before describing what the next steps will be, it is worth considering the starting point in terms of public finance.

As mentioned, the year 2021 saw a significantly lower than expected general government deficit. Data on the cash requirements of the State sector shows that public finance developments remained favourable in the first quarter of this year. The new projections show lower general government deficits than projected for 2022-2024 in the DBP policy scenario, especially for 2022. This reflects sustained and higher-than-expected tax and social security contribution revenues and lower expenditure. Recent measures to lower energy costs have been funded in a way that does not raise the deficit compared to the announced target.

The general government deficit in the baseline scenario is 5.1 percent of GDP this year and is projected to fall to 2.7 percent of GDP in 2025. Against these projections, the Government has decided to confirm the DBP nominal deficit targets for 2022-2024. This entails a deficit path starting from 5.6 percent of GDP this year and declining to 2.8 percent in 2025 and creates room for new expansionary measures amounting to 0.5 percentage points of GDP this year, 0.2 in 2023 and 0.1 in 2024 and 2025.

Using these budgetary margins, the Italian Government will prepare a new decree-law to restore some funds that were used to cover the recent Decree-Law No. 17, integrate the resources intended to compensate for the increase in the cost of public works in the face of the dynamics of the price of energy and raw materials, and intervene again to contain the cost of fuel and energy. Instruments will also be put in place to support the companies most affected by the sanctions against Russia;<br>

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| MINISTRY OF ECONOMY AND FINANCE | **V** |

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ECONOMIC AND FINANCIAL DOCUMENT 20**22**<br>

to this end, the Guarantee Fund for SMEs will also be refinanced. Finally, additional resources will be made available to provide assistance to Ukrainian refugees.

Taking into account these measures, the policy scenario is characterised by GDP growth that is slightly higher than the baseline, especially in 2022 and 2023, when GDP is expected to grow by 3.1 percent and 2.4 percent, respectively, with positive repercussions on employment growth.

As mentioned above, in the policy scenario the general government deficit target is unchanged from the DBP for the years 2022-2024 and declines below 3 percent in 2025. The path of the structural balance is only slightly higher than that of the DBP due to a different quantification of one-off measures, but still envisages improvements in the structural balance throughout the planning horizon. The debt-to-GDP ratio will fall from 150.8 percent in 2021 to 141.4 percent in 2025.

The decision to confirm deficit targets that were set under more favourable economic circumstances testifies to the attention of the Government towards the sustainability of public finance. Even at this difficult time, when public finance is called upon to respond to multiple needs of both a cyclical and structural nature, the sustainability of public accounts is confirmed. Indeed, longer-term projections show that the gradual improvement of the budget balance in the years after 2025 and the full implementation of the reform programme outlined in the NRRP will make it possible to bring the debt-to-GDP ratio below the pre-pandemic crisis level (134.1 percent) by the end of the decade.

At the same time, it remains imperative for the Government to continue working to promote higher and sustainable economic growth. Already last year, it repeatedly laid the foundations for raising the economy's growth potential. More than 320 billion has been allocated for public investment, adding to the resources provided for in the NRRP those of the Supplementary Fund and those earmarked by the 2022 Budget Law. Incentives for private investment and, in particular, incentives for research have been extended over time to provide greater planning certainty. New instruments have also been created to support basic and applied research.

The reform of the Personal Income Tax (*IRPEF*) and the cut in the Regional Tax on Production Activities (*IRAP*) reduce the tax burden on households and businesses, which will have positive effects on employment and the labour market. In addition, the introduction of the universal child benefit, the development of early education infrastructure, and the support for home buying in favour of young people are examples of the broader action that the Italian Government is taking in favour of families and the birth rate, also in light of adverse demographic trends.

The current situation should not make us turn our attention away from the structural policies that have already been launched in the strategic sectors of the ecological and digital transition, the competitiveness of the economic system, health and welfare, with particular regard to the structure of the pension system; for this latter, it will be necessary to find solutions that allow for flexible exits and a strengthening of supplementary pensions, while fully respecting the sustainability of public debt and of the pay-as-you-go system. Retirement prospects for younger generations will also have to be carefully analysed.

**VI** MINISTRY OF ECONOMY AND FINANCE

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 **FORWARD**

In conclusion, the policy objectives of the Document are based on a scenario in which the economy is slowing down but is still registering a significant annual growth. The budgetary margins resulting from the confirmation of the targets set in the DBP will be used to further support the productive system, households and to carry out planned investments.

However, there is considerable uncertainty related to international political and economic factors. If the global scenario deteriorates further, annual growth is likely to be lower than that resulting from the carry-over of the 2021 result.

The Italian Government will not hesitate to intervene as decisively and rapidly as possible to support Italian households and businesses.

The Italian Government is committed to strongly accelerating the diversification of energy sources and the achievement of greater national energy autonomy.

The pressing problems we are currently facing must not divert our attention from medium and long-term objectives. The NRRP and all the initiatives aimed at making our economy more sustainable must be fully implemented: we must boost investment in human and physical capital and raise the employment rate and productivity growth.

*Daniele Franco*

*Minister of Economy and Finance*

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| MINISTRY OF ECONOMY AND FINANCE | **VII** |

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ECONOMIC AND FINANCIAL DOCUMENT 20**22**<br>

**VIII** MINISTRY OF ECONOMY AND FINANCE

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INDEX

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| I. | RECENT TRENDS IN THE ECONOMY AND THE PUBLIC FINANCES |
| II. | BASELINE MACROECONOMIC AND BUDGET FORECAST |
| II.1 | Baseline macroeconomic forecast |
| II.2 | Risks to the baseline macroeconomic forecast |
| II.3 | Budgetary outlook under existing legislation |
| III. | UPDATED POLICY SCENARIO |
| III.1 | Fiscal policy scenario |
| III.2 | Macroeconomic forecast under the policy scenario |
| III.3 | Budget balance, convergence towards the Medium-Term Objective and the expenditure rule |
| III.4 | Debt-to-GDP ratio and the debt rule |
| IV. | SUSTAINABILITY OF PUBLIC FINANCES |
| IV.1 | Risk scenarios of public finances |
| IV.2 | Sustainability analysis of public debt |
| V. | ANNEX |

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| MINISTRY OF ECONOMY AND FINANCE | **IX** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

TABLES

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| Table II.1 | Summary macroeconomic baseline scenario |
| Table III.1 | Public finance indicators |
| Table III.2 | Synthetic macroeconomic policy scenario |
| Table III.3 | Significant deviations |
| Table III.4 | Trends in current expenditure in relation to the expenditure benchmark |
| Table III.5 | Debt rule compliance |
| Table IV.1 | Sensitivity to growth |

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FIGURES

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| Figure I.1 | Gross domestic product and industrial production |
| Figure I.2 | Wholesale prices for natural gas and electricity |
| Figure I.3 | Consumer prices for the whole nation (NIC) |
| Figure I.4 | Italian business confidence indexes |
| Figure I.5 | Net borrowing and gross debt of the general government as a ratio to GDP |
| Figure II.1 | Net borrowing and primary balance under existing legislation |
| Figure III.1 | Evolution of the Debt-to-GDP ratio gross and net of European AID |
| Figure IV.1 | Dynamics of the Debt-to-GDP ratio in sensitivity scenarios |
| Figure IV.2A | Stochastic projection of the Debt-to-GDP ratio with Hight- Volatility Shocks |
| Figure IV.2B | Stochastic projection of the Debt-to-GDP ratio with Limited-Volatility Shocks |
| Figure IV.3 | Medium-Term projection of the Debt-to-GDP ratio |
| Figure IV.4 | Debt-to-GDP ratio in the reference scenario |
| Figure IV.5 | Impact of greater reform-related growth |
| Figure IV.6 | Impact of improvement in tax compliance |
| Figure IV.7 | Impact of pension reforms |

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BOX

Chapter II The recent evolution of trade relations between Italy and Russia <br> Forecast errors for 2021 and revised estimates for 2022 and following years <br> A risk analysis of the geopolitical situation and exogenous variables

**X** MINISTRY OF ECONOMY AND FINANCE

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&nbsp;&nbsp;&nbsp;&nbsp;**I.** **RECENT TRENDS IN THE ECONOMY AND THE PUBLIC FINANCES** 

In 2021, Italy achieved strong recovery in gross domestic product and significant improvements in public finances. Gross domestic product (GDP) grew by 6.6 percent in real terms, after the exceptional fall of 9.0 percent recorded in 2020 in connection with the outbreak of the pandemic. General government net borrowing fell to 7.2 percent of GDP, from 9.6 percent in 2020. Thanks to sustained output growth in nominal terms (7.2 percent), the public debt-to-GDP ratio at the end of 2021 fell to 150.8 percent, from its peak of 155.3 percent in 2020<sup>1</sup>.

However, after the remarkable recovery in the two middle quarters of 2021, the pace of GDP growth slowed in the final months of last year due to the fourth wave of the Covid-19 outbreak, shortages of materials and components, and soaring natural gas and electricity prices, which had already risen sharply since late spring.

![](image2.jpg)

In the first two months of this year, indicators of the international cycle weakened, although they remained moderately positive. In Italy, the impact of the rise in energy prices on the costs of businesses and household budgets worsened, although the measures financed by the 2022 Budget Law and subsequent<br>

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<sup>1</sup> These estimates differ from the official data published by ISTAT on 1 March 2022 following the subsequent ISTAT press release of 24 March 2022, in which ISTAT revised the nominal GDP for 2021 downwards due to a value adjustment for natural gas imports and the related import prices.

MINISTRY OF ECONOMY AND FINANCE<sub>1</sub>

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ITALY'S STABILITY PROGRAMME 20**22**<br>

Government measures<sup>2</sup> reduced it by more than a quarter for the first half of 2022. In January, production in industry and construction came to a sharp halt, while the inflation rate rose again, in Italy as well as in other European countries.

![](image3.jpg)

The strong inflationary impulse from energy and raw materials also caused an upward revision of market expectations on the future monetary policy of the European Central Bank (ECB). As a result, interest rates rose significantly, and the yield differential between Italian government bonds and the Bund widened.

This already complex economic situation was compounded by Russia's military attack on Ukraine at the end of February. The aggression led to the immediate imposition of economic sanctions against Russia by the European Union (EU), the G7 and many other countries. EU sanctions were initially targeted at banks and individuals; later, they were expanded to include the export of luxury and high-tech goods and steel imports. Although gas and oil are excluded from sanctions for the time being, natural gas and oil prices rose further, reaching a new high on 8 March, which was followed by a correction, aided by the announcement of a package of EU measures, including the *REPowerEU* Communication, and continued normal inflows of Russian gas.

The military crisis in Ukraine has also caused a marked increase in food commodity prices, which may have further impacts on inflation in a context in which Italy's March consumer prices, according to preliminary data from ISTAT, were up 6.7 percent year-on-year according to the consumer price index for the whole nation (NIC), from 5.7 percent in February, with the underlying component also rising to 2.0 percent, from 1.7 percent<sup>3</sup>.

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<sup>2</sup> Decree-Laws Nos. 4 of 27 January 2022, 17 of 1 March 2022 and 21 of 21 March 2022.

<sup>3</sup> The underlying component of the NIC index excludes energy, fuel, and fresh food.

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| **2** | MINISTRY OF ECONOMY AND FINANCE |

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**I. RECENT TRENDS IN THE ECONOMY AND THE PUBLIC FINANCES**<br>

![](image4.jpg)

In the same months, Covid-19 infections peaked on a weekly basis around 20 January and then fell rapidly until the beginning of March, when new increases were recorded, also in correspondence with an increased spread of the BA.2 sub-lineage of the Omicron variant. As at the end of March, the infection trend appears to be stabilising, and the trend in hospitalisations and intensive care occupancy rates is such that all Italian regions are now classified as low risk. Approximately 90 percent of the population aged over 12 and almost 33 percent of children aged between 5 and 11 have completed the basic vaccination cycle. Taking this overall picture into account, the Italian Government decided to end the state of emergency on 31 March and adopted a roadmap for the removal of the current anti-Covid restrictions<sup>4</sup>.

Nevertheless, the pandemic is still ongoing and remains an obstacle to economic activity at a global level, both in terms of impact on labour supply and consumer behaviour, and adverse effects on global value chains and transport costs.

Against this backdrop of great uncertainty, Italian household confidence, which had already been on a slight downward trend since October, fell sharply in March due to the war in Ukraine. In particular, households were much more pessimistic about Italy's economic prospects and less inclined to make purchases of durable goods, while their assessment of their own economic conditions did not worsen appreciably.

According to the ISTAT business survey, the deterioration in business confidence was more limited, with a moderate decline in manufacturing and services and a more marked deterioration in retail trade. In construction, on the other hand, the confidence index reached a new high, although a high proportion of companies reported upward pressure on prices.

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<sup>4</sup> The provisions are contained in Decree-Law No. 24/2022 of 17 March 2022.

MINISTRY OF ECONOMY AND FINANCE<sub>3</sub>

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ITALY'S STABILITY PROGRAMME 20**22**<br>

![](image5.jpg)

Based on the latest available data, although industrial production is estimated to have rebounded in February, nowcasting models indicate that the 0.6 percent cyclical increase recorded in the fourth quarter of 2021 was followed by a 0.5 percent contraction in GDP in the first quarter of this year, which is mainly attributable to a contraction in industrial value added. Quarterly GDP growth is expected to recover moderately in the second quarter, mainly thanks to services. However, it should be noted that in the March ISTAT survey, manufacturing firms' expectations on orders and production worsened markedly, pointing to downside risks for the second quarter.

Turning to public finance, the decline in the general government net borrowing to 7.2 percent in 2021 is a much better result than the estimate presented in last year's Stability Programme (11.8 percent) and the one presented in the Update of the Stability Programme and the Draft Budgetary Plan (DBP) (9.4 percent). This reduction occurred despite the extraordinary amount of support measures for households, businesses, labour, health, education, universities, and research implemented during the year in response to the pandemic (totalling 71 billion) and measures to contain energy costs for households and businesses (5.3 billion).

The lower deficit in 2021 compared to the forecast is the result of a better performance of both expenditure and revenues of the general government sector. In fact, almost all components of current primary expenditure were lower than expected, especially wages, intermediate consumption, and social benefits other than pensions. Public investment was in line with forecasts (reaching almost 51 billion, or 2.9 percent of GDP), while interest payments slightly exceeded the September estimates, mainly due to the increase in Italian and European inflation, which drove up payments on inflation-indexed securities. On the revenue side, both tax revenues and social security contributions exceeded DBP estimates by a total of 26.4 billion (1.5 percent of GDP).

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| **4** | MINISTRY OF ECONOMY AND FINANCE |

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**I. RECENT TRENDS IN THE ECONOMY AND THE PUBLIC FINANCES**<br>

![](image6.jpg)

The most recent data indicates that the positive trend of public finance continued in the first quarter of 2022, as the cash requirements of the State sector fell to 30.0 billion from 41.1 billion in the same period last year. The decline in cash requirements appears to be mainly due to the growth in tax and social security contributions revenues, which in January increased by 13.8 percent and 7.8 percent respectively compared to the same month last year.

MINISTRY OF ECONOMY AND FINANCE<sub>5</sub>

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ITALY'S STABILITY PROGRAMME 20**22**<br>

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| **6** | MINISTRY OF ECONOMY AND FINANCE |

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**II.** **BASELINE MACROECONOMIC AND BUDGET FORECAST**

#### II.1 BASELINE MACROECONOMIC FORECAST
Starting from an ISTAT estimate of real GDP growth in 2021 that is higher than that projected in the Update of the Stability Programme and in the Draft Budgetary Plan (DBP), 6.6 percent compared to 6.0 percent, the baseline forecast (under existing legislation) for 2022 has fallen to 2.9 percent from 4.7 percent in the DBP, although the quarterly GDP profile of 2021 has created a carry-over effect of 2.3 percent this year.

In addition to the fact that the level of quarterly real GDP inherited from 2021 is significantly higher, the downward revision of the forecast for 2022 is mainly due to the worsening of the exogenous variables of the forecast. In fact, the growth forecasts for world trade and imports of the most important countries as export markets for Italy have been revised downwards. Moreover, the expected levels of commodity and energy prices are markedly higher, and so are current and expected interest rates. The weighted exchange rate of the euro is also less competitive, although the euro remains weak against the dollar. Overall, estimates using the Treasury's ITEM model suggest that the changes in exogenous factors since last September would cut the real growth forecast for 2022 by at least 1.4 percentage points.

The lower import growth of Italy's trading partners, which already incorporates to some extent the onset of the Ukraine crisis, must be added to the specific impact of lower bilateral trade flows between Italy and Russia due to the war situation and the sanctions. Russia's share of Italian exports was significantly reduced from 2013 onwards due to the sanctions that were adopted in 2014 after the annexation of Crimea and Russia's occupation of part of Donbass. In 2021, this share amounted to 1.5 percent. The main goods exported to Russia are mechanics, furniture, clothing, footwear, foodstuffs, and transport equipment.

Exports to Russia exceed 3.0 percent of sectoral exports only for clothing and furniture, and 2.0 percent for machinery and equipment. Based on a very broad interpretation of the measures, it is estimated that the sectors subject to export bans account for about half of Italian exports to Russia. The elimination of such exports since March would cause a drop in Italian GDP of about 0.2 percentage points in 2022 and a further impact of 0.1 points in 2023.

Russia's weight in Italy's foreign trade is greater on the import side: in 2021, partly due to the rise in prices, it amounted to 3.0 percent and mainly included natural gas, oil, metals, and steel products. There have been no reductions in gas and oil supplies so far, while, as mentioned, imports of steel products from Russia have been banned and those from Ukraine are severely limited by the ongoing<br>

MINISTRY OF ECONOMY AND FINANCE<sub>7</sub>

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ITALY'S STABILITY PROGRAMME 20**22**<br>

conflict and the destruction of important production sites. This will cause difficulties in obtaining certain semi-finished products and an increase in their price, which will have a negative impact on GDP by an estimated amount of less than a tenth of a percentage point.

As mentioned above, the conflict in Ukraine has also had a negative impact on household and business confidence, on top of causing a sharp correction in financial markets, which has been partially reversed. The effect of these factors on GDP has been quantified at an additional 0.2 percentage points of reduced growth in 2022.

On the other hand, the update of the growth forecast for 2022 also takes into account the different time distribution of expenditure related to the National Recovery and Resilience Plan (NRRP) with respect to what was assumed in the DBP, as well as the most recent measures adopted by the Italian Government to contain the increase in gas and electricity costs in the second quarter and to support energy-intensive companies and some leading manufacturing sectors, such as automotive, components and semiconductors<sup>5</sup>. It is estimated that the different time distribution of expenditure related to the NRRP will have a positive impact on growth in 2022 of about 0.2 percentage points, while the other measures, being offset by a temporary reduction in the financing of some expenditure and increases in revenues, will have a limited impact on GDP growth in this year (in the case of the Decree-Law No. 17, they will have a delayed effect of some significance in 2023).

The new macroeconomic forecast is also characterised by a much higher inflation rate than expected in the DBP. The household consumption deflator, which grew by 1.7 percent in 2021, is projected to increase by 5.8 percent in 2022, against a forecast of 1.6 percent in the DBP. The GDP deflator growth forecast, also 1.6 percent in the DBP, has risen to 3.0 percent. This brings the new nominal GDP growth forecast to 6.0 percent, only slightly lower than the 6.4 percent forecast in the DBP.

In the face of soaring inflation, wages and labour income are expected to accelerate more moderately, although the renewal of public (and some other) contracts will cause contractual wages to accelerate. Thanks to employment growth too, which is slower than in 2021 but still significant (2.6 percent in terms of hours worked), compensation of employees would grow by 5.5 percent in nominal terms this year, up from 7.7 percent last year. The unemployment rate would fall from 9.5 percent in 2021 to 8.7 percent.

On the external side, as it was already the case in the second half of 2021, the sharp increase in import prices will lead to a narrowing of the trade and current account surplus. The latter would fall to 2.3 percent of GDP this year, from 3.7 percent of GDP in 2020 and 3.3 percent in 2021.

Regarding the coming years, the GDP growth forecast for 2023 is also lower than that of the DBP (down to 2.3 percent from 2.8 percent) due to the worsening of the exogenous variables of the forecast - in particular, higher expected levels of energy prices and interest rates and lower expected growth in world trade. The forecast for 2024 is almost unchanged (1.8 percent against 1.9 percent), while the forecast for 2025, which was not considered in the DBP horizon, is set at 1.5 percent, also on the basis of the usual approach of making the three-year forecast<br>

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<sup>5</sup> This refers to Decree-Laws No. 17 of 1 March 2022 and No. 21 of 21 March 2022.

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| **8** | MINISTRY OF ECONOMY AND FINANCE |

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**II. BASELINE MACROECONOMIC AND BUDGET FORECAST**<br>

converge towards the potential growth rate of the Italian economy. The latter, assuming the implementation of the investment and reform programme envisaged by the NRRP, is set at 1.4 percent.

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| **TABLE II.1: SUMMARY MACROECONOMIC BASELINE SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE II.1: SUMMARY MACROECONOMIC BASELINE SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE II.1: SUMMARY MACROECONOMIC BASELINE SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE II.1: SUMMARY MACROECONOMIC BASELINE SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE II.1: SUMMARY MACROECONOMIC BASELINE SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE II.1: SUMMARY MACROECONOMIC BASELINE SCENARIO (1) (percentage changes, unless otherwise indicated)** |
| | **2021** | **2022** | **2023** | **2024** | **2025** |
| GDP | 6.6 | 2.9 | 2.3 | 1.8 | 1.5 |
| GDP deflator | 0.5 | 3.0 | 2.1 | 1.8 | 1.8 |
| Consumption deflator | 1.7 | 5.8 | 2.0 | 1.7 | 1.8 |
| Nominal GDP | 7.2 | 6.0 | 4.4 | 3.6 | 3.3 |
| Employment (AWU) (2) | 7.6 | 2.5 | 2.2 | 1.6 | 1.3 |
| Employment (WF) (3) | 0.8 | 1.8 | 1.7 | 1.2 | 1.0 |
| Unemployment rate | 9.5 | 8.7 | 8.3 | 8.1 | 8.0 |
| Current account balance (balance in % GDP) | 3.3 | 2.3 | 2.7 | 2.8 | 2.8 |
| (1) Any inaccuracies are the result of rounding<br> (2) Employment expressed in terms of standard work units (AWU)<br> (3) Number of employed people according to the Continuous Labour Fo*rce Survey (Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. | (1) Any inaccuracies are the result of rounding<br> (2) Employment expressed in terms of standard work units (AWU)<br> (3) Number of employed people according to the Continuous Labour Fo*rce Survey (Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. | (1) Any inaccuracies are the result of rounding<br> (2) Employment expressed in terms of standard work units (AWU)<br> (3) Number of employed people according to the Continuous Labour Fo*rce Survey (Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. | (1) Any inaccuracies are the result of rounding<br> (2) Employment expressed in terms of standard work units (AWU)<br> (3) Number of employed people according to the Continuous Labour Fo*rce Survey (Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. | (1) Any inaccuracies are the result of rounding<br> (2) Employment expressed in terms of standard work units (AWU)<br> (3) Number of employed people according to the Continuous Labour Fo*rce Survey (Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. | (1) Any inaccuracies are the result of rounding<br> (2) Employment expressed in terms of standard work units (AWU)<br> (3) Number of employed people according to the Continuous Labour Fo*rce Survey (Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. |

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The forecast assumes a reduction in inflation already in 2023 after the peak expected this year. The consumption deflator would grow by around 2.0 percent in the coming years. The most important factors are the expected trends in energy prices and wages. For the former, the standard approach is to use the prices of futures contracts on gas and oil, which foresee very high levels until spring 2023 and then a gradual decline to levels that, in the case of gas, would be less than half of current prices.

As regards contractual wages, the baseline scenario assumes that, net of the components linked to corporate welfare and productivity bonuses, adjustments to contractual minimum wages will continue to be based on the inflation rate net of imported energy products. Consider, for example, that in March the national consumer price index (NIC) net of energy recorded a year/year growth of 2.5 percent, while the general index grew by 6.7 percent. Assuming that the inflation rate net of energy does not rise very significantly from the level reached in February, future wage increases should be higher than in previous years, but relatively moderate and consistent with an inflation rate of around 2.0 percent in the medium term. Wage earners will regain purchasing power when energy prices fall, and the total inflation rate falls below the energy-adjusted rate<sup>6</sup>.

Looking at the other main macroeconomic variables, the baseline forecast foresees further growth in employment over the 2023-2025 period and a decline in the unemployment rate to 8.0 percent in 2025 despite a recovery in the labour participation rate. The current account surplus of the balance of payments would widen from 2023 onwards thanks to the expected fall in energy prices and a growth in merchandise exports in line with that of the main outlet markets, as well as the recovery of foreign tourism in Italy.

*The baseline macroeconomic forecast was validated by the Parliamentary Budget Office in a note dated 24 March 2022*

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<sup>6</sup> Consider, for example, that in 2020 the NIC inflation rate was -0.1 percent, while the rate net of energy was +0.6 percent. With energy prices rising, in 2021 the NIC increased by 1.9 percent while the net energy rate increased by 0.8 percent. When energy prices fall, the spread will reverse again.

MINISTRY OF ECONOMY AND FINANCE<sub>9</sub>

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ITALY'S STABILITY PROGRAMME 20**22**<br>

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| **FOCUS**  | **The recent evolution of trade relations between Italy and Russia** |
| **FOCUS**  | Trade relations between Italy and Russia have gone through three distinct periods in recent years. In the first period (referable to years of significant expansion of international trade), exports to Russia grew considerably (from 3.8 to 10.5 billion), doubling as a percentage of total Italian exports (from 1.4 percent in 2002 to 2.8 percent in 2008). At the same time, imports of Russian goods into Italy also grew significantly (from 8 billion to 16 billion), albeit with a less pronounced effect in terms of share of total Italian imports (from 3.0 percent to 4.2 percent). |
| **FOCUS**  | Subsequently, in the years of the economic and financial crisis (2008-2013), the share of Italian imports from Russia continued to grow, rising to 5.6 percent in 2013. Italian exports, on the other hand, after the sharp slowdown in 2009 (-20.9 percent globally; -38.6 percent to Russia), slowly returned to pre-crisis levels, as did the share destined for the Russian market (2.8 percent). |
| **FOCUS**  | Finally, the third phase (from 2013 to 2021) was characterised by Russia's military intervention in Crimea, to which the European Union responded with a package of sanctions that grew over time and affected trade levels. Italian imports of Russian goods collapsed in the space of three years (from 20.2 to 10.6 billion in 2016), also falling in terms of incidence on total national imports (from 5.6 percent to 2.9 percent, then orbiting at values just over 3 percent in the following years). The Russian market also appeared less and less central for Italian companies, with an absorption share almost halved over the eight years, from 2.8 percent in 2013 to 1.5 percent in 2021. It is worth noting that, in 2021, the 17.6 billion of imports from Russia produced almost 10 billion of trade deficit, while exports from Italy amounted to only 7.7 billion. |
| **FOCUS**  | <br>![](image7.jpg)<br>|
| **FOCUS**  | At a sectoral level, sanctions in response to the 2014 Crimean crisis mainly affected imports of crude oil (-3.7 billion) and refined oil products (-2.2 billion). The case of natural gas is different, as Italy has increased its supply from Russia (+1.5 billion between 2013 and 2021, an increase of 19.7 percent), in the presence of a similar increase in relative dependence (from 37.1 percent to 46.6 percent). This result is exclusively attributable to 2021, when natural gas imports from Russia increased by more than 3 billion compared to 2019 (5.3 billion compared to 2020, which is known to be characterized by a sharp slowdown in international trade due to the pandemic crisis), almost entirely to be associated with the last quarter (+2.9 billion). Looking at the 2013-2019 period, on the other hand, Russian gas imports fell by 2.3 percent, with an absolute value of just under 6 billion in both years. |

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| **10** | MINISTRY OF ECONOMY AND FINANCE |

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**II. BASELINE MACROECONOMIC AND BUDGET FORECAST**<br>

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| In consideration of the objectives of diversification in gas supply, it seems useful to recall Russia's main competitors in the Italian market. In particular, ISTAT data highlight the role of Algeria, the only country to show values comparable to those of Russia (4.5 billion, equal to 22.8 percent of Italian sector imports); this is followed by Azerbaijan, Qatar (1.8 billion each) and Libya (about 600 million), other potential markets from which to diversify supplies. | In consideration of the objectives of diversification in gas supply, it seems useful to recall Russia's main competitors in the Italian market. In particular, ISTAT data highlight the role of Algeria, the only country to show values comparable to those of Russia (4.5 billion, equal to 22.8 percent of Italian sector imports); this is followed by Azerbaijan, Qatar (1.8 billion each) and Libya (about 600 million), other potential markets from which to diversify supplies. | In consideration of the objectives of diversification in gas supply, it seems useful to recall Russia's main competitors in the Italian market. In particular, ISTAT data highlight the role of Algeria, the only country to show values comparable to those of Russia (4.5 billion, equal to 22.8 percent of Italian sector imports); this is followed by Azerbaijan, Qatar (1.8 billion each) and Libya (about 600 million), other potential markets from which to diversify supplies. | In consideration of the objectives of diversification in gas supply, it seems useful to recall Russia's main competitors in the Italian market. In particular, ISTAT data highlight the role of Algeria, the only country to show values comparable to those of Russia (4.5 billion, equal to 22.8 percent of Italian sector imports); this is followed by Azerbaijan, Qatar (1.8 billion each) and Libya (about 600 million), other potential markets from which to diversify supplies. | In consideration of the objectives of diversification in gas supply, it seems useful to recall Russia's main competitors in the Italian market. In particular, ISTAT data highlight the role of Algeria, the only country to show values comparable to those of Russia (4.5 billion, equal to 22.8 percent of Italian sector imports); this is followed by Azerbaijan, Qatar (1.8 billion each) and Libya (about 600 million), other potential markets from which to diversify supplies. | In consideration of the objectives of diversification in gas supply, it seems useful to recall Russia's main competitors in the Italian market. In particular, ISTAT data highlight the role of Algeria, the only country to show values comparable to those of Russia (4.5 billion, equal to 22.8 percent of Italian sector imports); this is followed by Azerbaijan, Qatar (1.8 billion each) and Libya (about 600 million), other potential markets from which to diversify supplies. | In consideration of the objectives of diversification in gas supply, it seems useful to recall Russia's main competitors in the Italian market. In particular, ISTAT data highlight the role of Algeria, the only country to show values comparable to those of Russia (4.5 billion, equal to 22.8 percent of Italian sector imports); this is followed by Azerbaijan, Qatar (1.8 billion each) and Libya (about 600 million), other potential markets from which to diversify supplies. | In consideration of the objectives of diversification in gas supply, it seems useful to recall Russia's main competitors in the Italian market. In particular, ISTAT data highlight the role of Algeria, the only country to show values comparable to those of Russia (4.5 billion, equal to 22.8 percent of Italian sector imports); this is followed by Azerbaijan, Qatar (1.8 billion each) and Libya (about 600 million), other potential markets from which to diversify supplies. |
| **TABLE R1: EVOLUTION OF ITALY'S TRADE WITH RUSSIA BY SECTOR** <br> **Years 2013 and 2021 (differences in absolute values and market shares on sector total)** | **TABLE R1: EVOLUTION OF ITALY'S TRADE WITH RUSSIA BY SECTOR** <br> **Years 2013 and 2021 (differences in absolute values and market shares on sector total)** | **TABLE R1: EVOLUTION OF ITALY'S TRADE WITH RUSSIA BY SECTOR** <br> **Years 2013 and 2021 (differences in absolute values and market shares on sector total)** | **TABLE R1: EVOLUTION OF ITALY'S TRADE WITH RUSSIA BY SECTOR** <br> **Years 2013 and 2021 (differences in absolute values and market shares on sector total)** | **TABLE R1: EVOLUTION OF ITALY'S TRADE WITH RUSSIA BY SECTOR** <br> **Years 2013 and 2021 (differences in absolute values and market shares on sector total)** | **TABLE R1: EVOLUTION OF ITALY'S TRADE WITH RUSSIA BY SECTOR** <br> **Years 2013 and 2021 (differences in absolute values and market shares on sector total)** | **TABLE R1: EVOLUTION OF ITALY'S TRADE WITH RUSSIA BY SECTOR** <br> **Years 2013 and 2021 (differences in absolute values and market shares on sector total)** | **TABLE R1: EVOLUTION OF ITALY'S TRADE WITH RUSSIA BY SECTOR** <br> **Years 2013 and 2021 (differences in absolute values and market shares on sector total)** |
|  |  | **EXPORTS** | **EXPORTS** | **EXPORTS** | **IMPORTS** | **IMPORTS** | **IMPORTS** |
| **Nace** | **Activity description** | **Differences in a.v.**<br> **(EUR million)** | **Shares % of sector total** | **Shares % of sector total** | **Differences in a.v.**<br> **(EUR million)** | **Shares % of**<br> **sector total** | **Shares % of**<br> **sector total** |
|  |  | **2013 - 2021** | **2013** | **2021** | **2013 – 2021** | **2013** | **2021** |
| A | AGRICULTURE | -59.9 | 1.6 | 0.4 | 32.3 | 0.9 | 0.9 |
| B | EXTRACTION | -0.5 | 0.6 | 0.4 | -1919.4 | 23.4 | 24.6 |
|  | *of which: crude oil* | 0.0 | 0.0 | 0.0 | *-3735.8* | 17.1 | 8.8 |
|  | *of which: natural gas* | 0.0 | 0.0 | 0.0 | *1496.2* | 37.1 | 46.6 |
| C | MANUFACTURING INDUSTRY | -2998.0 | 2.8 | 1.6 | -725.2 | 2.2 | 1.4 |
| CA | Food, beverages and tobacco | 24.5 | 2.2 | 1.4 | -71.9 | 0.7 | 0.4 |
| CB | Textiles, clothing and footwear | -967.7 | 5.1 | 2.5 | -68.0 | 0.4 | 0.1 |
| CC | Wood, paper and printing | -122.6 | 2.6 | 0.8 | 96.0 | 1.5 | 2.0 |
| CD | Refined petroleum products | -1.3 | 0.1 | 0.1 | -2231.8 | 29.2 | 15.1 |
| CE | Chemistry | 139.8 | 2.3 | 2.0 | -438.0 | 2.2 | 0.7 |
| CF | Pharmaceuticals | -11.5 | 1.0 | 0.6 | -1.5 | 0.0 | 0.0 |
| CG | Rubber, plastics, metals processing | -126.6 | 2.2 | 1.3 | 71.5 | 0.2 | 0.5 |
| CH | Metallurgy and metal products | -163.8 | 1.6 | 0.9 | 1973.1 | 3.5 | 5.4 |
| CI | Electronics | -9.5 | 1.3 | 0.8 | 5.4 | 0.0 | 0.0 |
| CJ | Electrical equipment | -194.0 | 3.2 | 1.7 | 8.1 | 0.2 | 0.1 |
| CK | Mechanics | -745.2 | 4.0 | 2.6 | 1.8 | 0.1 | 0.1 |
| CL | Transport equipment | -412.1- | 2.2 | 0.8 | -72.1 | 0.3 | 0.0 |
| CM | Furniture and other manufacturing activities | -408.0 | 4.2 | 1.7 | 2.2 | 0.1 | 0.1 |
| D-V | OTHER ACTIVITIES | -17.0 | 0.3 | 0.1 | 12.9 | 0.1 | 0.1 |
|  | **TOTAL** | **-3075.3** | 2.8 | 1.5 | **-2599.4** | 5.6 | 3.7 |
| Source: elaboration on ISTAT data | Source: elaboration on ISTAT data | Source: elaboration on ISTAT data | Source: elaboration on ISTAT data | Source: elaboration on ISTAT data | Source: elaboration on ISTAT data | Source: elaboration on ISTAT data | Source: elaboration on ISTAT data |
| The sanctions of past years have also reduced the presence of Italian companies on the Russian market (over 3 billion in sales in 2021 compared to 2013; -28.6 percent). Among manufacturing sectors, the fashion system has lost almost 1 million in exports during the last eight years, with the share of imports from Russia in the sector's total cross-border sales more than halved (from 5.1 percent to 2.5 percent). Mechanics and furniture were also hard hit by the sanctions (over 400 million each), although with differing effects in terms of shares (-1.5 percentage points for mechanics and -2.5 percentage points for furniture and other manufacturing activities). On the whole, all Italian manufacturing sectors experienced a clear setback, associating a reduction in sales with a downsizing of the Russian market compared to other destination markets. The only exception was food and beverages, where the growth in exports in value (24 million) was matched by a reduction in the import share (from 2.2 percent to 1.4 percent). | The sanctions of past years have also reduced the presence of Italian companies on the Russian market (over 3 billion in sales in 2021 compared to 2013; -28.6 percent). Among manufacturing sectors, the fashion system has lost almost 1 million in exports during the last eight years, with the share of imports from Russia in the sector's total cross-border sales more than halved (from 5.1 percent to 2.5 percent). Mechanics and furniture were also hard hit by the sanctions (over 400 million each), although with differing effects in terms of shares (-1.5 percentage points for mechanics and -2.5 percentage points for furniture and other manufacturing activities). On the whole, all Italian manufacturing sectors experienced a clear setback, associating a reduction in sales with a downsizing of the Russian market compared to other destination markets. The only exception was food and beverages, where the growth in exports in value (24 million) was matched by a reduction in the import share (from 2.2 percent to 1.4 percent). | The sanctions of past years have also reduced the presence of Italian companies on the Russian market (over 3 billion in sales in 2021 compared to 2013; -28.6 percent). Among manufacturing sectors, the fashion system has lost almost 1 million in exports during the last eight years, with the share of imports from Russia in the sector's total cross-border sales more than halved (from 5.1 percent to 2.5 percent). Mechanics and furniture were also hard hit by the sanctions (over 400 million each), although with differing effects in terms of shares (-1.5 percentage points for mechanics and -2.5 percentage points for furniture and other manufacturing activities). On the whole, all Italian manufacturing sectors experienced a clear setback, associating a reduction in sales with a downsizing of the Russian market compared to other destination markets. The only exception was food and beverages, where the growth in exports in value (24 million) was matched by a reduction in the import share (from 2.2 percent to 1.4 percent). | The sanctions of past years have also reduced the presence of Italian companies on the Russian market (over 3 billion in sales in 2021 compared to 2013; -28.6 percent). Among manufacturing sectors, the fashion system has lost almost 1 million in exports during the last eight years, with the share of imports from Russia in the sector's total cross-border sales more than halved (from 5.1 percent to 2.5 percent). Mechanics and furniture were also hard hit by the sanctions (over 400 million each), although with differing effects in terms of shares (-1.5 percentage points for mechanics and -2.5 percentage points for furniture and other manufacturing activities). On the whole, all Italian manufacturing sectors experienced a clear setback, associating a reduction in sales with a downsizing of the Russian market compared to other destination markets. The only exception was food and beverages, where the growth in exports in value (24 million) was matched by a reduction in the import share (from 2.2 percent to 1.4 percent). | The sanctions of past years have also reduced the presence of Italian companies on the Russian market (over 3 billion in sales in 2021 compared to 2013; -28.6 percent). Among manufacturing sectors, the fashion system has lost almost 1 million in exports during the last eight years, with the share of imports from Russia in the sector's total cross-border sales more than halved (from 5.1 percent to 2.5 percent). Mechanics and furniture were also hard hit by the sanctions (over 400 million each), although with differing effects in terms of shares (-1.5 percentage points for mechanics and -2.5 percentage points for furniture and other manufacturing activities). On the whole, all Italian manufacturing sectors experienced a clear setback, associating a reduction in sales with a downsizing of the Russian market compared to other destination markets. The only exception was food and beverages, where the growth in exports in value (24 million) was matched by a reduction in the import share (from 2.2 percent to 1.4 percent). | The sanctions of past years have also reduced the presence of Italian companies on the Russian market (over 3 billion in sales in 2021 compared to 2013; -28.6 percent). Among manufacturing sectors, the fashion system has lost almost 1 million in exports during the last eight years, with the share of imports from Russia in the sector's total cross-border sales more than halved (from 5.1 percent to 2.5 percent). Mechanics and furniture were also hard hit by the sanctions (over 400 million each), although with differing effects in terms of shares (-1.5 percentage points for mechanics and -2.5 percentage points for furniture and other manufacturing activities). On the whole, all Italian manufacturing sectors experienced a clear setback, associating a reduction in sales with a downsizing of the Russian market compared to other destination markets. The only exception was food and beverages, where the growth in exports in value (24 million) was matched by a reduction in the import share (from 2.2 percent to 1.4 percent). | The sanctions of past years have also reduced the presence of Italian companies on the Russian market (over 3 billion in sales in 2021 compared to 2013; -28.6 percent). Among manufacturing sectors, the fashion system has lost almost 1 million in exports during the last eight years, with the share of imports from Russia in the sector's total cross-border sales more than halved (from 5.1 percent to 2.5 percent). Mechanics and furniture were also hard hit by the sanctions (over 400 million each), although with differing effects in terms of shares (-1.5 percentage points for mechanics and -2.5 percentage points for furniture and other manufacturing activities). On the whole, all Italian manufacturing sectors experienced a clear setback, associating a reduction in sales with a downsizing of the Russian market compared to other destination markets. The only exception was food and beverages, where the growth in exports in value (24 million) was matched by a reduction in the import share (from 2.2 percent to 1.4 percent). | The sanctions of past years have also reduced the presence of Italian companies on the Russian market (over 3 billion in sales in 2021 compared to 2013; -28.6 percent). Among manufacturing sectors, the fashion system has lost almost 1 million in exports during the last eight years, with the share of imports from Russia in the sector's total cross-border sales more than halved (from 5.1 percent to 2.5 percent). Mechanics and furniture were also hard hit by the sanctions (over 400 million each), although with differing effects in terms of shares (-1.5 percentage points for mechanics and -2.5 percentage points for furniture and other manufacturing activities). On the whole, all Italian manufacturing sectors experienced a clear setback, associating a reduction in sales with a downsizing of the Russian market compared to other destination markets. The only exception was food and beverages, where the growth in exports in value (24 million) was matched by a reduction in the import share (from 2.2 percent to 1.4 percent). |

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MINISTRY OF ECONOMY AND FINANCE<sub>11</sub>

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ITALY'S STABILITY PROGRAMME 20**22**<br>

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| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **FOCUS**  | **Forecast errors for 2021 and revised estimates for 2022 and following years<sup>7</sup>** | **Forecast errors for 2021 and revised estimates for 2022 and following years<sup>7</sup>** | **Forecast errors for 2021 and revised estimates for 2022 and following years<sup>7</sup>** | **Forecast errors for 2021 and revised estimates for 2022 and following years<sup>7</sup>** | **Forecast errors for 2021 and revised estimates for 2022 and following years<sup>7</sup>** | **Forecast errors for 2021 and revised estimates for 2022 and following years<sup>7</sup>** | **Forecast errors for 2021 and revised estimates for 2022 and following years<sup>7</sup>** | **Forecast errors for 2021 and revised estimates for 2022 and following years<sup>7</sup>** | **Forecast errors for 2021 and revised estimates for 2022 and following years<sup>7</sup>** | **Forecast errors for 2021 and revised estimates for 2022 and following years<sup>7</sup>** |
| **FOCUS**  | | | | | | | | | | |
| **FOCUS**  | This box is aimed at providing an in-depth analysis of the changes introduced in the forecast update with the twofold purpose of i) assessing the forecast error for the year just ended; ii) analysing in greater detail the factors that led to a revision of the growth estimates for 2022 and the following years. In both cases the comparison is made with the forecasts made in the Update of the Stability Programme of last September and in the Draft Budgetary Plan (DBP). | This box is aimed at providing an in-depth analysis of the changes introduced in the forecast update with the twofold purpose of i) assessing the forecast error for the year just ended; ii) analysing in greater detail the factors that led to a revision of the growth estimates for 2022 and the following years. In both cases the comparison is made with the forecasts made in the Update of the Stability Programme of last September and in the Draft Budgetary Plan (DBP). | This box is aimed at providing an in-depth analysis of the changes introduced in the forecast update with the twofold purpose of i) assessing the forecast error for the year just ended; ii) analysing in greater detail the factors that led to a revision of the growth estimates for 2022 and the following years. In both cases the comparison is made with the forecasts made in the Update of the Stability Programme of last September and in the Draft Budgetary Plan (DBP). | This box is aimed at providing an in-depth analysis of the changes introduced in the forecast update with the twofold purpose of i) assessing the forecast error for the year just ended; ii) analysing in greater detail the factors that led to a revision of the growth estimates for 2022 and the following years. In both cases the comparison is made with the forecasts made in the Update of the Stability Programme of last September and in the Draft Budgetary Plan (DBP). | This box is aimed at providing an in-depth analysis of the changes introduced in the forecast update with the twofold purpose of i) assessing the forecast error for the year just ended; ii) analysing in greater detail the factors that led to a revision of the growth estimates for 2022 and the following years. In both cases the comparison is made with the forecasts made in the Update of the Stability Programme of last September and in the Draft Budgetary Plan (DBP). | This box is aimed at providing an in-depth analysis of the changes introduced in the forecast update with the twofold purpose of i) assessing the forecast error for the year just ended; ii) analysing in greater detail the factors that led to a revision of the growth estimates for 2022 and the following years. In both cases the comparison is made with the forecasts made in the Update of the Stability Programme of last September and in the Draft Budgetary Plan (DBP). | This box is aimed at providing an in-depth analysis of the changes introduced in the forecast update with the twofold purpose of i) assessing the forecast error for the year just ended; ii) analysing in greater detail the factors that led to a revision of the growth estimates for 2022 and the following years. In both cases the comparison is made with the forecasts made in the Update of the Stability Programme of last September and in the Draft Budgetary Plan (DBP). | This box is aimed at providing an in-depth analysis of the changes introduced in the forecast update with the twofold purpose of i) assessing the forecast error for the year just ended; ii) analysing in greater detail the factors that led to a revision of the growth estimates for 2022 and the following years. In both cases the comparison is made with the forecasts made in the Update of the Stability Programme of last September and in the Draft Budgetary Plan (DBP). | This box is aimed at providing an in-depth analysis of the changes introduced in the forecast update with the twofold purpose of i) assessing the forecast error for the year just ended; ii) analysing in greater detail the factors that led to a revision of the growth estimates for 2022 and the following years. In both cases the comparison is made with the forecasts made in the Update of the Stability Programme of last September and in the Draft Budgetary Plan (DBP). | This box is aimed at providing an in-depth analysis of the changes introduced in the forecast update with the twofold purpose of i) assessing the forecast error for the year just ended; ii) analysing in greater detail the factors that led to a revision of the growth estimates for 2022 and the following years. In both cases the comparison is made with the forecasts made in the Update of the Stability Programme of last September and in the Draft Budgetary Plan (DBP). |
| **FOCUS**  | Table R1, column **Delta 2021**, shows the forecast error for 2021, i.e., the deviations between the September forecast and the final data published by ISTAT in March. The forecast for 2021 made in September included data from the National Accounts only up to the second quarter of last year, while the data published by ISTAT in March also include information on the second half of last year and the revision of the historical series for previous quarters. | Table R1, column **Delta 2021**, shows the forecast error for 2021, i.e., the deviations between the September forecast and the final data published by ISTAT in March. The forecast for 2021 made in September included data from the National Accounts only up to the second quarter of last year, while the data published by ISTAT in March also include information on the second half of last year and the revision of the historical series for previous quarters. | Table R1, column **Delta 2021**, shows the forecast error for 2021, i.e., the deviations between the September forecast and the final data published by ISTAT in March. The forecast for 2021 made in September included data from the National Accounts only up to the second quarter of last year, while the data published by ISTAT in March also include information on the second half of last year and the revision of the historical series for previous quarters. | Table R1, column **Delta 2021**, shows the forecast error for 2021, i.e., the deviations between the September forecast and the final data published by ISTAT in March. The forecast for 2021 made in September included data from the National Accounts only up to the second quarter of last year, while the data published by ISTAT in March also include information on the second half of last year and the revision of the historical series for previous quarters. | Table R1, column **Delta 2021**, shows the forecast error for 2021, i.e., the deviations between the September forecast and the final data published by ISTAT in March. The forecast for 2021 made in September included data from the National Accounts only up to the second quarter of last year, while the data published by ISTAT in March also include information on the second half of last year and the revision of the historical series for previous quarters. | Table R1, column **Delta 2021**, shows the forecast error for 2021, i.e., the deviations between the September forecast and the final data published by ISTAT in March. The forecast for 2021 made in September included data from the National Accounts only up to the second quarter of last year, while the data published by ISTAT in March also include information on the second half of last year and the revision of the historical series for previous quarters. | Table R1, column **Delta 2021**, shows the forecast error for 2021, i.e., the deviations between the September forecast and the final data published by ISTAT in March. The forecast for 2021 made in September included data from the National Accounts only up to the second quarter of last year, while the data published by ISTAT in March also include information on the second half of last year and the revision of the historical series for previous quarters. | Table R1, column **Delta 2021**, shows the forecast error for 2021, i.e., the deviations between the September forecast and the final data published by ISTAT in March. The forecast for 2021 made in September included data from the National Accounts only up to the second quarter of last year, while the data published by ISTAT in March also include information on the second half of last year and the revision of the historical series for previous quarters. | Table R1, column **Delta 2021**, shows the forecast error for 2021, i.e., the deviations between the September forecast and the final data published by ISTAT in March. The forecast for 2021 made in September included data from the National Accounts only up to the second quarter of last year, while the data published by ISTAT in March also include information on the second half of last year and the revision of the historical series for previous quarters. | Table R1, column **Delta 2021**, shows the forecast error for 2021, i.e., the deviations between the September forecast and the final data published by ISTAT in March. The forecast for 2021 made in September included data from the National Accounts only up to the second quarter of last year, while the data published by ISTAT in March also include information on the second half of last year and the revision of the historical series for previous quarters. |
| **FOCUS**  | With reference to GDP, the final ISTAT data were higher (0.6 percentage points) than expected, showing annual growth of 6.6 percent. The data confirms the quarterly growth profile defined in the DBP, which envisaged further expansion in the third quarter followed by a slowdown in the final quarter of the year. In fact, economic activity continued to grow at a high pace in Q3, in line with that recorded in Q2. Growth benefited from the easing of restrictions made possible by the acceleration of the vaccination campaign. In the last segment of 2021, economic activity slowed down due to higher energy prices and the effects of the fourth Covid wave. | With reference to GDP, the final ISTAT data were higher (0.6 percentage points) than expected, showing annual growth of 6.6 percent. The data confirms the quarterly growth profile defined in the DBP, which envisaged further expansion in the third quarter followed by a slowdown in the final quarter of the year. In fact, economic activity continued to grow at a high pace in Q3, in line with that recorded in Q2. Growth benefited from the easing of restrictions made possible by the acceleration of the vaccination campaign. In the last segment of 2021, economic activity slowed down due to higher energy prices and the effects of the fourth Covid wave. | With reference to GDP, the final ISTAT data were higher (0.6 percentage points) than expected, showing annual growth of 6.6 percent. The data confirms the quarterly growth profile defined in the DBP, which envisaged further expansion in the third quarter followed by a slowdown in the final quarter of the year. In fact, economic activity continued to grow at a high pace in Q3, in line with that recorded in Q2. Growth benefited from the easing of restrictions made possible by the acceleration of the vaccination campaign. In the last segment of 2021, economic activity slowed down due to higher energy prices and the effects of the fourth Covid wave. | With reference to GDP, the final ISTAT data were higher (0.6 percentage points) than expected, showing annual growth of 6.6 percent. The data confirms the quarterly growth profile defined in the DBP, which envisaged further expansion in the third quarter followed by a slowdown in the final quarter of the year. In fact, economic activity continued to grow at a high pace in Q3, in line with that recorded in Q2. Growth benefited from the easing of restrictions made possible by the acceleration of the vaccination campaign. In the last segment of 2021, economic activity slowed down due to higher energy prices and the effects of the fourth Covid wave. | With reference to GDP, the final ISTAT data were higher (0.6 percentage points) than expected, showing annual growth of 6.6 percent. The data confirms the quarterly growth profile defined in the DBP, which envisaged further expansion in the third quarter followed by a slowdown in the final quarter of the year. In fact, economic activity continued to grow at a high pace in Q3, in line with that recorded in Q2. Growth benefited from the easing of restrictions made possible by the acceleration of the vaccination campaign. In the last segment of 2021, economic activity slowed down due to higher energy prices and the effects of the fourth Covid wave. | With reference to GDP, the final ISTAT data were higher (0.6 percentage points) than expected, showing annual growth of 6.6 percent. The data confirms the quarterly growth profile defined in the DBP, which envisaged further expansion in the third quarter followed by a slowdown in the final quarter of the year. In fact, economic activity continued to grow at a high pace in Q3, in line with that recorded in Q2. Growth benefited from the easing of restrictions made possible by the acceleration of the vaccination campaign. In the last segment of 2021, economic activity slowed down due to higher energy prices and the effects of the fourth Covid wave. | With reference to GDP, the final ISTAT data were higher (0.6 percentage points) than expected, showing annual growth of 6.6 percent. The data confirms the quarterly growth profile defined in the DBP, which envisaged further expansion in the third quarter followed by a slowdown in the final quarter of the year. In fact, economic activity continued to grow at a high pace in Q3, in line with that recorded in Q2. Growth benefited from the easing of restrictions made possible by the acceleration of the vaccination campaign. In the last segment of 2021, economic activity slowed down due to higher energy prices and the effects of the fourth Covid wave. | With reference to GDP, the final ISTAT data were higher (0.6 percentage points) than expected, showing annual growth of 6.6 percent. The data confirms the quarterly growth profile defined in the DBP, which envisaged further expansion in the third quarter followed by a slowdown in the final quarter of the year. In fact, economic activity continued to grow at a high pace in Q3, in line with that recorded in Q2. Growth benefited from the easing of restrictions made possible by the acceleration of the vaccination campaign. In the last segment of 2021, economic activity slowed down due to higher energy prices and the effects of the fourth Covid wave. | With reference to GDP, the final ISTAT data were higher (0.6 percentage points) than expected, showing annual growth of 6.6 percent. The data confirms the quarterly growth profile defined in the DBP, which envisaged further expansion in the third quarter followed by a slowdown in the final quarter of the year. In fact, economic activity continued to grow at a high pace in Q3, in line with that recorded in Q2. Growth benefited from the easing of restrictions made possible by the acceleration of the vaccination campaign. In the last segment of 2021, economic activity slowed down due to higher energy prices and the effects of the fourth Covid wave. | With reference to GDP, the final ISTAT data were higher (0.6 percentage points) than expected, showing annual growth of 6.6 percent. The data confirms the quarterly growth profile defined in the DBP, which envisaged further expansion in the third quarter followed by a slowdown in the final quarter of the year. In fact, economic activity continued to grow at a high pace in Q3, in line with that recorded in Q2. Growth benefited from the easing of restrictions made possible by the acceleration of the vaccination campaign. In the last segment of 2021, economic activity slowed down due to higher energy prices and the effects of the fourth Covid wave. |
| **FOCUS**  |  |  |  |  |  |  |  |  |  |  |
|  | **TABLE R1 – MAIN VARIABLES OF THE MACROECONOMIC FRAMEWORK (average of seasonally adjusted quarterly data)** | **TABLE R1 – MAIN VARIABLES OF THE MACROECONOMIC FRAMEWORK (average of seasonally adjusted quarterly data)** | **TABLE R1 – MAIN VARIABLES OF THE MACROECONOMIC FRAMEWORK (average of seasonally adjusted quarterly data)** | **TABLE R1 – MAIN VARIABLES OF THE MACROECONOMIC FRAMEWORK (average of seasonally adjusted quarterly data)** | **TABLE R1 – MAIN VARIABLES OF THE MACROECONOMIC FRAMEWORK (average of seasonally adjusted quarterly data)** | **TABLE R1 – MAIN VARIABLES OF THE MACROECONOMIC FRAMEWORK (average of seasonally adjusted quarterly data)** | **TABLE R1 – MAIN VARIABLES OF THE MACROECONOMIC FRAMEWORK (average of seasonally adjusted quarterly data)** | **TABLE R1 – MAIN VARIABLES OF THE MACROECONOMIC FRAMEWORK (average of seasonally adjusted quarterly data)** | **TABLE R1 – MAIN VARIABLES OF THE MACROECONOMIC FRAMEWORK (average of seasonally adjusted quarterly data)** | **TABLE R1 – MAIN VARIABLES OF THE MACROECONOMIC FRAMEWORK (average of seasonally adjusted quarterly data)** |
|  |  | **2021 forecast** | **2021 forecast** | **2021 forecast** | **2022 forecast** | **2022 forecast** | **2022 forecast** | **of which: Revised carry-over to 2022 compared to DBP** | **of which: Exogenous impact compared to DBP** | **of which: Revision of forecast** |
|  |  | **DBP** | **ISTAT** | **Delta 2021** | **DBP** | **Stability Programme 2022** | **Delta 2022** | (a) | (b) | (c) |
|  | **ITALY'S MACROS** |  |  |  |  |  |  |  |  |  |
|  | GDP | 6.0 | 6.6 | 0.6 | 4.8 | 3.0 | **-1.8** | 0.2 | **-1.6** | **-0.4** |
|  | Household expenditure | 5.2 | 5.2 | 0.0 | 5.0 | 2.9 | **-2.1** | **-0.5** | **-1.7** | 0.1 |
|  | General Government expenditure | 0.7 | 0.6 | **-0.1** | 1.7 | 1.2 | **-0.5** | 0.2 | **-0.1** | **-0.6** |
|  | Gross fixed capital formation | 15.5 | 17.0 | 1.5 | 6.8 | 7.0 | 0.2 | 1.8 | **-2.4** | 0.8 |
|  | Machinery, equipment and miscellaneous | 10.0 | 12.9 | 2.9 | 6.6 | 6.5 | **-0.1** | 2.0 | **-2.9** | 0.9 |
|  | Construction | 20.9 | 22.3 | 1.4 | 6.5 | 8.7 | 2.1 | 3.0 | **-1.7** | 0.9 |
|  | Exports of goods and services | 11.4 | 13.4 | 1.9 | 6.1 | 4.4 | **-1.6** | 0.7 | **-1.8** | **-0.6** |
|  | Imports of goods and services | 11.6 | 14.3 | 2.7 | 6.8 | 5.5 | **-1.3** | 2.2 | **-1.2** | **-2.4** |
|  | **Deflators** |  |  |  |  |  |  |  |  |  |
|  | GDP deflator | 1.5 | 0.5 | **-1.0** | 1.6 | 3.0 | 1.4 | **-1.0** | 0.2 | 2.2 |
|  | Consumption deflator | 1.5 | 1.6 | 0.2 | 1.6 | 5.8 | 4.3 | 0.5 | 2.4 | 1.4 |

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<sup>7</sup> This box refers to quarterly income statement data published on 4 March 2022 that are working day adjusted.

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| **12** | MINISTRY OF ECONOMY AND FINANCE |

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**II. BASELINE MACROECONOMIC AND BUDGET FORECAST**<br>

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| In terms of components, household consumption was in line with the forecast, while exports and investment, particularly in machinery and equipment, increased more than estimated; the gap is significantly positive for import growth. On the price front, there was a markedly higher than expected increase in import prices, as triggered by increases in the energy component in the second half of the year. The change in the consumption deflator was slightly higher than forecast (0.2 percent), while the actual change of the GDP deflator was 1.0 percentage point lower than estimated. | In terms of components, household consumption was in line with the forecast, while exports and investment, particularly in machinery and equipment, increased more than estimated; the gap is significantly positive for import growth. On the price front, there was a markedly higher than expected increase in import prices, as triggered by increases in the energy component in the second half of the year. The change in the consumption deflator was slightly higher than forecast (0.2 percent), while the actual change of the GDP deflator was 1.0 percentage point lower than estimated. | In terms of components, household consumption was in line with the forecast, while exports and investment, particularly in machinery and equipment, increased more than estimated; the gap is significantly positive for import growth. On the price front, there was a markedly higher than expected increase in import prices, as triggered by increases in the energy component in the second half of the year. The change in the consumption deflator was slightly higher than forecast (0.2 percent), while the actual change of the GDP deflator was 1.0 percentage point lower than estimated. | In terms of components, household consumption was in line with the forecast, while exports and investment, particularly in machinery and equipment, increased more than estimated; the gap is significantly positive for import growth. On the price front, there was a markedly higher than expected increase in import prices, as triggered by increases in the energy component in the second half of the year. The change in the consumption deflator was slightly higher than forecast (0.2 percent), while the actual change of the GDP deflator was 1.0 percentage point lower than estimated. |
| In the analysis of the growth revision for 2022, the following steps have been taken: firstly, the statistical reasons for the change in the carry-over effect from 2021 have been analysed, followed by the deltas resulting from the new assumptions on the international scenario and then the revision of the forecast. | In the analysis of the growth revision for 2022, the following steps have been taken: firstly, the statistical reasons for the change in the carry-over effect from 2021 have been analysed, followed by the deltas resulting from the new assumptions on the international scenario and then the revision of the forecast. | In the analysis of the growth revision for 2022, the following steps have been taken: firstly, the statistical reasons for the change in the carry-over effect from 2021 have been analysed, followed by the deltas resulting from the new assumptions on the international scenario and then the revision of the forecast. | In the analysis of the growth revision for 2022, the following steps have been taken: firstly, the statistical reasons for the change in the carry-over effect from 2021 have been analysed, followed by the deltas resulting from the new assumptions on the international scenario and then the revision of the forecast. |
| **Column 'a'** shows the difference in the statistical carry-over effect from 2021 to 2022 between the value estimated in the last official update and the actual value. For GDP, the change in the carry-over effect is positive and amounts to 0.2 percentage points. The carry-over effect is affected by the higher-than-expected outcome in the second half of 2022, as noted above. | **Column 'a'** shows the difference in the statistical carry-over effect from 2021 to 2022 between the value estimated in the last official update and the actual value. For GDP, the change in the carry-over effect is positive and amounts to 0.2 percentage points. The carry-over effect is affected by the higher-than-expected outcome in the second half of 2022, as noted above. | **Column 'a'** shows the difference in the statistical carry-over effect from 2021 to 2022 between the value estimated in the last official update and the actual value. For GDP, the change in the carry-over effect is positive and amounts to 0.2 percentage points. The carry-over effect is affected by the higher-than-expected outcome in the second half of 2022, as noted above. | **Column 'a'** shows the difference in the statistical carry-over effect from 2021 to 2022 between the value estimated in the last official update and the actual value. For GDP, the change in the carry-over effect is positive and amounts to 0.2 percentage points. The carry-over effect is affected by the higher-than-expected outcome in the second half of 2022, as noted above. |
| The component due to the revision of the international scenario with respect to October is explained in **column 'b'**, which shows the impact on the main variables estimated with the Treasury Department's econometric model. The impact on GDP is significantly negative and reflects the deterioration of the international environment linked to the Russian-Ukrainian conflict. The latter has exacerbated critical conditions in the energy market, further increasing supply costs, and contributed to a deterioration in international trade. | The component due to the revision of the international scenario with respect to October is explained in **column 'b'**, which shows the impact on the main variables estimated with the Treasury Department's econometric model. The impact on GDP is significantly negative and reflects the deterioration of the international environment linked to the Russian-Ukrainian conflict. The latter has exacerbated critical conditions in the energy market, further increasing supply costs, and contributed to a deterioration in international trade. | The component due to the revision of the international scenario with respect to October is explained in **column 'b'**, which shows the impact on the main variables estimated with the Treasury Department's econometric model. The impact on GDP is significantly negative and reflects the deterioration of the international environment linked to the Russian-Ukrainian conflict. The latter has exacerbated critical conditions in the energy market, further increasing supply costs, and contributed to a deterioration in international trade. | The component due to the revision of the international scenario with respect to October is explained in **column 'b'**, which shows the impact on the main variables estimated with the Treasury Department's econometric model. The impact on GDP is significantly negative and reflects the deterioration of the international environment linked to the Russian-Ukrainian conflict. The latter has exacerbated critical conditions in the energy market, further increasing supply costs, and contributed to a deterioration in international trade. |
| **Column 'c'** indicates the revision of the forecast which, for the percentage change in GDP, amounts to -0.4 percentage points. | **Column 'c'** indicates the revision of the forecast which, for the percentage change in GDP, amounts to -0.4 percentage points. | **Column 'c'** indicates the revision of the forecast which, for the percentage change in GDP, amounts to -0.4 percentage points. | **Column 'c'** indicates the revision of the forecast which, for the percentage change in GDP, amounts to -0.4 percentage points. |
| Table R2 provides a summary of the impact on GDP growth of developments in the international environment, comparing it with what was assumed in the September 2021 DBP. Such impact, estimated using the ITEM econometric model, is more unfavourable than September forecasts and amounts to -1.6 percentage points in 2022, -1.1 percentage points in 2023 and -0.4 percentage points in 2024, respectively. | Table R2 provides a summary of the impact on GDP growth of developments in the international environment, comparing it with what was assumed in the September 2021 DBP. Such impact, estimated using the ITEM econometric model, is more unfavourable than September forecasts and amounts to -1.6 percentage points in 2022, -1.1 percentage points in 2023 and -0.4 percentage points in 2024, respectively. | Table R2 provides a summary of the impact on GDP growth of developments in the international environment, comparing it with what was assumed in the September 2021 DBP. Such impact, estimated using the ITEM econometric model, is more unfavourable than September forecasts and amounts to -1.6 percentage points in 2022, -1.1 percentage points in 2023 and -0.4 percentage points in 2024, respectively. | Table R2 provides a summary of the impact on GDP growth of developments in the international environment, comparing it with what was assumed in the September 2021 DBP. Such impact, estimated using the ITEM econometric model, is more unfavourable than September forecasts and amounts to -1.6 percentage points in 2022, -1.1 percentage points in 2023 and -0.4 percentage points in 2024, respectively. |
| In detail, compared to the forecast underlying the DBP, international trade has been revised downwards sharply for 2022-23, with a more pronounced decline in the first year, before recovering in 2024. As a result, the effect of the revision of the global demand forecast on the rate of change of GDP is negative in both 2022 (-0.3 percent) and 2023 (-0.1 percent) and slightly positive in 2024 (0.1 percent). | In detail, compared to the forecast underlying the DBP, international trade has been revised downwards sharply for 2022-23, with a more pronounced decline in the first year, before recovering in 2024. As a result, the effect of the revision of the global demand forecast on the rate of change of GDP is negative in both 2022 (-0.3 percent) and 2023 (-0.1 percent) and slightly positive in 2024 (0.1 percent). | In detail, compared to the forecast underlying the DBP, international trade has been revised downwards sharply for 2022-23, with a more pronounced decline in the first year, before recovering in 2024. As a result, the effect of the revision of the global demand forecast on the rate of change of GDP is negative in both 2022 (-0.3 percent) and 2023 (-0.1 percent) and slightly positive in 2024 (0.1 percent). | In detail, compared to the forecast underlying the DBP, international trade has been revised downwards sharply for 2022-23, with a more pronounced decline in the first year, before recovering in 2024. As a result, the effect of the revision of the global demand forecast on the rate of change of GDP is negative in both 2022 (-0.3 percent) and 2023 (-0.1 percent) and slightly positive in 2024 (0.1 percent). |
| **TABLE R2: EFFECTS ON GDP OF THE INTERNATIONAL SCENARIO COMPARED TO THE DBP (impact on growth rates)** | **TABLE R2: EFFECTS ON GDP OF THE INTERNATIONAL SCENARIO COMPARED TO THE DBP (impact on growth rates)** | **TABLE R2: EFFECTS ON GDP OF THE INTERNATIONAL SCENARIO COMPARED TO THE DBP (impact on growth rates)** | **TABLE R2: EFFECTS ON GDP OF THE INTERNATIONAL SCENARIO COMPARED TO THE DBP (impact on growth rates)** |
|  | **2022** | **2023** | **2024** |
| 1. World trade | -0.3 | -0.1 | 0.1 |
| 2. Oil and gas prices | -0.8 | -0.5 | 0.0 |
| 3. Nominal effective exchange rate | -0.1 | -0.2 | 0.0 |
| 4. Interest rate assumptions and financial effects | -0.2 | -0.3 | -0.6 |
| 5. Sanctions against Russia | -0.2 | -0.1 | 0.1 |
| **Total** | **-1.6** | **-1.1** | **-0.4** |
| Source: MEF calculations. | Source: MEF calculations. | Source: MEF calculations. | Source: MEF calculations. |
| In the first months of this year, oil prices maintained the upward trend that had emerged at the end of 2021, exacerbated by tensions arising from the Russian-Ukrainian conflict. The current projection, based on futures contracts, forecasts higher oil price levels over the entire three-year period. In particular, a peak of USD 99.8 per barrel is expected in 2022, followed | In the first months of this year, oil prices maintained the upward trend that had emerged at the end of 2021, exacerbated by tensions arising from the Russian-Ukrainian conflict. The current projection, based on futures contracts, forecasts higher oil price levels over the entire three-year period. In particular, a peak of USD 99.8 per barrel is expected in 2022, followed | In the first months of this year, oil prices maintained the upward trend that had emerged at the end of 2021, exacerbated by tensions arising from the Russian-Ukrainian conflict. The current projection, based on futures contracts, forecasts higher oil price levels over the entire three-year period. In particular, a peak of USD 99.8 per barrel is expected in 2022, followed | In the first months of this year, oil prices maintained the upward trend that had emerged at the end of 2021, exacerbated by tensions arising from the Russian-Ukrainian conflict. The current projection, based on futures contracts, forecasts higher oil price levels over the entire three-year period. In particular, a peak of USD 99.8 per barrel is expected in 2022, followed |

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MINISTRY OF ECONOMY AND FINANCE<sub>13</sub>

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ITALY'S STABILITY PROGRAMME 20**22**<br>

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| by a moderation in 2023 and 2024<sup>8</sup>. Compared to what was projected in September, the price level is higher on average by about USD 26 over the three-year period. In the light of recent developments on the Ukrainian front, the need to consider among the exogenous variables also the price of gas has emerged, which has recorded very significant increases. The assumptions made concern the TTF gas price profile and are based on futures contracts. Specifically, the price in 2022 would reach levels four times higher than those extrapolated from contracts temporally consistent with the September Document, and then decline in subsequent years while remaining at levels much higher than those recorded in the recent past. Cumulating the effects of oil and gas price increases would result in a negative impact of 8 tenths of a point for the GDP rate of change in 2022, 5 tenths of a point in 2023 and no impact in 2024. | by a moderation in 2023 and 2024<sup>8</sup>. Compared to what was projected in September, the price level is higher on average by about USD 26 over the three-year period. In the light of recent developments on the Ukrainian front, the need to consider among the exogenous variables also the price of gas has emerged, which has recorded very significant increases. The assumptions made concern the TTF gas price profile and are based on futures contracts. Specifically, the price in 2022 would reach levels four times higher than those extrapolated from contracts temporally consistent with the September Document, and then decline in subsequent years while remaining at levels much higher than those recorded in the recent past. Cumulating the effects of oil and gas price increases would result in a negative impact of 8 tenths of a point for the GDP rate of change in 2022, 5 tenths of a point in 2023 and no impact in 2024. | by a moderation in 2023 and 2024<sup>8</sup>. Compared to what was projected in September, the price level is higher on average by about USD 26 over the three-year period. In the light of recent developments on the Ukrainian front, the need to consider among the exogenous variables also the price of gas has emerged, which has recorded very significant increases. The assumptions made concern the TTF gas price profile and are based on futures contracts. Specifically, the price in 2022 would reach levels four times higher than those extrapolated from contracts temporally consistent with the September Document, and then decline in subsequent years while remaining at levels much higher than those recorded in the recent past. Cumulating the effects of oil and gas price increases would result in a negative impact of 8 tenths of a point for the GDP rate of change in 2022, 5 tenths of a point in 2023 and no impact in 2024. | by a moderation in 2023 and 2024<sup>8</sup>. Compared to what was projected in September, the price level is higher on average by about USD 26 over the three-year period. In the light of recent developments on the Ukrainian front, the need to consider among the exogenous variables also the price of gas has emerged, which has recorded very significant increases. The assumptions made concern the TTF gas price profile and are based on futures contracts. Specifically, the price in 2022 would reach levels four times higher than those extrapolated from contracts temporally consistent with the September Document, and then decline in subsequent years while remaining at levels much higher than those recorded in the recent past. Cumulating the effects of oil and gas price increases would result in a negative impact of 8 tenths of a point for the GDP rate of change in 2022, 5 tenths of a point in 2023 and no impact in 2024. |
| On the exchange rate front, a technical assumption was adopted for the currency projection, which implies that the exchange rate remains unchanged over time and is equal to the average of the last 10 working days ending 10 March. The update of the nominal effective exchange rate, in comparison with September, sees an appreciation of the euro against other currencies of 0.3 percent in 2022 and 0.1 percent in 2023. The macroeconomic impact of this update of the exchange rate forecast is negative by one tenth of a percentage point on GDP growth in 2022 and two tenths in 2023. | On the exchange rate front, a technical assumption was adopted for the currency projection, which implies that the exchange rate remains unchanged over time and is equal to the average of the last 10 working days ending 10 March. The update of the nominal effective exchange rate, in comparison with September, sees an appreciation of the euro against other currencies of 0.3 percent in 2022 and 0.1 percent in 2023. The macroeconomic impact of this update of the exchange rate forecast is negative by one tenth of a percentage point on GDP growth in 2022 and two tenths in 2023. | On the exchange rate front, a technical assumption was adopted for the currency projection, which implies that the exchange rate remains unchanged over time and is equal to the average of the last 10 working days ending 10 March. The update of the nominal effective exchange rate, in comparison with September, sees an appreciation of the euro against other currencies of 0.3 percent in 2022 and 0.1 percent in 2023. The macroeconomic impact of this update of the exchange rate forecast is negative by one tenth of a percentage point on GDP growth in 2022 and two tenths in 2023. | On the exchange rate front, a technical assumption was adopted for the currency projection, which implies that the exchange rate remains unchanged over time and is equal to the average of the last 10 working days ending 10 March. The update of the nominal effective exchange rate, in comparison with September, sees an appreciation of the euro against other currencies of 0.3 percent in 2022 and 0.1 percent in 2023. The macroeconomic impact of this update of the exchange rate forecast is negative by one tenth of a percentage point on GDP growth in 2022 and two tenths in 2023. |
| The profile of interest rates on government bonds is increasingly unfavourable over the three-year period, consistently with expectations of less accommodating policies by monetary authorities to counter inflationary pressures. In addition, higher BTP yields and a higher spread between the 10-year BTP and Bund are already expected this year, combined with higher bank credit costs. The econometric model estimates these factors to have negative effects on growth over the three-year period of -0.2 percentage points in 2022, -0.3 points in 2023 and -0.6 points in 2024, respectively. | The profile of interest rates on government bonds is increasingly unfavourable over the three-year period, consistently with expectations of less accommodating policies by monetary authorities to counter inflationary pressures. In addition, higher BTP yields and a higher spread between the 10-year BTP and Bund are already expected this year, combined with higher bank credit costs. The econometric model estimates these factors to have negative effects on growth over the three-year period of -0.2 percentage points in 2022, -0.3 points in 2023 and -0.6 points in 2024, respectively. | The profile of interest rates on government bonds is increasingly unfavourable over the three-year period, consistently with expectations of less accommodating policies by monetary authorities to counter inflationary pressures. In addition, higher BTP yields and a higher spread between the 10-year BTP and Bund are already expected this year, combined with higher bank credit costs. The econometric model estimates these factors to have negative effects on growth over the three-year period of -0.2 percentage points in 2022, -0.3 points in 2023 and -0.6 points in 2024, respectively. | The profile of interest rates on government bonds is increasingly unfavourable over the three-year period, consistently with expectations of less accommodating policies by monetary authorities to counter inflationary pressures. In addition, higher BTP yields and a higher spread between the 10-year BTP and Bund are already expected this year, combined with higher bank credit costs. The econometric model estimates these factors to have negative effects on growth over the three-year period of -0.2 percentage points in 2022, -0.3 points in 2023 and -0.6 points in 2024, respectively. |
| Finally, the imposition of sanctions on Russia following the outbreak of hostilities with Ukraine was also considered to be one of the revisions to the international framework that induced changes in the growth profile. Such restrictions would weaken trade by deteriorating foreign demand for domestic goods in proportion to direct export exposure to Russia. The estimated impact on the GDP rate of change is -0.2 and -0.1 percentage points in 2022 and 2023, respectively, and 0.1 in 2024. | Finally, the imposition of sanctions on Russia following the outbreak of hostilities with Ukraine was also considered to be one of the revisions to the international framework that induced changes in the growth profile. Such restrictions would weaken trade by deteriorating foreign demand for domestic goods in proportion to direct export exposure to Russia. The estimated impact on the GDP rate of change is -0.2 and -0.1 percentage points in 2022 and 2023, respectively, and 0.1 in 2024. | Finally, the imposition of sanctions on Russia following the outbreak of hostilities with Ukraine was also considered to be one of the revisions to the international framework that induced changes in the growth profile. Such restrictions would weaken trade by deteriorating foreign demand for domestic goods in proportion to direct export exposure to Russia. The estimated impact on the GDP rate of change is -0.2 and -0.1 percentage points in 2022 and 2023, respectively, and 0.1 in 2024. | Finally, the imposition of sanctions on Russia following the outbreak of hostilities with Ukraine was also considered to be one of the revisions to the international framework that induced changes in the growth profile. Such restrictions would weaken trade by deteriorating foreign demand for domestic goods in proportion to direct export exposure to Russia. The estimated impact on the GDP rate of change is -0.2 and -0.1 percentage points in 2022 and 2023, respectively, and 0.1 in 2024. |
| The DBP growth forecasts have been validated by the Parliamentary Budget Office. The latter in February, following the publication of ISTAT's flash estimate for GDP in the fourth quarter, published a GDP growth forecast of 3.9 percent in 2022 and 1.9 percent in 2023. | The DBP growth forecasts have been validated by the Parliamentary Budget Office. The latter in February, following the publication of ISTAT's flash estimate for GDP in the fourth quarter, published a GDP growth forecast of 3.9 percent in 2022 and 1.9 percent in 2023. | The DBP growth forecasts have been validated by the Parliamentary Budget Office. The latter in February, following the publication of ISTAT's flash estimate for GDP in the fourth quarter, published a GDP growth forecast of 3.9 percent in 2022 and 1.9 percent in 2023. | The DBP growth forecasts have been validated by the Parliamentary Budget Office. The latter in February, following the publication of ISTAT's flash estimate for GDP in the fourth quarter, published a GDP growth forecast of 3.9 percent in 2022 and 1.9 percent in 2023. |
| Compared to the European Commission's most recent estimates (Winter Forecast), baseline GDP growth for 2022 is less pronounced (2.9 percent compared to 4.0 percent), while for 2023 baseline growth is 2.3 percent in both cases. In 2022, the European Commission's estimate does not incorporate the latest international developments. In 2022, there is no mismatch between the growth estimated in the DBP and that of the European Commission and in general with those of other forecasters. | Compared to the European Commission's most recent estimates (Winter Forecast), baseline GDP growth for 2022 is less pronounced (2.9 percent compared to 4.0 percent), while for 2023 baseline growth is 2.3 percent in both cases. In 2022, the European Commission's estimate does not incorporate the latest international developments. In 2022, there is no mismatch between the growth estimated in the DBP and that of the European Commission and in general with those of other forecasters. | Compared to the European Commission's most recent estimates (Winter Forecast), baseline GDP growth for 2022 is less pronounced (2.9 percent compared to 4.0 percent), while for 2023 baseline growth is 2.3 percent in both cases. In 2022, the European Commission's estimate does not incorporate the latest international developments. In 2022, there is no mismatch between the growth estimated in the DBP and that of the European Commission and in general with those of other forecasters. | Compared to the European Commission's most recent estimates (Winter Forecast), baseline GDP growth for 2022 is less pronounced (2.9 percent compared to 4.0 percent), while for 2023 baseline growth is 2.3 percent in both cases. In 2022, the European Commission's estimate does not incorporate the latest international developments. In 2022, there is no mismatch between the growth estimated in the DBP and that of the European Commission and in general with those of other forecasters. |
| **TABLE R3: GROWTH FORECASTS FOR ITALY** | **TABLE R3: GROWTH FORECASTS FOR ITALY** | **TABLE R3: GROWTH FORECASTS FOR ITALY** | **TABLE R3: GROWTH FORECASTS FOR ITALY** |
| **Real GDP (%y/y)** | **Forecast date** | **2022** | **2023** |
| **Stability Programme 2022** | **Mar-22** | 2.9 | 2.3 |
| OECD | Dec-21 | 4.6 | 2.6 |
| UPB | Feb-22 | 3.9 | 1.9 |
| IMF (WEO) | Jan-22 | 3.8 | 2.2 |
| European Commission | Feb-22 | 4.1 | 2.3 |
| (\*) For OECD adjusted data for working days. | (\*) For OECD adjusted data for working days. | (\*) For OECD adjusted data for working days. | (\*) For OECD adjusted data for working days. |

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<sup>8</sup> This refers to the average of futures over the last ten business days ending 10 March 2022..

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| **14** | MINISTRY OF ECONOMY AND FINANCE |

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**II. BASELINE MACROECONOMIC AND BUDGET FORECAST**<br>

#### II.2 RISKS TO THE BASELINE MACROECONOMIC FORECAST
As usual, the baseline forecast was subjected to risk analysis on some key variables of the forecast (see the Focus entitled "A risk analysis on the geopolitical situation and exogenous variables"). In addition, in view of recent events, a risk scenario related to the war in Ukraine, and in particular the possibility that a further tightening of sanctions would lead to the interruption of gas and oil inflows from Russia, was explored.

The impact of a possible blockade of Russian gas and oil exports on production activities and on the prices of fossil energy sources and electricity would depend on several factors, including the timing of such an event, the level of gas stocks in Italy and Europe at the time of the interruption, and the geopolitical and military context in which it occurred.

In the simulation carried out, an export freeze was assumed to start at the end of April 2022 and last through 2023. Evaluations carried out with the contribution of experts in the sector lead to the hypothesis, with reference to the solar year rather than the thermal year, of an annual consumption in Italy of 74 billion standardised cubic metres in 2022 (against 77.1 billion in 2021) and 72.5 billion in 2023.

Based on these assessments, a first scenario assumes that companies in the sector would be able to secure the gas supplies the country needs thanks to an increase in imports from southern pipelines, an increased use of LNG (regasification capacity would increase significantly already in 2023) and an increase, initially modest, but growing over time, in domestic production of natural gas and biomethane.

However, if other European countries were to make similar efforts to diversify their supplies, this would lead to a much higher price increase than that incorporated in the exogenous components of the baseline macroeconomic framework.

The second risk scenario assumes that not all actions taken to diversify gas supplies will produce the desired results due to technical, climatic, and geopolitical issues, and that other EU countries will also face gas shortages. For Italy, gas shortages are assumed to be 18 percent of volume imports in 2022 and 15 percent of imports in 2023<sup>9</sup>. As in the previous simulation, the decline in activity in the destination countries of Italian exports was also considered.

The simulation results show a fall in GDP compared to the baseline scenario of 2.3 percentage points in 2022 and 1.9 in 2023. Employment would be 1.3 percentage points lower this year and 1.2 percentage points in 2023. The consumption deflator would grow by 1.8 percentage points more this year and 2.4 percentage points in 2023. Assuming energy prices recover in the following two years and GDP returns to trend in 2025, the GDP growth rate would be 1.9 percentage points higher in 2024 and 2.3 percentage points in 2025.

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<sup>9</sup> The comparison between 2022 and 2023 is consistent with the assumption of significant progress in diversifying gas supply sources, as in 2022 Russian gas will still have been imported for four months, while in 2023 inflows from Russia would be zero. It should also be noted that, in line with the macroeconomic forecast, the analysis of gas supplies was carried out on a calendar year basis. The gas market, on the other hand, is based on the thermal year starting on 1 October. In the assumed scenario, it would be the thermal year 2022-2023 that would present the greatest supply difficulties.

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| MINISTRY OF ECONOMY AND FINANCE | **15** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

Thus, in the worst-case scenario real GDP growth in 2022 would be 0.6 percent and 0.4 percent in 2023. As 2022 inherits 2.3 percentage points of growth from 2021, GDP growth in 2022 would be clearly negative, while the consumption deflator would grow by 7.6 percent. These assessments refer to the baseline scenario, as such a worst-case scenario would be met with a more robust economic support measure than that assumed in the policy scenario of this Document.

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| **FOCUS**  | **A risk analysis of the geopolitical situation and exogenous variables** |
| **FOCUS**  | Using both the ITEM econometric model and the MACGEM-IT computational general equilibrium model, four different risk scenarios were considered for the baseline forecast, two of which related to the interruption of gas supplies from Russia following a tightening of sanctions, and the others to other specific macroeconomic risk factors. |
| **FOCUS**  | For the two Russian gas embargo scenarios, the gas import blockade is assumed to occur from the end of April 2022 and to last through 2023. The first scenario assumes that companies in the sector manage to meet the demand by diversifying their supplies, even if the embargo causes gas, electricity, and oil prices to rise further than in the baseline scenario. In particular, the price of gas is assumed to be 37 percent higher in 2022 than in the baseline scenario (69 percent in 2023), the price of oil 9 percent higher (4.5 percent in 2023) and the price of electricity 30 percent higher (58 percent in 2023). Using the MACGEM-IT model, the impact of higher prices on output levels was determined, taking into account the use of energy materials in different sectors and inter-sectoral linkages. Moreover, as the embargo affects other European countries as well, the scenario also considers the effects of a drop in their activities due to the sharp rise in energy prices, leading to lower foreign demand. |
| **FOCUS**  | In the second scenario, it is assumed that diversification efforts in supply do not have the expected results due to various difficulties. The interruption in gas supplies from Russia is therefore accompanied not only by an even more pronounced increase in gas, electricity, and oil prices (+10 percent on average compared to what was already assumed in the first scenario), but also by a shortage of gas, estimated at 18 percent and 15 percent of imports in volume in 2022 and 2023 respectively. The effects of the activity drop in European trading partners are also considered. |
| **FOCUS**  | The third simulation concerns exchange rates. In the alternative scenario, they were set, over the forecast horizon, at levels corresponding to the average forward exchange rates over the most recent period (over the 10 days starting from 3 March 2021). This would result in a lower appreciation of dollars against euros in 2022 compared to the baseline scenario (by 4.8 percent instead of 6.3 percent). Moreover, while the nominal effective exchange rate remains broadly unchanged in the baseline scenario, in this simulation the euro would appreciate against other currencies by an average of about 0.3 percent in 2022 and 2.3 percent in 2023. In 2024 and 2025, the appreciation would be 3.2 and 0.8 percent, respectively. |
| **FOCUS**  | The fourth and final simulation refers to risk factors related to the financial condition of the economy. Compared to the baseline scenario, the level of the 10-year BTP yield rate is assumed 100 basis points higher. These less favourable conditions for financing public debt do not affect the current year, but only the subsequent ones, due to the central bank's ongoing programme of purchases of financial securities, which helps to limit the risk of tensions in the financial markets. In this alternative scenario, higher levels of the BTP-Bund spread starting from 2023 translate into less favourable conditions for access to credit, with higher interest rates applied to loans to households and businesses. |
|  | The assessment of the impact on economic activity levels of the above risk elements is documented in Table R4. Under the first scenario hypothesis for the interruption of gas flows from Russia, the GDP growth rate would be lower than in the baseline scenario by 0.8 |

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| **16** | MINISTRY OF ECONOMY AND FINANCE |

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**II. BASELINE MACROECONOMIC AND BUDGET FORECAST**<br>

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| percentage points in 2022 and 1.1 points in 2023. The recovery in the following years, with growth rates higher than in the baseline scenario (1.1 and 0.8 percent, respectively), means that the level of GDP in early 2025 is in line with the corresponding level in the baseline scenario. In the other, even more unfavourable, Russian gas embargo scenario, higher energy prices, lower gas availability for households and lower foreign demand would determine a contraction of the output growth rate relative to the baseline scenario by 2.3 percentage points in 2022 and 1.9 percentage points in 2023. In contrast, the GDP growth rate would be 1.9 percentage points higher than in the baseline in 2024 and 2.3 points higher in 2025. | percentage points in 2022 and 1.1 points in 2023. The recovery in the following years, with growth rates higher than in the baseline scenario (1.1 and 0.8 percent, respectively), means that the level of GDP in early 2025 is in line with the corresponding level in the baseline scenario. In the other, even more unfavourable, Russian gas embargo scenario, higher energy prices, lower gas availability for households and lower foreign demand would determine a contraction of the output growth rate relative to the baseline scenario by 2.3 percentage points in 2022 and 1.9 percentage points in 2023. In contrast, the GDP growth rate would be 1.9 percentage points higher than in the baseline in 2024 and 2.3 points higher in 2025. | percentage points in 2022 and 1.1 points in 2023. The recovery in the following years, with growth rates higher than in the baseline scenario (1.1 and 0.8 percent, respectively), means that the level of GDP in early 2025 is in line with the corresponding level in the baseline scenario. In the other, even more unfavourable, Russian gas embargo scenario, higher energy prices, lower gas availability for households and lower foreign demand would determine a contraction of the output growth rate relative to the baseline scenario by 2.3 percentage points in 2022 and 1.9 percentage points in 2023. In contrast, the GDP growth rate would be 1.9 percentage points higher than in the baseline in 2024 and 2.3 points higher in 2025. | percentage points in 2022 and 1.1 points in 2023. The recovery in the following years, with growth rates higher than in the baseline scenario (1.1 and 0.8 percent, respectively), means that the level of GDP in early 2025 is in line with the corresponding level in the baseline scenario. In the other, even more unfavourable, Russian gas embargo scenario, higher energy prices, lower gas availability for households and lower foreign demand would determine a contraction of the output growth rate relative to the baseline scenario by 2.3 percentage points in 2022 and 1.9 percentage points in 2023. In contrast, the GDP growth rate would be 1.9 percentage points higher than in the baseline in 2024 and 2.3 points higher in 2025. | percentage points in 2022 and 1.1 points in 2023. The recovery in the following years, with growth rates higher than in the baseline scenario (1.1 and 0.8 percent, respectively), means that the level of GDP in early 2025 is in line with the corresponding level in the baseline scenario. In the other, even more unfavourable, Russian gas embargo scenario, higher energy prices, lower gas availability for households and lower foreign demand would determine a contraction of the output growth rate relative to the baseline scenario by 2.3 percentage points in 2022 and 1.9 percentage points in 2023. In contrast, the GDP growth rate would be 1.9 percentage points higher than in the baseline in 2024 and 2.3 points higher in 2025. |
| Regarding exchange rates, the higher appreciation of the euro relative to the baseline scenario would reduce the GDP growth rate relative to the baseline scenario by 0.4 percent in 2023, 0.8 percent in 2024 and 0.6 percent in 2025. This simulation does not include any assumptions about the partial block of Italy's trade with Russia, therefore the effects on both exports and GDP of an appreciation of the euro (due, to a large extent, to the appreciation against the rouble) could be to some degree overestimated. Assuming worse financial conditions from 2023 onwards would determine a negative impact on the growth profile of the Italian economy. In particular, the GDP growth rate would be 0.1 percentage points lower in 2023 than in the baseline scenario and 0.4 and 0.5 points lower in 2024 and 2025, respectively. | Regarding exchange rates, the higher appreciation of the euro relative to the baseline scenario would reduce the GDP growth rate relative to the baseline scenario by 0.4 percent in 2023, 0.8 percent in 2024 and 0.6 percent in 2025. This simulation does not include any assumptions about the partial block of Italy's trade with Russia, therefore the effects on both exports and GDP of an appreciation of the euro (due, to a large extent, to the appreciation against the rouble) could be to some degree overestimated. Assuming worse financial conditions from 2023 onwards would determine a negative impact on the growth profile of the Italian economy. In particular, the GDP growth rate would be 0.1 percentage points lower in 2023 than in the baseline scenario and 0.4 and 0.5 points lower in 2024 and 2025, respectively. | Regarding exchange rates, the higher appreciation of the euro relative to the baseline scenario would reduce the GDP growth rate relative to the baseline scenario by 0.4 percent in 2023, 0.8 percent in 2024 and 0.6 percent in 2025. This simulation does not include any assumptions about the partial block of Italy's trade with Russia, therefore the effects on both exports and GDP of an appreciation of the euro (due, to a large extent, to the appreciation against the rouble) could be to some degree overestimated. Assuming worse financial conditions from 2023 onwards would determine a negative impact on the growth profile of the Italian economy. In particular, the GDP growth rate would be 0.1 percentage points lower in 2023 than in the baseline scenario and 0.4 and 0.5 points lower in 2024 and 2025, respectively. | Regarding exchange rates, the higher appreciation of the euro relative to the baseline scenario would reduce the GDP growth rate relative to the baseline scenario by 0.4 percent in 2023, 0.8 percent in 2024 and 0.6 percent in 2025. This simulation does not include any assumptions about the partial block of Italy's trade with Russia, therefore the effects on both exports and GDP of an appreciation of the euro (due, to a large extent, to the appreciation against the rouble) could be to some degree overestimated. Assuming worse financial conditions from 2023 onwards would determine a negative impact on the growth profile of the Italian economy. In particular, the GDP growth rate would be 0.1 percentage points lower in 2023 than in the baseline scenario and 0.4 and 0.5 points lower in 2024 and 2025, respectively. | Regarding exchange rates, the higher appreciation of the euro relative to the baseline scenario would reduce the GDP growth rate relative to the baseline scenario by 0.4 percent in 2023, 0.8 percent in 2024 and 0.6 percent in 2025. This simulation does not include any assumptions about the partial block of Italy's trade with Russia, therefore the effects on both exports and GDP of an appreciation of the euro (due, to a large extent, to the appreciation against the rouble) could be to some degree overestimated. Assuming worse financial conditions from 2023 onwards would determine a negative impact on the growth profile of the Italian economy. In particular, the GDP growth rate would be 0.1 percentage points lower in 2023 than in the baseline scenario and 0.4 and 0.5 points lower in 2024 and 2025, respectively. |
| **TABLE R1: EFFECTS OF RISK SCENARIOS ON GDP (impact on percentage growth rates compared to the baseline macroeconomic scenario)** | **TABLE R1: EFFECTS OF RISK SCENARIOS ON GDP (impact on percentage growth rates compared to the baseline macroeconomic scenario)** | **TABLE R1: EFFECTS OF RISK SCENARIOS ON GDP (impact on percentage growth rates compared to the baseline macroeconomic scenario)** | **TABLE R1: EFFECTS OF RISK SCENARIOS ON GDP (impact on percentage growth rates compared to the baseline macroeconomic scenario)** | **TABLE R1: EFFECTS OF RISK SCENARIOS ON GDP (impact on percentage growth rates compared to the baseline macroeconomic scenario)** |
|  | **2022** | **2023** | **2024** | **2025** |
| 1. Interruption of gas inflows from Russia: 1<sup>st</sup> scenario | -0.8 | -1.1 | 1.1 | 0.8 |
| 2. Interruption of gas inflows from Russia: 2<sup>nd</sup> scenario | -2.3 | -1.9 | 1.9 | 2.3 |
| 3. Nominal effective exchange rate | 0.0 | -0.4 | -0.8 | -0.6 |
| 4. Assumption of worse financial conditions | 0.0 | -0.1 | -0.4 | -0.5 |
| Source: MEF-TD calculations; ITEM and MACGEM-IT models. | Source: MEF-TD calculations; ITEM and MACGEM-IT models. | Source: MEF-TD calculations; ITEM and MACGEM-IT models. | Source: MEF-TD calculations; ITEM and MACGEM-IT models. | Source: MEF-TD calculations; ITEM and MACGEM-IT models. |

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#### II.3 BUDGETARY OUTLOOK UNDER EXISTING LEGISLATION
Starting from the positive public finance results achieved in 2021, the baseline forecast of the general government net borrowing for 2022 is revised downward with respect to the Update of the Stability Programme and the Draft Budgetary Plan (DBP) policy scenario, from 5.6 percent to 5.1 percent of GDP. The general government account in the baseline scenario (under existing legislation) includes the measures to lower bills for households and businesses that the Government introduced with the 2022 Budget Law and the decree-laws adopted in the past three months, to which industrial policy measures must be added. To cover the measures, *inter alia*, ministerial expenditure was cut by 4.5 billion and an extraordinary tax on the profits of energy companies of 3.9 billion was introduced.

Moreover, as mentioned above, GDP is now projected to grow by 6.0 percent in nominal terms in 2022, compared to 6.4 percent in the DBP. *Ceteris paribus*, this would result in a negative impact on general government revenues. However, while the upward revision of the inflation forecast leads to higher interest payments on government bonds indexed to consumer prices and inflation-indexed expenditures, it also pushes up revenues from indirect taxes.

Overall, the downward revision of the 2022 net borrowing estimate is mainly due to higher tax, social security contributions and other current revenues, which<br>

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| MINISTRY OF ECONOMY AND FINANCE | **17** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

offset to a greater extent higher estimate of current and capital expenditure compared to the DBP. However, the tax burden calculated according to national accounts criteria is expected to fall from 43.5 percent in 2021 to 43.1 percent of GDP this year. Moreover, when correcting the data to take into account the classification of various tax and social security contribution reductions as expenditure measures, the actual tax burden is lower and falls slightly more, from 41.7 last year to 41.2 this year.

As regards the next three-year period, the general government account under existing legislation benefits from a significant reduction in relation to GDP of both current primary expenditure (from 45.0 percent in 2022 to 42.0 percent in 2025) and interest expenditure (from 3.5 percent to 3.0 percent, also thanks to the expected decline in consumer inflation), while general government gross fixed capital formation is expected to rise from 3.1 percent to 3.6 percent of GDP. On the revenue side, the tax burden would fall to 42.2 percent of GDP in 2025, while final revenues would fall from 48.5 percent of GDP in 2022 to 46.9 percent in 2025.

As a result of these changes, the general government net borrowing in the baseline scenario is expected to decrease from 5.1 percent of GDP in 2022 to 3.7 percent in 2023 and then to 3.2 percent in 2024 and 2.7 percent in 2025.

![](image8.jpg)

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| **18** | MINISTRY OF ECONOMY AND FINANCE |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**III.** **UPDATED POLICY SCENARIO** 

#### III.1 FISCAL POLICY SCENARIO
The fiscal policy for 2022 outlined a year ago in the Stability Programme, subsequently clarified in the Draft Budgetary Plan (DBP) and then implemented with the Budget Law, is based on the consideration that the revival of the Italian economy after years of slow growth and the unprecedented slump in 2020 requires a prudent but expansive fiscal policy - albeit with the expectation that the NRRP will produce a gradually increasing momentum to the country's sustainable development.

Therefore, according to the approach adopted in the 2022 Budget Law, Italy's fiscal policy shall remain expansionary until the GDP gap, with respect to the pre-crisis trend, is fully closed. The gradually less expansionary stance of the fiscal policy will lead to a gradual decline in the deficit, a significant reduction in the debt-to-GDP ratio, an improvement in the quality of public spending and the recovery of revenues thanks to a shrinking tax gap.

The fiscal space obtained by adopting a more gradual deficit reduction path, compared to the baseline, has been allocated to a reform of the Personal Income Tax (*Imposta sui Redditi delle Persone Fisiche, IRPEF*), the Regional Tax on Production Activities (*Imposta regionale sulle attività produttive*, *IRAP*), and of social benefits, funding credit guarantees and public investment, as well as raising the resources for the Citizenship Income scheme. In addition, funding for health and pandemic response has been increased and a substantial reduction in energy costs for households and businesses has been implemented. The universal child benefit has been fully implemented.

As described in detail above, higher energy prices at the beginning of the year had the hardest impact on businesses and household budgets. As a result, the Government has taken action with further price containment measures. Interventions have also been, and are being, financed to support the automotive sector, and in particular the sales of environment-friendly cars, as well as the semiconductor sector.

The recent measures implemented by the Government are in line with the guidelines issued by the European Commission, which recognise, on the one hand, the need to cushion the impact on the economy of the increases in the price of natural gas and oil caused by the war in Ukraine, and, on the other, the importance of supporting strategic industrial sectors in the face of non-European competition, which is also based on substantial State aid.

In this context, in light of the lowering of the baseline net borrowing forecast to 5.1 percent of GDP, the Government has decided to confirm the deficit-to-GDP ratio target of the DBP (5.6 percent of GDP), and to use the resulting margin of approximately 0.5 percentage points of GDP to finance a new measure, to be<br>

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| MINISTRY OF ECONOMY AND FINANCE | **19** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

finalised in April. First of all, the new Decree-Law will restore budgetary funds temporarily de-funded to partially cover Decree-Law No. 17/2022, amounting to 4.5 billion in terms of impact on the general government net borrowing. The remaining resources will be allocated to the following interventions:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the increase in funds for credit guarantees.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the increase in resources needed to cover the rise in prices of public works.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• further action to contain fuel prices and energy costs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• further measures that are necessary to assist Ukrainian refugees and to alleviate the economic impact of the ongoing conflict in Ukraine on Italian companies.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• continuing to support the health system's response to the pandemic and the sectors most affected by the pandemic emergency.

In addition, general government net borrowing targets for 2023 and 2024, which were revised under a meliorative filter in the 2022 DBP, are confirmed: 3.9 percent of GDP in 2023 and 3.3 percent of GDP in 2024. For 2025, the new deficit target is set at 2.8 percent of GDP. Based on the baseline public finance projections under existing legislation outlined above, this creates room to finance expansionary measures of 0.2 percent of GDP in 2023 and 0.1 percent in 2024 and 2025.

The public finance baseline projection described in the previous chapter does not include the so-called unchanged policies, which include a series of expenditures that may have to be implemented in the coming years due to international commitments or legislative factors, from the refinancing of international missions to the financing of future contract renewals in the general government sector. The central State administrations will contribute to the financing of these needs and new measures that the Government will decide to adopt with the end-of-year manoeuvre, through a renewed spending review activity. This is also in view of the fact that for the 2023-2025 three-year period, the resumption of the procedure provided for by Article 22-bis of Law No. 196 of 2009 is configured as one of the enabling reforms of the NRRP (reform 1.13).

To this end, the expenditure savings to be ensured by the central State administrations for the three-year planning period are indicated, according to an increasing profile, as 800 million for the year 2023, 1,200 million for the year 2024 and 1,500 million for the year 2025. The distribution among ministries and the areas of intervention will be identified by a decree of the President of the Council of Ministers (by 31 May) on the proposal of the Minister of Economy and Finance, after deliberation by the Council of Ministers.

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| **20** | MINISTRY OF ECONOMY AND FINANCE |

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**III. UPDATED POLICY SCENARIO**<br>

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| **TABLE III.1: PUBLIC FINANCE INDICATORS (as a percentage of GDP)(1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (as a percentage of GDP)(1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (as a percentage of GDP)(1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (as a percentage of GDP)(1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (as a percentage of GDP)(1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (as a percentage of GDP)(1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (as a percentage of GDP)(1)** |
|  | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| **POLICY SCENARIO** |  |  |  |  |  |  |
| Net borrowing | -9.6 | -7.2 | -5.6 | -3.9 | -3.3 | -2.8 |
| Primary balance | -6.1 | -3.7 | -2.1 | -0.8 | -0.3 | 0.2 |
| Interest expense | 3.5 | 3.5 | 3.5 | 3.1 | 3.0 | 3.0 |
| Structural net borrowing (2) | -5.0 | -6.1 | -5.9 | -4.5 | -4.0 | -3.6 |
| Structural variation | -3.0 | -1.1 | 0.2 | 1.4 | 0.5 | 0.4 |
| Public debt (gross of subsidies) (3) | 155.3 | 150.8 | 147.0 | 145.2 | 143.4 | 141.4 |
| Public debt (net of subsidies) (3) | 151.8 | 147.6 | 144.0 | 142.3 | 140.7 | 138.8 |
| **BASELINE SCENARIO UNDER EXISTING LEGISLATION** |  |  |  |  |  |  |
| Net borrowing | -9.6 | -7.2 | -5.1 | -3.7 | -3.2 | -2.7 |
| Primary balance | -6.1 | -3.7 | -1.6 | -0.6 | -0.2 | 0.2 |
| Interest expense | 3.5 | 3.5 | 3.5 | 3.1 | 3.0 | 3.0 |
| Structural net borrowing (2) | -5.0 | -6.1 | -5.3 | -4.3 | -3.8 | -3.4 |
| Structural variation | -3.0 | -1.1 | 0.8 | 1.1 | 0.5 | 0.3 |
| Public debt (gross of subsidies) (3) | 155.3 | 150.8 | 146.8 | 145.0 | 143.2 | 141.2 |
| Public debt (net of subsidies) (3) | 151.8 | 147.6 | 143.8 | 142.1 | 140.5 | 138.6 |
| **MEMO: Update of the Stability Programme 2021/ DBP 2022 (POLICY SCENARIO)** | **MEMO: Update of the Stability Programme 2021/ DBP 2022 (POLICY SCENARIO)** | **MEMO: Update of the Stability Programme 2021/ DBP 2022 (POLICY SCENARIO)** | **MEMO: Update of the Stability Programme 2021/ DBP 2022 (POLICY SCENARIO)** | **MEMO: Update of the Stability Programme 2021/ DBP 2022 (POLICY SCENARIO)** | **MEMO: Update of the Stability Programme 2021/ DBP 2022 (POLICY SCENARIO)** | **MEMO: Update of the Stability Programme 2021/ DBP 2022 (POLICY SCENARIO)** |
| Net borrowing | -9.6 | -9.4 | -5.6 | -3.9 | -3.3 |  |
| Primary balance | -6.1 | -6.0 | -2.6 | -1.2 | -0.8 |  |
| Interest expense | 3.5 | 3.4 | 2.9 | 2.7 | 2.5 |  |
| Structural net borrowing (2) | -4.7 | -7.6 | -5.4 | -4.4 | -3.8 |  |
| Variation in structural balance | -2.9 | -2.9 | 2.1 | 1.0 | -0.6 |  |
| Public debt (gross of subsidies) | 155.6 | 153.5 | 149.4 | 147.6 | 146.1 |  |
| Public debt (net of subsidies) | 152.1 | 150.3 | 146.4 | 144.8 | 143.3 |  |
| *Nominal baseline GDP (absolute values x 1000)* | 1657.0 | 1775.4 | 1882.7 | 1966.2 | 2037.6 | 2105.7 |
| *Policy nominal GDP (absolute values x 1000)* | 1657.0 | 1775.4 | 1887.0 | 1974.5 | 2048.3 | 2116.8 |
| (1) Any inaccuracies are the result of rounding.<br> (2) Net of one-time measures and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, "Statistical Bulletin Public Finance, Cash Requirements and Debt", March 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was completed. | (1) Any inaccuracies are the result of rounding.<br> (2) Net of one-time measures and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, "Statistical Bulletin Public Finance, Cash Requirements and Debt", March 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was completed. | (1) Any inaccuracies are the result of rounding.<br> (2) Net of one-time measures and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, "Statistical Bulletin Public Finance, Cash Requirements and Debt", March 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was completed. | (1) Any inaccuracies are the result of rounding.<br> (2) Net of one-time measures and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, "Statistical Bulletin Public Finance, Cash Requirements and Debt", March 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was completed. | (1) Any inaccuracies are the result of rounding.<br> (2) Net of one-time measures and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, "Statistical Bulletin Public Finance, Cash Requirements and Debt", March 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was completed. | (1) Any inaccuracies are the result of rounding.<br> (2) Net of one-time measures and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, "Statistical Bulletin Public Finance, Cash Requirements and Debt", March 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was completed. | (1) Any inaccuracies are the result of rounding.<br> (2) Net of one-time measures and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, "Statistical Bulletin Public Finance, Cash Requirements and Debt", March 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was completed. |

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#### III.2 MACROECONOMIC FORECAST UNDER THE POLICY SCENARIO
The measures envisaged in the policy scenario and to be adopted in April will have an expansionary effect on the Italian economy and will increase the change in GDP projected in the policy scenario to 3.1 percent in 2022 (from 2.9 percent in the baseline scenario) and to 2.4 percent in 2023 (from 2.3 percent in the baseline scenario).

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|:---|:---|
| MINISTRY OF ECONOMY AND FINANCE | **21** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

The higher resources allocated support households and firms and contribute to increasing (compared to the baseline scenario) investment by 0.3 percent and household consumption by about 0.1 percentage points this year. In the following year, household consumption in the macroeconomic policy framework grows by 2.1 percent (in line with the baseline scenario) and total gross fixed capital formation by 5.5 percent (0.4 percentage points higher than in the baseline scenario). The improved demand performance triggers higher imports in 2023 on the one hand and promotes labour input growth on the other.

The policy scenario expects a higher employment and lower unemployment rate than the baseline scenario, which stands at 8.1 percent in 2023, and then declines further to 8.0 percent in 2024 and 7.9 percent in 2025.

GDP growth projections for 2024 and 2025 remain broadly unchanged from those in the baseline scenario. In other aspects, the differences between the policy scenario and the baseline scenario are limited, as the deficit differential is large this year but narrows in the next three years until essentially disappearing in 2024-2025.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **TABLE III.2: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE III.2: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE III.2: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE III.2: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE III.2: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE III.2: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** |
|  | **2021** | **2022** | **2023** | **2024** | **2025** |
| GDP | 6.6 | 3.1 | 2.4 | 1.8 | 1.5 |
| GDP deflator | 0.5 | 3.0 | 2.2 | 1.9 | 1.8 |
| Consumption deflator | 1.7 | 5.8 | 2.1 | 1.8 | 1.8 |
| Nominal GDP | 7.2 | 6.3 | 4.6 | 3.7 | 3.3 |
| Employment (AWU) (2) | 7.6 | 2.6 | 2.3 | 1.6 | 1.3 |
| Employment (WF) (3) | 0.8 | 1.9 | 1.8 | 1.2 | 1.0 |
| Unemployment rate | 9.5 | 8.6 | 8.1 | 8.0 | 7.9 |
| Current account balance (balance in % GDP) | 3.3 | 2.3 | 2.6 | 2.7 | 2.7 |
| (1) Any inaccuracies are due to rounding. |  |  |  |  |  |
| (2) Employment expressed in terms of standard work units (AWU). | (2) Employment expressed in terms of standard work units (AWU). | (2) Employment expressed in terms of standard work units (AWU). | (2) Employment expressed in terms of standard work units (AWU). | (2) Employment expressed in terms of standard work units (AWU). | (2) Employment expressed in terms of standard work units (AWU). |
| (3) Number of employed people according to the Continuous Labour Force Survey (*Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. | (3) Number of employed people according to the Continuous Labour Force Survey (*Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. | (3) Number of employed people according to the Continuous Labour Force Survey (*Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. | (3) Number of employed people according to the Continuous Labour Force Survey (*Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. | (3) Number of employed people according to the Continuous Labour Force Survey (*Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. | (3) Number of employed people according to the Continuous Labour Force Survey (*Rilevazione Continua delle Forze Lavoro*, RCFL) sample survey. |

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*The macroeconomic forecast based on the policy scenario was endorsed by the Parliamentary Budget Office with a note dated 14 April 2022.*

#### III.3 BUDGET BALANCE, CONVERGENCE TOWARDS THE MEDIUM-TERM OBJECTIVE AND THE EXPENDITURE RULE
As mentioned, the Government confirms the nominal deficit targets of the DBP, with a path starting from 5.6 percent of GDP this year and going down to 2.8 percent in 2025, therefore creating room for new expansive measures worth 0.5 percentage points of GDP this year, 0.2 in 2023 and 0.1 in 2024 and 2025.

The profile of the policy balance for 2022 and future years indicates a descent below the 3 percent threshold for general government net borrowing to the GDP set by the Stability and Growth Pact.

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| **22** | MINISTRY OF ECONOMY AND FINANCE |

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#### <br>
**III. UPDATED POLICY SCENARIO**<br>

The interpretation of the dynamics of the indicators linked to fiscal surveillance in recent years, also in the context of the activation of the General Escape Clause, is particularly complex, both because of the correction of the balance for the cyclical component (of extremely large size and subject to considerable uncertainty), and because of the presence of a considerable component of expenditure (and to a lesser extent of revenue reductions) of an emergency nature.

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|:---|:---|:---|:---|:---|:---|:---|:---|
| **TABLE III.3: SIGNIFICANT DEVIATIONS** | **TABLE III.3: SIGNIFICANT DEVIATIONS** | **TABLE III.3: SIGNIFICANT DEVIATIONS** | **TABLE III.3: SIGNIFICANT DEVIATIONS** | **TABLE III.3: SIGNIFICANT DEVIATIONS** | **TABLE III.3: SIGNIFICANT DEVIATIONS** | **TABLE III.3: SIGNIFICANT DEVIATIONS** | **TABLE III.3: SIGNIFICANT DEVIATIONS** |
| **Convergence of the structural balance towards the MTO** | **2019** | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| General government net borrowing | -1.6 | -9.6 | -7.2 | -5.6 | -3.9 | -3.3 | -2.8 |
| Medium Term Objective (MTO) (\*) | 0.0 | 0.5 | 0.5 | 0.5 | 0.3 | 0.3 | 0.3 |
| Structural Balance | -2.0 | -5.0 | -6.1 | -5.9 | -4.5 | -4.0 | -3.6 |
| Annual change in structural balance | 0.4 | -1.2 | -1.1 | 0.2 | 1.4 | 0.5 | 0.4 |
| Required variation in structural balance (\* \*) | 0.4 | -0.2 | 0.5 | 0.6 | 0.6 | 0.6 | 0.6 |
| Deviation of the structural balance from the annual required variation (<0.5 pp) | 0.8 | 4.7 | -1.6 | -0.4 | 0.8 | -0.1 | -0.2 |
| Average variation in the structural balance (over two years) | 0.1 | -0.4 | -1.1 | -0.5 | 0.8 | 1.0 | 0.5 |
| Average required variation | 0.4 | 0.1 | 0.2 | 0.6 | 0.6 | 0.6 | 0.6 |
| Deviation of the structural balance from the average required variation (<0.25 pp) | -0.2 | -0.5 | -1.3 | -1.0 | 0.2 | 0.4 | -0.1 |
| **Expenditure rule** | **2019** | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| Growth rate of the reference aggregate expenditure (%) | 1.5 | 10.1 | 5.1 | 3.3 | -0.2 | 1.9 | 0.4 |
| Benchmark modulated on the prevailing cyclical conditions (\* \* \*) (%) | 0.7 | 1.9 | 0.4 | 1.8 | 1.8 | 1.5 | 1.6 |
| Deviation of the aggregate expenditure from the annual required variation (<0.5 p.p.) | -0.4 | -4.1 | -2.3 | -0.7 | 0.9 | -0.2 | 0.5 |
| Deviation of the aggregate expenditure from the average required variation over two years (<0.25 p.p.) | -0.5 | -2.2 | -3.2 | -1.5 | 0.1 | 0.4 | 0.2 |
| (\*) Pending the revision of European economic governance, the Commission has updated the MTO every three years on the basis of updated data from the 2021 Autumn Forecast and the 2021 Ageing Report. | (\*) Pending the revision of European economic governance, the Commission has updated the MTO every three years on the basis of updated data from the 2021 Autumn Forecast and the 2021 Ageing Report. | (\*) Pending the revision of European economic governance, the Commission has updated the MTO every three years on the basis of updated data from the 2021 Autumn Forecast and the 2021 Ageing Report. | (\*) Pending the revision of European economic governance, the Commission has updated the MTO every three years on the basis of updated data from the 2021 Autumn Forecast and the 2021 Ageing Report. | (\*) Pending the revision of European economic governance, the Commission has updated the MTO every three years on the basis of updated data from the 2021 Autumn Forecast and the 2021 Ageing Report. | (\*) Pending the revision of European economic governance, the Commission has updated the MTO every three years on the basis of updated data from the 2021 Autumn Forecast and the 2021 Ageing Report. | (\*) Pending the revision of European economic governance, the Commission has updated the MTO every three years on the basis of updated data from the 2021 Autumn Forecast and the 2021 Ageing Report. | (\*) Pending the revision of European economic governance, the Commission has updated the MTO every three years on the basis of updated data from the 2021 Autumn Forecast and the 2021 Ageing Report. |
| (\* \*) For 2020, flexibility is applied due to exceptional measures to safeguard and secure the territory. Please note that the activation of the general safeguard clause of the Stability and Growth Pact is considered for the 2020 – 2022 period. | (\* \*) For 2020, flexibility is applied due to exceptional measures to safeguard and secure the territory. Please note that the activation of the general safeguard clause of the Stability and Growth Pact is considered for the 2020 – 2022 period. | (\* \*) For 2020, flexibility is applied due to exceptional measures to safeguard and secure the territory. Please note that the activation of the general safeguard clause of the Stability and Growth Pact is considered for the 2020 – 2022 period. | (\* \*) For 2020, flexibility is applied due to exceptional measures to safeguard and secure the territory. Please note that the activation of the general safeguard clause of the Stability and Growth Pact is considered for the 2020 – 2022 period. | (\* \*) For 2020, flexibility is applied due to exceptional measures to safeguard and secure the territory. Please note that the activation of the general safeguard clause of the Stability and Growth Pact is considered for the 2020 – 2022 period. | (\* \*) For 2020, flexibility is applied due to exceptional measures to safeguard and secure the territory. Please note that the activation of the general safeguard clause of the Stability and Growth Pact is considered for the 2020 – 2022 period. | (\* \*) For 2020, flexibility is applied due to exceptional measures to safeguard and secure the territory. Please note that the activation of the general safeguard clause of the Stability and Growth Pact is considered for the 2020 – 2022 period. | (\* \*) For 2020, flexibility is applied due to exceptional measures to safeguard and secure the territory. Please note that the activation of the general safeguard clause of the Stability and Growth Pact is considered for the 2020 – 2022 period. |
| (\* \* \*) The benchmark takes into account the required change in the structural balance. | (\* \* \*) The benchmark takes into account the required change in the structural balance. | (\* \* \*) The benchmark takes into account the required change in the structural balance. | (\* \* \*) The benchmark takes into account the required change in the structural balance. | (\* \* \*) The benchmark takes into account the required change in the structural balance. | (\* \* \*) The benchmark takes into account the required change in the structural balance. | (\* \* \*) The benchmark takes into account the required change in the structural balance. | (\* \* \*) The benchmark takes into account the required change in the structural balance. |

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According to the new estimates available in 2021, the budget balance has worsened, in structural terms, by about one percentage point of GDP compared to 2020. For 2022, the structural balance is expected to improve by less than the change indicated in the DBP<sup>10</sup>. As of 2023, the improving baseline in nominal balances is also confirmed by the annual variations in structural balances, although the cyclical correction dampens the intensity of the improvement over the policy period. This results in a different profile, especially in 2022, compared to that planned in the DBP, in terms of speed of convergence towards the medium-term objective (MTO)<sup>11</sup>. The Government, therefore, accompanies this Document with a report to Parliament pursuant to Law 243/2012.

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<sup>10</sup> The lower improvement, in addition to a different output gap profile, is partly explained by higher revenues for 2022, which are accounted as one-off measures, and therefore excluded from the calculation of the structural balance. The gap is also affected by new higher expenditures planned for extraordinary needs.

<sup>11</sup> As Table V.9 in the Appendix shows, the output gap closes rapidly and then becomes positive from 2023 and increasing over time. This is due to the fact that throughout the Stability Programme, GDP growth exceeds potential output growth. Indeed, the commonly agreed European estimation methodology (CAM) incorporates the higher actual growth only gradually into the potential output estimates.

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| MINISTRY OF ECONOMY AND FINANCE | **23** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

With reference to the European rule on the convergence to the medium-term budgetary objective<sup>12</sup>, as of 2023, variations in the policy structural balance are broadly in line with the corrections required by the adjustment matrix of the SGP. In 2023 a significant structural budgetary improvement is expected, while in the following years an adjustment close to 0.6 percentage points of GDP is expected, which represents full compliance with the European rule.

Regarding the expenditure rule, a conservative picture emerges from 2023 onwards, as the change in the relevant expenditure aggregate would not deviate much from the expenditure benchmark<sup>13</sup>.

In the context of the suspension of the convergence path towards the medium-term objective (MTO), the Commission focused its attention on controlling the dynamics of current expenditure financed from national resources and encouraging, instead, the expansion of public investment spending. Such an approach has already been promoted since autumn 2020; according to it, the orientation of the fiscal policy (the so-called fiscal stance) is measured by excluding both the expenditure component financed through grants from the Recovery and Resilience Facility and other European funds, and temporary emergency measures related to the pandemic crisis.

The fiscal recommendations addressed to Italy in spring 2021 were along these lines. When assessing the 2022 DBP on the basis of autumn forecasts, the Commission noted that the impact on aggregate demand of public expenditure - as measured by the current expenditure aggregate described above - would be very positive (estimated at -1.5<sup>14</sup> percent of GDP in 2022 compared to -1.9 percent of GDP in 2021)<sup>15</sup>. Consequently, the Commission invited Italy to take the necessary measures to limit the growth of current expenditure financed by national resources.

The same approach was reiterated in the above-mentioned communication on the fiscal policy guidance for 2023 of early March, where high-debt Member States were invited by the Commission to expand current expenditure at a slower pace than potential output from 2023, so as to embark on a gradual path of fiscal consolidation. Public investment, temporarily excluded from the calculation, is expected to continue supporting the economic recovery.

Before commenting on the new estimates available on the behaviour of the current expenditure aggregate, and its growth rate, it is necessary to briefly focus on emergency expenditures related to Covid-19, whose identification is crucial. The<br>

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<sup>12</sup> Pending the revision of the European economic governance, the Commission has updated the MTO as a matter of practice on the basis of the 2021 Autumn Forecast and the 2021 Ageing Report: for Italy, the minimum value of the MTO has been lowered from 0.50 percent of GDP forecast for the 2020-2022 period to 0.25 percent of GDP for the 2023-2025 period.

<sup>13</sup> It should be noted that the fluctuating behaviour of the expenditure aggregate between 2023 and 2025 is largely linked to the profile of EU transfers through the RRF and other EU funds.

<sup>14</sup> A negative sign of the indicator implies a positive contribution to the economy, above the expenditure trend defined by the average nominal potential growth rate, the so-called benchmark. The Commission measures the higher growth in expenditure against the trend of potential growth as a ratio of GDP, thus treating this deviation as a contribution to growth on the aggregate demand side.

<sup>15</sup> The current expenditure component constitutes a major part of the public expenditure aggregate contributing to the economy, but it is not the only one. Taking into account also investments financed with national and European resources and excluding measures related to the pandemic emergency, the contribution to growth of public expenditure is estimated at -2.7 percent of GDP in 2021 and -3.0 percent in 2022. For more details see COMMISSION STAFF WORKING DOCUMENT - STATISTICAL ANNEX - providing background data relevant for the assessment of the 2022 Draft Budgetary Plans, Brussels, 24.11.2021 - SWD(2021) 915 final, <u>https://ec.europa.eu/info/sites/default/files/economy- finance/swd_2021_915_1_en_autre_document_travail_service_part1_v1_0.pdf.</u>.

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| **24** | MINISTRY OF ECONOMY AND FINANCE |

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**III. UPDATED POLICY SCENARIO**<br>

identification of emergency measures and their precise quantification is particularly complex. Firstly, only some of the planned expenditures is clearly earmarked and can fully be justified by emergency reasons; secondly, the criterion of temporariness is not easily definable; finally, on an *ex-post* and actual basis, for some complex measures involving several levels of expenditure, it is difficult to track their actual implementation<sup>16</sup>.

With regard to a precise identification of the individual measures, as much as possible in line with the Commission's indications, the Ministry's structures have made some provisional estimates<sup>17</sup> and subject to further verification and updating. According to the current evaluation, based on a first final balance assessment for 2020 and 2021, and updated projections for the following years, the higher growth of the monitored current expenditure aggregate in 2022 will be much lower than estimated by the Commission last autumn. The estimated range for this component of the fiscal stance would be between -0.5 and -1 percent of GDP (compared to an estimated -1.5 percent). It is also reiterated that current "overspending" is to a large extent linked to the introduction of particularly qualified measures from the point of view of equity, social inclusion, family, and demographic growth<sup>18</sup>. Moreover, with reference to 2023, the growth of the current expenditure aggregate would be broadly in line with the recommendation.

The behaviour of the current expenditure aggregate financed by national resources emerges more clearly in the last years of the policy scenario, where there are no temporary items that can alter the annual variations of the measure. The table below serves an illustrative purpose and shows the annual change in the current expenditure aggregate, not adjusted for temporary measures, and that of the benchmark (nominal potential GDP growth rate). In this table, the years 2020 to 2022 are heavily influenced by temporary expenditure. The figure for 2023 is marginally affected, while the final two years provide a more reliable indication.

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE III.4 TRENDS IN CURRENT EXPENDITURE IN RELATION TO THE EXPENDITURE BENCHMARK** | **TABLE III.4 TRENDS IN CURRENT EXPENDITURE IN RELATION TO THE EXPENDITURE BENCHMARK** | **TABLE III.4 TRENDS IN CURRENT EXPENDITURE IN RELATION TO THE EXPENDITURE BENCHMARK** | **TABLE III.4 TRENDS IN CURRENT EXPENDITURE IN RELATION TO THE EXPENDITURE BENCHMARK** | **TABLE III.4 TRENDS IN CURRENT EXPENDITURE IN RELATION TO THE EXPENDITURE BENCHMARK** | **TABLE III.4 TRENDS IN CURRENT EXPENDITURE IN RELATION TO THE EXPENDITURE BENCHMARK** | **TABLE III.4 TRENDS IN CURRENT EXPENDITURE IN RELATION TO THE EXPENDITURE BENCHMARK** |
|  | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| Growth in current primary expenditure financed by national resources (\*) | 6.8 | 2.1 | 3.2 | 0.8 | 2.2 | 1.9 |
| Variation in potential GDP | 0.1 | 0.3 | 1.0 | 1.2 | 1.3 | 1.3 |
| Real Benchmark (\* \*) | 0.2 | 0.4 | 0.5 | 0.7 | 0.8 | 0.8 |
| Nominal Benchmark (\* \* \*) | 1.6 | 0.8 | 3.6 | 2.9 | 2.6 | 2.6 |
| Notes: (\*) The expenditure aggregate includes the temporary component of expenditures related to the Covid-19 emergency; (\* \*) the real benchmark is the 10-year average of the potential GDP growth rate estimated in the 2022 Stability Programme policy scenario; (\* \* \*) the nominal benchmark is equal to the real benchmark taking into account the inflation rate, it does not correct for the convergence to the MTO as foreseen by the SGP expenditure rule. | Notes: (\*) The expenditure aggregate includes the temporary component of expenditures related to the Covid-19 emergency; (\* \*) the real benchmark is the 10-year average of the potential GDP growth rate estimated in the 2022 Stability Programme policy scenario; (\* \* \*) the nominal benchmark is equal to the real benchmark taking into account the inflation rate, it does not correct for the convergence to the MTO as foreseen by the SGP expenditure rule. | Notes: (\*) The expenditure aggregate includes the temporary component of expenditures related to the Covid-19 emergency; (\* \*) the real benchmark is the 10-year average of the potential GDP growth rate estimated in the 2022 Stability Programme policy scenario; (\* \* \*) the nominal benchmark is equal to the real benchmark taking into account the inflation rate, it does not correct for the convergence to the MTO as foreseen by the SGP expenditure rule. | Notes: (\*) The expenditure aggregate includes the temporary component of expenditures related to the Covid-19 emergency; (\* \*) the real benchmark is the 10-year average of the potential GDP growth rate estimated in the 2022 Stability Programme policy scenario; (\* \* \*) the nominal benchmark is equal to the real benchmark taking into account the inflation rate, it does not correct for the convergence to the MTO as foreseen by the SGP expenditure rule. | Notes: (\*) The expenditure aggregate includes the temporary component of expenditures related to the Covid-19 emergency; (\* \*) the real benchmark is the 10-year average of the potential GDP growth rate estimated in the 2022 Stability Programme policy scenario; (\* \* \*) the nominal benchmark is equal to the real benchmark taking into account the inflation rate, it does not correct for the convergence to the MTO as foreseen by the SGP expenditure rule. | Notes: (\*) The expenditure aggregate includes the temporary component of expenditures related to the Covid-19 emergency; (\* \*) the real benchmark is the 10-year average of the potential GDP growth rate estimated in the 2022 Stability Programme policy scenario; (\* \* \*) the nominal benchmark is equal to the real benchmark taking into account the inflation rate, it does not correct for the convergence to the MTO as foreseen by the SGP expenditure rule. | Notes: (\*) The expenditure aggregate includes the temporary component of expenditures related to the Covid-19 emergency; (\* \*) the real benchmark is the 10-year average of the potential GDP growth rate estimated in the 2022 Stability Programme policy scenario; (\* \* \*) the nominal benchmark is equal to the real benchmark taking into account the inflation rate, it does not correct for the convergence to the MTO as foreseen by the SGP expenditure rule. |

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<sup>16</sup> The difficulties relate, for example, to the need of combining, for 2020 and 2021, the final balance of the requests for the measures taken under the various "emergency" decrees adopted over the two years and in the Budget Law for 2021, to be carried out on an ex-post basis, with the assessment of the effects of such measures for 2022 and 2023, to be carried out on an ex-ante basis but taking into account the aforementioned request trend.

<sup>17</sup> According to these provisional estimates, emergency measures of a current nature taken after the DBP and during the first months of this year amount to about 0.2 percent of GDP in 2022. These measures are all considered as temporary, on the basis of the assessment criteria used by the European Commission.

<sup>18</sup> As stated in the Update, the main allocations of a non-temporary nature were related to important reforms for families, equity and social inclusion, such as the single child allowance, the reform of personal income tax and the revision and expansion of resources allocated to the Citizenship Income (*Reddito di cittadinanza*).

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| MINISTRY OF ECONOMY AND FINANCE | **25** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

In the medium term, the growth trend of current expenditure is therefore quite contained and in line with what already emerged when commenting on the indicator used for the traditional expenditure rule. This is reassuring, because the benchmark based on a moving average of the estimated potential output is particularly conservative<sup>19</sup>.

Concerning the issue of identifying and quantifying measures of an emergency nature, as a prerequisite for a proper assessment of the underlying expenditure trend, it cannot be ignored that new urgencies have emerged with 2022. Account should be taken of the expenditure, which is currently largely exceptional, linked to the need to contain the effects of rising energy prices on the economy.

#### III.4 DEBT-TO-GDP RATIO AND THE DEBT RULE

#### Public debt as a ratio of GDP: forecast under the policy scenario
In 2021, the debt-to-GDP ratio fell by about 4.4 percentage points, reaching 150.8 percent from its peak of 155.3 percent in 2020<sup>20</sup>.

The improvement was driven by the economic recovery, which increased nominal GDP by 7.2 percent, while the implicit interest rate on debt remained stable at 2.4 percent. As a result, the snow-ball effect, which quantifies the automatic impact of the difference between interest expenditure and nominal GDP growth on the dynamics of the debt-to-GDP ratio, returned to contribute to the reduction of the debt-to-GDP ratio by about -6.8 percentage points.

The significant downward impulse from the snow-ball effect more than offset the opposite impulse from the primary deficit, which amounted to about 3.7 percentage points<sup>21</sup>.

The performance of the stock-flow adjustment component also contributed to a fall of about -1.3 percentage points of the debt-to-GDP ratio in 2021. The lower impact on cash requirements deriving from the legislative measures adopted in 2021, with respect to the impact on the net borrowing, together with the effect deriving from negative issue discounts due to the phase of slight decline in interest rates in the first eight months of the year, more than offset the increase of approximately 0.3 percentage points of GDP in Treasury liquidity holdings at the Bank of Italy.

________________________

<sup>19</sup> The benchmark is very conservative for several reasons. Firstly, it is constructed using a ten-year moving average of potential output estimates: in the current phase of structural growth recovery, the estimate of potential output tends to gradually increase, but the moving average captures such an improvement with a lag. Secondly, it shall be recalled that the estimate of potential output made according to the EU commonly agreed methodology (CAM) reflects the higher economic growth with some delay and does not capture the possible impacts of structural reforms, an essential component of the National Recovery and Resilience Programme. A possible shift to fiscal rules that place more emphasis on medium-term planning could lead to a more accurate assessment of the estimate of potential output over a horizon beyond the short term.

<sup>20</sup> As a result of the revisions to the debt stock and the level of nominal GDP, the 2020 debt-to-GDP ratio slightly declined to 155.3 percent from the previous estimate of 155.6 percent, while the 2019 debt-to-GDP ratio declined to 134.1 percent from 134.3 percent in September.

<sup>21</sup> Although the primary balance remained in deficit in 2021, the size of the deficit was significantly reduced compared to 2020, when it had contributed to the increase in the debt-to-GDP ratio by as much as 6.1 percentage points.

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| **26** | MINISTRY OF ECONOMY AND FINANCE |

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#### <br>
**III. UPDATED POLICY SCENARIO**<br>

The preliminary estimate for 2021 is also significantly lower (-2.7 percentage points) than the level estimated in the Update of the Stability Programme, confirmed in the 2022 DBP, which forecast a debt-to-GDP ratio of 153.5 percent.

In detail, the level of GDP in 2021 was slightly lower than that forecast in the DBP and would have resulted in an increase in the debt-to-GDP ratio of 0.3 percentage points respect to the September 2021 forecast. However, the smaller change in the debt stock contributed as much as 3.0 percentage points to the reduction in the debt-to-GDP ratio, thus largely offsetting the first effect. This mainly reflects better-than-expected cash balance performances. Indeed, the public sector's borrowing requirement at the end of 2021 stood at 6.1 percent of GDP, instead of the 8.9 percent expected in September 2021<sup>22</sup>. As a result, the growth rate of the public debt in the last year was 4.1 percent compared to the projected 6.2 percent.

Finally, it should be noted that the preliminary estimate of the debt-to-GDP ratio of 150.8 percent in 2021 is markedly lower than that projected in the previous Stability Programme, which was 159.8 percent according to the policy scenario of April 2021.

The reduction in the debt-to-GDP ratio is expected to continue in the current and the next three years.

The economic growth expected in the coming years, together with the inflationary boost linked to energy prices, which has started to intensify since the end of 2021, will continue to support the contribution of the snow-ball component to the decline in the debt-to-GDP ratio, more than offsetting the interest expenditure component. In fact, a rise in government bonds yields is expected, as a result of the ECB's monetary policy announcements and decisions<sup>23</sup> in response to the above-mentioned inflationary pressures, and the increased volatility of financial markets induced both by the same ECB's decisions and by the recent international geopolitical events.

The downward trend of the debt-to-GDP ratio will mainly benefit from the expansionary impulse on GDP deriving from the budget manoeuvre for 2022<sup>24</sup>, and from the implementation of the investment and reform programme of the National Recovery and Resilience Plan. The policy scenario forecasts discount the impact of the decree-law announced by the Government to mitigate the economic consequences of the current energy crisis.

However, the forecast scenario is characterised by high uncertainty due to both the war in Ukraine and the possible persistence of inflationary pressures, which are also affecting non-energy goods.

In 2022, the debt-to-GDP ratio target is revised downward to 147.0 percent. The expected reduction will come from a decrease in public sector borrowing requirement (about -1.4 percentage points with respect to 2021) and nominal GDP growth (6.3 percent).

________________________

<sup>23</sup> It should be noted that part of the lower trend of cash requirements with respect to the Update forecasts can be attributed to the resizing or postponement of some financial transactions, such as the operation of the *Patrimonio Destinato* (dedicated assets) (as per Article 27 of Decree-Law No. 34/2020 converted with amendments by Law No. 77/2020), or the purchase of the company SACE (pursuant to Article 67 of Decree-Law No. 104/2020 converted with amendments by Law No. 126 of 13 October 2020).

<sup>23</sup> Board meeting of 10 March 2022.

<sup>24</sup> Approved in December 2021.

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| MINISTRY OF ECONOMY AND FINANCE | **27** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

In 2023, the debt-to-GDP ratio is forecast to further decline to 145.2 percent. The pace of decline will be slower than in the previous year, due to lower nominal GDP growth of 4.6 percent and to broadly stable public sector requirement.

In 2024, the reduction of the net borrowing in the policy scenario to a level of -3.3 percent will allow the debt-to-GDP ratio to fall to 143.4 percent.

Finally, the debt-to-GDP ratio new target for 2025 is set at 141.4 percent, with an annual decrease of 2.0 percentage points.

![](image9.jpg)

Also contributing to this overall reduction of the ratio is the forecast of a gradual, but progressive, reduction of the Treasury's liquidity holdings, which at the end of 2025 are expected to return to a level slightly higher than that at the end of 2019, i.e., to values prior to the start of the pandemic crisis. Net of Italy's share of loans to EMU Member States, bilaterally or through the EFSF, and of the contribution to the capital of the ESM, the 2021 final estimate of the debt-to-GDP ratio is 147.6 percent, while the forecast stands at 138.8 percent in 2025.

#### Assessment of the debt rule compliance
In the current fiscal architecture defined by the Stability and Growth Pact (SGP), Member States must ensure a debt-to-GDP ratio of no more than 60 percent. If this threshold is exceeded, the SGP envisages a path for reducing the excess of public debt over the threshold at a pace deemed appropriate. In normal times, therefore, budget planning for high debt countries like Italy must respect at least one of the following criteria: (i) the portion of debt exceeding the reference value of 60 percent of GDP must be reduced on an annual basis by 1/20th of the average of the values of the three years preceding the current year (retrospective or backward-looking criterion) or in the two years following the reference year<br>

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| **28** | MINISTRY OF ECONOMY AND FINANCE |

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**III. UPDATED POLICY SCENARIO**<br>

(prospective or forward-looking criterion); (ii) the excess of debt over the backward-looking benchmark is attributable to the economic cycle<sup>25</sup>.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **TABLE III.5: DEBT RULE COMPLIANCE** | **TABLE III.5: DEBT RULE COMPLIANCE** | **TABLE III.5: DEBT RULE COMPLIANCE** | **TABLE III.5: DEBT RULE COMPLIANCE** | **TABLE III.5: DEBT RULE COMPLIANCE** | **TABLE III.5: DEBT RULE COMPLIANCE** | **TABLE III.5: DEBT RULE COMPLIANCE** |
|  | **Scenario** | **Scenario** | **Scenario** | **Scenario** | **Scenario** | **Scenario** |
|  | **Policy** | **Policy** | **Policy** | **Unchanged legislation** | **Unchanged legislation** | **Unchanged legislation** |
|  | **2021** | **2022** | **2023** | **2021** | **2022** | **2023** |
| Debt in year t+2 (% of GDP) | 145.2 | 143.4 | 141.4 | 145.0 | 143.2 | 141.2 |
| Gap compared to backward looking benchmark (% of GDP) | 17.1 | 8.4 | 3.0 | 17.1 | 8.2 | 3.0 |
| Gap compared to forward looking benchmark (% of GDP) | 3.0 | 12.7 | 11.9 | 3.0 | 12.5 | 11.6 |
| Cyclically adjusted debt gap (% of GDP) | 7.1 | 0.0 | 15.6 | 7.2 | **-0.4** | 15.2 |

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The projections of the debt-to-GDP ratio in the policy scenario show a downward trend. Table III.5 shows the estimated deviations from the various reduction benchmarks envisaged by the debt rule over the time horizon set by the Commission's fiscal surveillance.

As already illustrated in the 2021 Stability Programme, the configuration of the economy-adjusted debt-to-GDP ratio is the one with the smallest deviation. In 2022 the reduction in the debt-to-GDP ratio projected on the basis of this configuration is in line with the convergence path required by the debt rule. Essentially, if the debt-to-GDP ratio were to be adjusted for the revenue shortfalls and expenditure overruns induced by the exceptionally adverse economic conditions, based on the methodology agreed at the European level<sup>26</sup>, the value achieved would be consistent with the retrospective target set in the reduction step of 1/20 per year.

In 2023, on the other hand, the configuration based on the correction for the economic cycle is not the most favourable, as the projected reduction in the debt-to-GDP ratio based on the backward-looking configuration is closer to the path required by the debt rule. Indeed, the backward-looking benchmark takes into account estimates of the debt-to-GDP ratio for the last three years, benefiting in particular from the significant decline recorded in 2021.

In line with what stated by the Commission in its communication of 2 March, the Government confirms the path of gradual fiscal adjustment planned in the DBP to continue reducing the high public debt, aware that too sudden an adjustment could have a negative impact on growth. Despite the uncertainty of the current geopolitical situation, the Government is committed to a multi-year consolidation strategy that, combined with the investments and structural reforms defined in the NRRP, aims at sustaining the economy's potential growth and improving the sustainability of public debt.

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<sup>25</sup> In this case, an indicator is used that expresses the debt ratio that would have been obtained if in the previous three years (i) the numerator (i.e., public debt) had been corrected for the impact of the economic cycle and (ii) the denominator (i.e., nominal GDP) had grown at the same rate as potential output.

<sup>26</sup> See European Commission, Vade Mecum on the Stability and Growth Pact – 2019 Edition, p. 49.

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| MINISTRY OF ECONOMY AND FINANCE | **29** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

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| **30** | MINISTRY OF ECONOMY AND FINANCE |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**IV.** **SUSTAINABILITY OF PUBLIC FINANCES** 

#### IV.1 RISK SCENARIOS OF PUBLIC FINANCES
This section simulates two risk scenarios in which macroeconomic and financial shocks are reflected in public finance performance over the 2022-2025 period under standard sensitivity assumptions<sup>27</sup>.

The reference scenario (or baseline) coincides with the policy framework of this Document. The sensitivity analysis is aimed at outlining the path of the budget balance and the dynamics of the debt by assuming two alternative scenarios based on the results presented in Chapter II in the Focus "A risk analysis on the geopolitical situation and exogenous variables".

The "financial risk" scenario (corresponding to the fourth scenario of the above-mentioned Focus) refers to risk factors related to the financial conditions of the economy, postulating an increase in the BTP-Bund spread of 100 basis points starting from 2023 and a consequent impact on economic growth.

The "gas-shortage risk" scenario (corresponding to the second scenario of the Focus) envisages a reduction in gas supplies caused by the ban on imports from Russia, combined with a further rise in gas and oil prices with a consequent impact on growth from 2022; in this second scenario no shock is expected on the interest rate curve.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **TABLE IV.1: SENSITIVITY TO GROWTH (percentage values)** | **TABLE IV.1: SENSITIVITY TO GROWTH (percentage values)** | **TABLE IV.1: SENSITIVITY TO GROWTH (percentage values)** | **TABLE IV.1: SENSITIVITY TO GROWTH (percentage values)** | **TABLE IV.1: SENSITIVITY TO GROWTH (percentage values)** | **TABLE IV.1: SENSITIVITY TO GROWTH (percentage values)** | **TABLE IV.1: SENSITIVITY TO GROWTH (percentage values)** |
|  |  | **2021** | **2022** | **2023** | **2024** | **2025** |
| Nominal GDP growth rate | Baseline<br> Financial Risk<br> Gas-shortage risk | 7.2<br> 7.2<br> 7.2 | 6.3<br> 6.3<br> 4.4 | 4.6<br> 4.6<br> 3.6 | 3.7<br> 3.3<br> 4.7 | 3.3<br> 2.7<br> 5.2 |
| Real GDP growth rate | Baseline<br> Financial Risk<br> Gas-shortage risk | 6.6<br> 6.6<br> 6.6 | 3.1<br> 3.1<br> 0.8 | 2.4<br> 2.3<br> 0.4 | 1.8<br> 1.5<br> 3.7 | 1.5<br> 1.0<br> 3.8 |
| Net borrowing | Baseline<br> Financial Risk<br> Gas-shortage risk | -7.2<br> -7.2<br> -7.2 | -5.6<br> -5.6<br> -6.9 | -3.9<br> -4.0<br> -6.0 | -3.3<br> -3.9<br> -4.6 | -2.8<br> -4.1<br> -3.1 |
| Primary surplus | Baseline<br> Financial Risk<br> Gas-shortage risk | -3.7<br> -3.7<br> -3.7 | -2.1<br> -2.1<br> -3.3 | -0.8<br> -0.7<br> -2.6 | -0.3<br> -0.6<br> -1.5 | 0.2<br> -0.6<br> 0.0 |
| Interest rate implicit | Baseline<br> Financial Risk<br> Gas-shortage risk | 2.4<br> 2.4<br> 2.4 | 2.5<br> 2.5<br> 2.5 | 2.2<br> 2.3<br> 2.3 | 2.1<br> 2.4<br> 2.1 | 2.2<br> 2.5<br> 2.1 |
| Public debt | Baseline<br> Financial Risk<br> Gas-shortage risk | 150.8<br> 150.8<br> 150.8 | 147.0<br> 147.0<br> 151.0 | 145.2<br> 145.6<br> 152.6 | 143.4<br> 145.0<br> 150.4 | 141.4<br> 145.1<br> 145.8 |

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<sup>27</sup> See Section III.4 of the Methodological Note on the criteria for formulating baseline forecasts attached to this Stability Programme.

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| MINISTRY OF ECONOMY AND FINANCE | **31** |

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The responses on GDP and its components (from which the potential output and the output gap are recalculated) are jointly estimated by MACGEM-IT, the general equilibrium model of the Directorate I of the Italian Department of the Treasury, and by the ITEM econometric model, as explained in the Focus. The responses on rates (for the "financial risk" scenario) and the change in interest expenditure are calculated with the Treasury's SAPE model, which is based on the database of the current and forecasted stock of government securities.

Table IV.1 shows the estimates of the main macroeconomic and public finance variables in the different scenarios for the 2022-2025 period.

Figure IV.1 shows the change in the debt-to-GDP ratio in the three scenarios. The baseline, coinciding with the official policy forecast, shows a continuous downward trend.

![](image10.jpg)

Given the intensity of the shocks considered, the downward trend of the debt-to-GDP ratio is mitigated in both sensitivity scenarios. In the "gas-shortage risk" scenario, after a halt in the downward trend in the two-year period 2022-2023, the debt-to-GDP ratio falls again as growth conditions prior to the economic shock are reinstated; in the "financial risk" scenario, the different assumption on the interest rate curve, characterised by a prolonged upward trend on the long side, produces an increasing adverse effect on the dynamics of the debt-to-GDP ratio.

#### Stochastic simulations of debt dynamics
In order to integrate the sensitivity analysis of the trend of the debt-to-GDP ratio in the short term, stochastic simulations were carried out for the 2022-2025 period, which incorporate the historical volatility of the significant variables affecting public finances. The analyses were carried out using the Montecarlo method, applying stochastic shocks to the dynamics of the debt-to-GDP ratio<br>

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| **32** | MINISTRY OF ECONOMY AND FINANCE |

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**IV. SUSTAINABILITY OF PUBLIC FINANCES**<br>

relative to the baseline scenario underlying this Stability Programme. These shocks are modelled on the basis of the historical volatility of yields (short- and long-term), of the growth rate of nominal GDP and of the primary budget balance and are obtained by running 2000 extractions from a normal distribution with zero mean and a variance-covariance matrix observed starting from the first quarter of 1999.

Given the high volatility in the variables of interest observed from the first quarter of 2020 onwards, this Document presents two methods of simulating shocks. The first method (*high-volatility shock scenario*) takes into account, for the purposes of constructing the shocks, the volatility of the entire historical series available, including the values observed up to the third quarter of 2021; the second method (*limited-volatility shock scenario*) does not consider the volatility of the historical series after the first quarter of 2020. In both cases, the simulated shocks are symmetrical and temporary in nature<sup>28</sup>.

For each forecast year of the macroeconomic framework and for each type of shock scenario, fan charts (Figures IV.2A and IV.2B) show the distribution of the debt-to-GDP ratio.

In the simulation with high-volatility shocks, the debt is distributed around a median value that is equal to approximately 142.3 percent of GDP at the end of the time horizon, 8.2 percentage points higher than the 2019 figure (134.1), but approximately 13 percentage points lower than the 2020 value (155.3). The uncertainty surrounding the 2025 results reflects the variability of the public finance data used to construct the shocks and is therefore extremely high, as shown by a difference of about 58 percentage points between the 10th and 90th percentiles of the resulting projected debt distribution. After the decline in the debt-to-GDP ratio in 2021, which followed the sharp rise registered in 2020, the debt-to-GDP ratio continues to decline in sixty percent of the simulations.

By restricting the magnitude of the shocks to the volatility recorded in the historical series before the start of the pandemic (*limited-volatility shock scenario*), the results of the analysis are visibly more concentrated around the baseline debt of this Stability Programme (Figure IV.2B). In this case, uncertainty surrounding the 2025 figure is smaller, and there is a difference of about 15 percentage points between the 10th and 90th percentiles of the resulting debt distribution. In this case, in all the scenarios simulated, the dynamics of the debt-to-GDP ratio decreases at the end of the time horizon.

The "non-increasing debt cap", i.e., the median value of public debt in 2025 that ensures, with a 90 percent probability, that even in adverse cases the debt-to-GDP ratio will not increase compared to the value projected in the policy scenario, is 143.5, 2.1 percentage points higher than the debt-to-GDP ratio projected for 2025.

The stochastic simulation shows that the downward trend in the debt-to-GDP ratio over the next few years would be facilitated by a context of renewed stability. In the event of prolonged instability, the decline in the debt-to-GDP ratio could come to a temporary halt and policies would have to react appropriately, but<br>

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<sup>28</sup> For more details on the methodology adopted, see Berti K., (2013), "Stochastic public debt projections using the historical variance-covariance matrix approach for EU countries", Economic Papers 480 and European Commission, 2020, Debt Sustainability Monitor 2019, Institutional Papers 120, available at: <u>https://ec.europa.eu/info/sites/info/files/economy-finance/ip120_en.pdf</u>.

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| MINISTRY OF ECONOMY AND FINANCE | **33** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

further analysis in this regard is beyond the scope of the sensitivity and risk analyses carried out in this section.

![](image11.jpg)

#### IV.2 SUSTAINABILITY ANALYSIS OF PUBLIC DEBT
This section focuses on the sustainability of Italian public debt. The first part presents the results of sustainability simulations in the medium term, over a ten-year forecast period, based on the methodology currently adopted by the European Commission. The second part focuses on the long term by constructing projections of debt scenarios up to 2070. Further analyses are carried out with a twofold purpose: on the one hand, the sensitivity of public debt to the main demographic and economic scenarios that influence the behaviour of expenditure variables is verified; on the other hand, alternative scenarios are developed in order to stress the impact of government policies on the sustainability of public finances in the long term.

#### Medium-term projections of the debt-to-GDP ratio
In this section, the debt-to-GDP ratio is projected until 2033, following a medium-term debt sustainability analysis approach.

In scenario A, until 2025 the macroeconomic and public-finance context coincides entirely with the policy scenario; in the medium term, starting from 2026, growth is aligned with that of potential GDP, projected with the 't+10' methodology developed by the Output Gap Working Group. The structural primary balance is equal to the value projected for 2025 adjusted for the change in revenues associated with the general government's Property Income (PI), obtained according to the methodology illustrated in the European Commission's Ageing Report of 2021, and for Age Related Expenditures (ARE), estimated by the Italian General<br>

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| **34** | MINISTRY OF ECONOMY AND FINANCE |

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**IV. SUSTAINABILITY OF PUBLIC FINANCES**<br>

Accounting Office *(Ragioneria Generale dello Stato)*<sup>29</sup>. Finally, annual interests are calculated using the SAPE model of the Treasury Department, assuming, as a starting point, the composition and maturity structure of the underlying debt stock in the last forecast year (2025).

In scenario B, the macroeconomic framework and the structure of interest rates coincide with scenario A, while the nominal deficit-to-GDP ratio gradually improves in the years after 2025 due to changes in the primary balance, reaching a structural balance in 2033. The additional fiscal correction (with respect to scenario A) implies a feedback effect on real GDP in line with the methodology of the European Commission applied in the 2020 Debt Sustainability Monitor.

One should bear in mind that the assessment in terms of medium-term economic growth for scenarios A and B is conservative, as the economic effects of the vast investment and reform programme launched with the NRRP are not fully taken into account. First of all, the medium-term projection does not consider the effects of the further investments planned for 2026, since the policy framework stops at 2025; moreover, in line with the approach followed by the European Commission, the overall impact of structural reforms on the economy, which is potentially very significant, is not considered.

Scenario C takes into account the growth differential that would be obtained should the effects of the reforms undertaken, estimated through the Quest DSGE model used by Directorate I of the Italian Department of the Treasury<sup>30</sup>, be fully realised. The growth path varies as early as 2022 and it is assumed that the higher growth, being related to structural factors, is fully transferred to potential GDP. Revenue and expenditure levels are assumed equal to those of scenario A; as a result of higher growth, the ratio of the primary balance to GDP improves slightly over the planning horizon, while from 2026 it is assumed to be in line with the approach followed in scenario A, i.e., the structural primary balance to GDP remains constant at the level of 2025 (net of age-related expenditures). As in scenario B, interest rates are assumed to be equal to those of scenario A.

Figure IV.3 shows the evolution of the debt-to-GDP ratio in the three simulated scenarios. In scenario A, which does not envisage any fiscal correction beyond 2025 nor a full evaluation of the impact of the reforms, the debt-to-GDP ratio declines until 2026, before rising again to 150 percent in 2033.

In scenario B, the additional fiscal adjustment beginning in 2026 produces a downward path until 2033, when the figure reaches 130.4 percent. In scenario C, the full implementation of the reforms improves the macroeconomic framework, leading to a decline in the debt-to-GDP ratio compared to scenario A over the entire simulation period. However, the debt-to-GDP ratio rises in the final years of the decade to reach 137.5 percent in 2033.

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<sup>29</sup> These expenditures are calculated starting from the baseline macroeconomic framework underlying this document. For methodological details, see: "Le tendenze di medio-lungo periodo del sistema pensistico e socio-sanitario - Rapporto n. 22" (Medium- to long-term trends in the pension and social-health system - Report 22), drafted by the Italian General Accounting Office, available at: <u>http://www.rgs.mef.gov.it/VERSIONE-I/attivita_istituzionali/monitoraggio/spesa_pensionistica/</u>.

<sup>30</sup> The National Reform Programme reviews in Chapter II and in a dedicated appendix the estimates of the effect of the expenditure measures and economic reforms contained in the National Recovery and Resilience Plan.

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| MINISTRY OF ECONOMY AND FINANCE | **35** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

![](image12.jpg)

The upward trend of the debt-to-GDP ratio in scenario A is mainly linked to two factors, which respectively lead to a deterioration of the primary balance and interest expenditure. On the one hand, the projection includes an increase in ageing costs, while on the other hand, the current projections of forward rates, which reflect market expectations, imply an increase in the implicit rate paid on government debt securities from 2026 onwards.

Scenarios B and C are useful to demonstrate how, in the medium term, the full implementation of reforms and an additional fiscal effort can ensure a sustainable dynamic of the debt-to-GDP ratio. The two scenarios are simulated separately, but considering that the reforms in the coming years are likely to lead to a higher growth profile than that underlying scenario A, one can imagine that a satisfactory pace of debt reduction can be achieved even in a scenario where fiscal adjustments are slightly more gradual than in scenario B.

#### Long-term scenarios
This section focuses on describing the trends in the main expenditure items that are sensitive to population ageing and which influence public debt performance over the long-term.

#### Assumptions underlying the forecast
The estimates here presented follow the methodology and assumptions agreed within the European Economic Policy Committee-Working Group on Ageing and<br>

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| **36** | MINISTRY OF ECONOMY AND FINANCE |

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**IV. SUSTAINABILITY OF PUBLIC FINANCES**<br>

defined for the purpose of forecasting the age-related public expenditure components of the 2021 forecasting round<sup>31</sup>.

In the short term, the projections include national accounts data updated to 2021 and the baseline macroeconomic framework of this Document. In the long term, the EPC-WGA baseline scenario is used. Starting from the last year of the Stability Programme 2022 forecast, some adjustments have been made to link the data of the short-term macroeconomic framework to the medium/long-term structural values defined in the 2021 EPC-WGA baseline scenario<sup>32</sup>*.* Please note that the demographic assumptions adopted are based on the Eurostat central forecast with a 2019 baseline<sup>33</sup>, while the structural dynamics of the variables of the macroeconomic framework follow the assumptions agreed within the EPC WGA (hereinafter referred to as the 2021 EPC-WGA baseline scenario)<sup>34</sup>.

The age-related public expenditure forecasts shown in Table V.11 of the Appendix are updated according to the baseline scenario under existing legislation. Overall, the long-term scenario summarised in the table is characterised by high and rising levels of net indebtedness of the general government in relation to GDP, while revenues are assumed to be constant in relation to GDP. This would result in a sharp increase in general government debt and interest expenditure. The analysis therefore highlights the need to promote higher productivity, employment rate and population growth levels than those assumed in the projection and/or to raise the revenue-to-GDP ratio - issues that are analysed in the next section.

#### Long-term debt dynamics and indicators of fiscal sustainability
The scenarios for long-term debt dynamics presented in this section include the age-related expenditure projections modulated on the basis of demographic trends and presented in the previous section. In the projection model, economic growth is aligned with potential GDP; for baseline scenario A, the primary balance as a ratio of GDP is kept at the value projected for 2026 in the policy scenario except for the

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<sup>31</sup> For a description of the European methodology see European Commission, the 2021 Ageing Report: Underlying Assumptions and Projection Methodologies, Institutional Paper 142, November 2020.

<sup>32</sup> In detail, for the four-year period 2022-2025, growth assumptions have been adopted, both at constant and current prices, of the short-term baseline macroeconomic framework defined for the 2022 Stability Programme. For the following period, the structural assumptions of the 2021 EPC-WGA baseline scenario have been adopted.

<sup>33</sup> The Eurostat scenario with a 2019 baseline implies for Italy: i) a net flow of immigrants of approximately 213,000 units per year on average, increasing until 2025 and decreasing thereafter; ii) a level of life expectancy in 2070 equal to 87 years for men and 90.9 years for women; iii) a total fertility rate in 2070 equal to 1.52. ISTAT, taking into account the findings of the Permanent Census, significantly revised downward the number of residents in Italy for 2019 and 2020, mainly affecting the 15-74 age bracket. Moreover, based on the Monthly Demographic Report, ISTAT has recently updated the total population figure to 1 January 2022 (https://www.istat.it/it/files//2022/03/Dinamica-demografica_2021.pdf). Compared to the population level estimated at 1 January 2022 by Eurostat in its 2019-based demographic forecasts, the new data show a reduction of about 1,193,000 people. Taking into account these recent findings, the forecast of age-related expenditures as a share of GDP was carried out using the age reconstruction of the resident population as of 1 January 2022.

<sup>34</sup> The structural dynamics of the variables of the macroeconomic framework, as derived from the assumptions agreed within the EPC WGA (2021 EPC-WGA baseline scenario), envisage an average annual rate of change of real productivity growing until 2038, when it reaches a value of around 1.7 percent, before falling to around 1.5 percent at the end of the forecast period. The employment rate in the 15-64 age group is expected to increase from 59.5 percent in 2022 to 64.9 percent in 2070. The interplay of the above assumptions with the demographic dynamics results in a real GDP growth rate of around 1.2 percent on average per year over the 2022¬2070 period.

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| MINISTRY OF ECONOMY AND FINANCE | **37** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

age-related expenditure component and, in the case of revenues, for the change in property income. Debt interest expenses are calculated according to the methodology used by the European Commission in its DSA analysis<sup>35</sup>, which takes into account market interest in the short and medium term on long and short-term debt issues, and then converges to long-term values. The projections of the debt-to-GDP ratio coincide until 2033 with those produced by scenario A in the medium-term sustainability section. In this section, the main reference scenario, also called scenario A, covers the period up to 2070.

As shown in Figure IV.4, the long-term projections show a declining dynamic at first, which increases again in the final period of the simulation.

Note that the dynamic of public debt in the long run is very sensitive to the value of the primary balance in relation to the initial GDP used in the simulation. A better value can lead to very different dynamics, as shown for illustrative purposes by the second scenario considered here.

![](image13.jpg)

The paragraph devoted to the medium-term sustainability analysis showed a debt-to-GDP ratio profile in a context in which the budget balance gradually converged to a balanced position in structural terms (simulation B). When extending the simulation beyond the medium-term horizon (from 2034), it is assumed that, as the debt-to-GDP ratio declines significantly over the long term, the new medium-term objective (MTO) is recalculated, converging to -1 percent of GDP, with the primary balance moving accordingly. As expected, the evolution of the debt-to-GDP ratio is significantly different, and it tends to decline rapidly<sup>36</sup>. The other relevant<br>

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<sup>35</sup> See Annex A6.2. Projecting the implicit interest rate on government debt, of the European Commission publication, Debt Sustainability Monitor 2020, Institutional Paper 143, February 2021.

<sup>36</sup> Actually, achieving a balanced budgetary position in the medium term, without further intervention on the primary balance, would imply reaching a negative debt level at the end of the simulation period; the threshold<br>

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| **38** | MINISTRY OF ECONOMY AND FINANCE |

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**IV. SUSTAINABILITY OF PUBLIC FINANCES**<br>

dimension in the long-term projections concerns, obviously, the relative behaviour (or deviation) of the nominal GDP growth rate and the implicit interest rate paid on the public debt; this aspect is addressed through an alternative simulation within the sensitivity analysis<sup>37</sup>.

#### Policy impact on debt sustainability
Given the high uncertainty in long-term forecasts, the robustness of the debt-to-GDP ratio projection of the baseline scenario can be assessed by carrying out sensitivity analyses<sup>38</sup>.

Sensitivity simulations reveal, in particular, risk elements that may have an adverse impact on debt sustainability in the long-term but, at the same time, they are useful in identifying areas of intervention where policy action could have an impact. This section shows some examples of the favourable effects that policies undertaken may have on the debt-to-GDP ratio in the long-term.

#### Structural reforms
The first analysis concerns the impact of the structural reforms contained in the NRRP and is based on the results relative to debt sustainability in the medium term. Simulation C, which includes the effects of the reforms on GDP estimated through the QUEST model, is appropriately extended to 2070, the last year of the simulation. The increase over the baseline simulation A is equal to the total effect of the reforms on GDP estimated in the long term, amounting to 13.4 percentage points of GDP in 2070. The simulation shows that the reforms will have a significant impact on sustainability - the debt-to-GDP ratio at the end of the period is reduced by about 37 percentage points - even without considering the effects on revenues of the stronger growth, as explained in the section on the medium-term period.

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of 60 percent is reached in 2056 and the debt becomes negative in 2069. In the case of simulation B shown here, considering that the level of the Medium-Term Objective is generally recalculated and revised when debt dynamics improve, the primary balance is deteriorated starting in 2040 so as to reach a deficit of 1 percent of GDP in 10 years, the most favourable threshold allowed by the rules of the Stability and Growth Pact.

<sup>37</sup> The reference scenario, over time, presents these values:

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|  | **2011-2020** | **2021-2030** | **2031-2040** | **2041-2050** | **2051-2060** | **2061-2070** |
| Normal growth | -0.12 | 3.8 | 2.7 | 3.3 | 3.5 | 3.4 |
| Implicit interest rate | 3.2 | 2.3 | 2.7 | 3.2 | 3.7 | 3.8 |

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<sup>38</sup> The extended version (in Italian) of the Stability Programme contains a number of alternative scenarios that measure the response of the debt-to-GDP ratio to demographic and macroeconomic shocks following the approach usually adopted by the European Commission in its Ageing Reports. See: European Commission (2021), The 2021 Ageing Report: Economic and Budgetary Projections for the EU Member States (2019-2070), European Economy, Institutional Paper 148 (see <u>https://ec.europa.eu/info/publications/2021-ageing-report-economic-and-budgetary-projections-eu-member-states-2019-2070_en</u>).

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| MINISTRY OF ECONOMY AND FINANCE | **39** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

![](image14.jpg)

#### The fight against tax evasion
The policy scenario surrounding the fiscal policy guidelines for the next three years is mainly characterised by the implementation of the NRRP. In particular, the Mission 1 - Component 1 of the NRRP, in Axis 5 concerning 'Structural Budgetary Measures - Taxation and Public Expenditure', includes a series of reforms that, in terms of revenues, are aimed at improving the tax collection system, encouraging tax compliance, and combating tax evasion in order to reduce the burden on taxpayers and increase public budget revenues, thus contributing to improving the sustainability of public finances.

In the framework of this overall strategy, Reform 1.12, "Tax Administration Reform", related to Axis 5, envisages that several measures shall be adopted to encourage tax compliance and improve the effectiveness of targeted audits and controls<sup>39</sup>; furthermore, to implement these reforms and increase the operational capacity of the Financial Administration, the personnel of the Revenue Agency shall be increased.

Therefore, the "Tax Gap Reduction" was included among the quantitative targets monitored throughout the implementation phase of the NRRP, as part of the measures related to the "Tax Administration Reform". The target value of the indicator envisages that the "propensity to evade" calculated for all taxes, excluding<br>

________________________

<sup>39</sup> The planned measures include: (i) the creation of the dedicated database and IT infrastructure for issuing the pre-filled VAT return; (ii) the quality improvement of the database for voluntary compliance communications (so-called 'compliance letters'), also with a view to reducing the incidence of false positives by gradually increasing the number of communications sent to taxpayers; (iii) the reform of the current legislation to ensure effective administrative sanctions against private businesses rejecting electronic payment; (iv) the finalisation of the process of pseudonymisation and big data analysis in order to make risk analysis and the selection of taxpayers to be audited more effective. For a brief description of the ongoing tax reform, see Chapter III of the NRRP, Paragraph 'A fairer and more effective tax system' and the references contained therein.

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| **40** | MINISTRY OF ECONOMY AND FINANCE |

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**IV. SUSTAINABILITY OF PUBLIC FINANCES**<br>

property taxes and excise duties, should be reduced by 15 percent in 2024 compared to 2019 (Mission 1, Component 1 of the NRRP, M1C1-121). As evidence of the tax administration's ability to increase tax compliance, this indicator has already been affected by a very significant decline in the two years prior to 2019 (from 21.2 percent to 18.5 percent). The quantitative target envisages that the propensity to evade tax - also as a result of the measures taken - shall be further reduced to at least 15.8 percent by 2024, with an intermediate target for 2023. In other words, the reforms envisaged in the NRRP should be able to reduce tax evasion by approximately 12 billion, or 0.67 percent of GDP, in 2024 with respect to 2019.

The proposed long-term simulation assumes a permanent improvement over the baseline of the budget balance by the same amount to illustrate the potential impact on long-term debt. It is clear that the simulation is for illustrative purposes and that the improvement does not necessarily have to result in a permanent increase in revenue; it is possible, for example, that the increased revenue is used to reduce distortive taxation with beneficial long-term effects on growth; the end result would still be a reduction in the debt-to-GDP ratio.

![](image15.jpg)

#### Pension expenditure
The last set of simulations reflects, in terms of different trends in the debt-to-GDP ratio, the impact of the pension reforms implemented over<sup>40</sup>. All the measures adopted over time, culminating in the 2011 reforms, with the final transition to the contribution-based system, have contributed to significantly strengthen the sustainability of the public debt.

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<sup>40</sup> The reforms are commented in the Focus "Le tendenze di medio-lungo periodo del sistema pensionistico italiano", available on the italian version of the Document, pg. 104-109.

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| MINISTRY OF ECONOMY AND FINANCE | **41** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

![](image16.jpg)

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| **42** | MINISTRY OF ECONOMY AND FINANCE |

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**V.** **ANNEX**

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.1: MACROECONOMIC FORECAST** | **TABLE V.1: MACROECONOMIC FORECAST** | **TABLE V.1: MACROECONOMIC FORECAST** | **TABLE V.1: MACROECONOMIC FORECAST** | **TABLE V.1: MACROECONOMIC FORECAST** | **TABLE V.1: MACROECONOMIC FORECAST** | **TABLE V.1: MACROECONOMIC FORECAST** |
|  | **2021** | **2021** | **2022** | **2023** | **2024** | **2025** |
|  | **Level (1)** | **% var.** | **% var.** | **% var.** | **% var.** | **% var.** |
| Real GDP | 1677568 | 6.6 | 3.1 | 2.4 | 1.8 | 1.5 |
| Nominal GDP | 1775436 | 7.2 | 6.3 | 4.6 | 3.7 | 3.//3 |
| COMPONENTS OF REAL GDP |  |  |  |  |  |  |
| Private consumption expenditure (2) | 984117 | 5.2 | 3.0 | 2.1 | 1.6 | 1.6 |
| Government consumption expenditure (3) | 320512 | 0.6 | 2.3 | 0.3 | 0.6 | 0.2 |
| Gross fixed capital formation | 334086 | 17.0 | 7.3 | 5.5 | 4.0 | 2.2 |
| Changes in inventories (% of GDP) |  | 0.3 | -0.2 | 0.1 | 0.0 | 0.0 |
| Exports of goods and services | 537573 | 13.3 | 4.4 | 3.4 | 3.1 | 2.9 |
| Imports of goods and services | 502575 | 14.2 | 5.4 | 4.0 | 3.3 | 2.9 |
| CONTRIBUTION TO REAL GDP GROWTH |  |  |  |  |  |  |
| Final domestic demand |  | 6.3 | 3.5 | 2.5 | 1.9 | 1.5 |
| Changes in inventories |  | 0.3 | -0.2 | 0.1 | 0.0 | 0.0 |
| External balance of goods and services |  | 0.0 | -0.2 | -0.1 | 0.0 | 0.1 |
| (1) Millions. | (1) Millions. | (1) Millions. | (1) Millions. | (1) Millions. | (1) Millions. | (1) Millions. |
| (2) Final consumption spending of households and non-profit private social institutions serving households (NPISH). | (2) Final consumption spending of households and non-profit private social institutions serving households (NPISH). | (2) Final consumption spending of households and non-profit private social institutions serving households (NPISH). | (2) Final consumption spending of households and non-profit private social institutions serving households (NPISH). | (2) Final consumption spending of households and non-profit private social institutions serving households (NPISH). | (2) Final consumption spending of households and non-profit private social institutions serving households (NPISH). | (2) Final consumption spending of households and non-profit private social institutions serving households (NPISH). |
| (3) Public administrations. | (3) Public administrations. | (3) Public administrations. | (3) Public administrations. | (3) Public administrations. | (3) Public administrations. | (3) Public administrations. |
| Discrepancies, if any, are due to rounding. | Discrepancies, if any, are due to rounding. | Discrepancies, if any, are due to rounding. | Discrepancies, if any, are due to rounding. | Discrepancies, if any, are due to rounding. | Discrepancies, if any, are due to rounding. | Discrepancies, if any, are due to rounding. |

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.2: PRICE DEVELOPMENTS** | **TABLE V.2: PRICE DEVELOPMENTS** | **TABLE V.2: PRICE DEVELOPMENTS** | **TABLE V.2: PRICE DEVELOPMENTS** | **TABLE V.2: PRICE DEVELOPMENTS** | **TABLE V.2: PRICE DEVELOPMENTS** | **TABLE V.2: PRICE DEVELOPMENTS** |
|  | **2021** | **2021** | **2022** | **2023** | **2024** | **2025** |
|  | **Level** | **% var.** | **% var.** | **% var.** | **% var.** | **% var.** |
| GDP deflator | 105.8 | 0.5 | 3.0 | 2.2 | 1.9 | 1.8 |
| Private consumption deflator | 104.2 | 1.7 | 5.8 | 2.1 | 1.8 | 1.8 |
| HICP | 105.0 | 1.9 | 5.8 | 2.1 | 1.8 | 1.8 |
| Public consumption deflator | 109.7 | 1.6 | 4.3 | -0.8 | -1.1 | 0.1 |
| Investment deflator | 105.8 | 2.2 | 2.9 | 2.0 | 1.5 | 1.6 |
| Export price deflator (goods and services) | 108.1 | 4.9 | 4.9 | 1.3 | 1.2 | 1.1 |
| Import price deflator (goods and services) | 107.1 | 9.9 | 7.6 | 1.4 | 1.2 | 1.1 |

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.3: LABOUR MARKET DEVELOPMENTS** | **TABLE V.3: LABOUR MARKET DEVELOPMENTS** | **TABLE V.3: LABOUR MARKET DEVELOPMENTS** | **TABLE V.3: LABOUR MARKET DEVELOPMENTS** | **TABLE V.3: LABOUR MARKET DEVELOPMENTS** | **TABLE V.3: LABOUR MARKET DEVELOPMENTS** | **TABLE V.3: LABOUR MARKET DEVELOPMENTS** |
|  | **2021** | **2021** | **2022** | **2023** | **2024** | **2025** |
|  | **Level (1)** | **% var.** | **% var.** | **% var.** | **% var.** | **% var.** |
| Employment, persons | 25125 | 0.6 | 1.3 | 1.7 | 1.3 | 1.1 |
| Employment, hours worked | 41920103 | 8.0 | 2.7 | 2.3 | 1.6 | 1.3 |
| Unemployment rate (%) |  | 9.5 | 8.6 | 8.1 | 8.0 | 7.9 |
| Labour productivity, persons | 66769 | 6.0 | 1.8 | 0.7 | 0.5 | 0.5 |
| Labour productivity, hours worked | 40 | -1.3 | 0.5 | 0.1 | 0.2 | 0.2 |
| Compensation of employees | 724629 | 7.7 | 5.6 | 4.0 | 3.0 | 3.1 |
| Compensation per employee | 43338 | 0.3 | 2.7 | 1.7 | 1.4 | 1.8 |
| (1) Units of measurement: thousands of units for employed in national accounts and total hours worked; euro at<br> constant values for labour productivity; euro millions at current values for compensation of employees and euro for compensation per employee (i.e., labour cost). | (1) Units of measurement: thousands of units for employed in national accounts and total hours worked; euro at<br> constant values for labour productivity; euro millions at current values for compensation of employees and euro for compensation per employee (i.e., labour cost). | (1) Units of measurement: thousands of units for employed in national accounts and total hours worked; euro at<br> constant values for labour productivity; euro millions at current values for compensation of employees and euro for compensation per employee (i.e., labour cost). | (1) Units of measurement: thousands of units for employed in national accounts and total hours worked; euro at<br> constant values for labour productivity; euro millions at current values for compensation of employees and euro for compensation per employee (i.e., labour cost). | (1) Units of measurement: thousands of units for employed in national accounts and total hours worked; euro at<br> constant values for labour productivity; euro millions at current values for compensation of employees and euro for compensation per employee (i.e., labour cost). | (1) Units of measurement: thousands of units for employed in national accounts and total hours worked; euro at<br> constant values for labour productivity; euro millions at current values for compensation of employees and euro for compensation per employee (i.e., labour cost). | (1) Units of measurement: thousands of units for employed in national accounts and total hours worked; euro at<br> constant values for labour productivity; euro millions at current values for compensation of employees and euro for compensation per employee (i.e., labour cost). |

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| MINISTRY OF ECONOMY AND FINANCE | **43** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

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|:---|:---|:---|:---|:---|:---|
| **TABLE V.4: SECTORAL BALANCES** | **TABLE V.4: SECTORAL BALANCES** | **TABLE V.4: SECTORAL BALANCES** | **TABLE V.4: SECTORAL BALANCES** | **TABLE V.4: SECTORAL BALANCES** | **TABLE V.4: SECTORAL BALANCES** |
|  | **2021** | **2022** | **2023** | **2024** | **2025** |
|  | **% GDP** | **% GDP** | **% GDP** | **% GDP** | **% GDP** |
| Net lending/borrowing vis-a-vis the rest of the world | 2.4 | 1.6 | 1.5 | 1.5 | 1.6 |
| - Balance on goods and services | 2.4 | 1.4 | 1.2 | 1.1 | 1.2 |
| - Balance of primary incomes and transfers | 0.4 | 0.4 | 0.4 | 0.3 | 0.3 |
| - Capital account | -0.1 | -0.1 | -0.1 | 0.0 | 0.1 |
| Net lending/borrowing of the private sector | 9.6 | 7.2 | 5.4 | 4.8 | 4.4 |
| Net lending/borrowing of general government | -7.2 | -5.6 | -3.9 | -3.3 | -2.8 |

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.5: GENERAL GOVERNMENT BUDGETARY PROSPECTS (1)** | **TABLE V.5: GENERAL GOVERNMENT BUDGETARY PROSPECTS (1)** | **TABLE V.5: GENERAL GOVERNMENT BUDGETARY PROSPECTS (1)** | **TABLE V.5: GENERAL GOVERNMENT BUDGETARY PROSPECTS (1)** | **TABLE V.5: GENERAL GOVERNMENT BUDGETARY PROSPECTS (1)** | **TABLE V.5: GENERAL GOVERNMENT BUDGETARY PROSPECTS (1)** | **TABLE V.5: GENERAL GOVERNMENT BUDGETARY PROSPECTS (1)** |
|  | **2021** | **2021** | **2022** | **2023** | **2024** | **2025** |
|  | **Level (2)** | **% of GDP** | **% of GDP** | **% of GDP** | **% of GDP** | **% of GDP** |
| Net lending (EDP B.9) by sub-sector | Net lending (EDP B.9) by sub-sector |  |  |  |  |  |
| 1. General government | -128327 | -7.2 | -5.6 | -3.9 | -3.3 | -2.8 |
| *Difference between policy scenario and baseline scenario (3)* |  |  | *-0.5* | *-0.2* | *-0.1* | *-0.1* |
| 2. Central government | -128540 | -7.2 | -5.1 | -3.7 | -3.2 | -2.8 |
| 3. State government |  |  |  |  |  |  |
| 4. Local government | 585 | 0.0 | 0.0 | -0.1 | -0.1 | -0.1 |
| 5. Social security funds | -372 | 0.0 | 0.0 | 0.1 | 0.1 | 0.1 |
| General government | General government |  |  |  |  |  |
| 6. Total revenue | 857634 | 48.3 | 48.5 | 48.8 | 47.3 | 46.9 |
| 7. Total expenditure | 985961 | 55.5 | 53.6 | 52.5 | 50.5 | 49.6 |
| 8. Net lending/borrowing | -128327 | -7.2 | -5.1 | -3.7 | -3.2 | -2.7 |
| 9. Interest expenditure | 62863 | 3.5 | 3.5 | 3.1 | 3.0 | 3.0 |
| 10. Primary balance | -65464 | -3.7 | -1.6 | -0.6 | -0.2 | 0.2 |
| 11. One-off and other temporary measures (4) | 7213 | 0.4 | 0.7 | 0.3 | 0.1 | 0.1 |
| Selected components of revenue | Selected components of revenue |  |  |  |  |  |
| 12. Total taxes | 527050 | 29.7 | 29.1 | 28.8 | 28.4 | 28.4 |
| 12a. Taxes on production and imports | 258308 | 14.5 | 14.5 | 14.7 | 14.6 | 14.5 |
| 12b Current taxes on income, wealth, etc | 267140 | 15.0 | 14.4 | 14.0 | 13.7 | 13.7 |
| 12c. Capital taxes | 1602 | 0.1 | 0.3 | 0.1 | 0.1 | 0.1 |
| 13. Social contributions | 245025 | 13.8 | 14.0 | 14.0 | 13.9 | 13.8 |
| 14. Property income | 17036 | 1.0 | 0.8 | 0.8 | 0.8 | 0.8 |
| 15. Other | 68523 | 3.9 | 4.6 | 5.2 | 4.2 | 3.9 |
| 15a. Other current revenues | 62892 | 3.5 | 3.8 | 4.0 | 3.7 | 3.4 |
| 5b. Other capital revenues | 5631 | 0.3 | 0.7 | 1.2 | 0.5 | 0.5 |
| 16. Total revenue | 857634 | 48.3 | 48.5 | 48.8 | 47.3 | 46.9 |
| *p.m.: Tax burden* |  | 43.5 | 43.1 | 42.8 | 42.3 | 42.2 |
| Selected components of expenditure | Selected components of expenditure |  |  |  |  |  |
| 17. Compensation of employees + intermediate consumption | 286747 | 16.2 | 16.2 | 15.4 | 14.7 | 14.3 |
| 17a. Compensation of employees | 176309 | 9.9 | 10.0 | 9.5 | 9.1 | 8.8 |
| 17b. Intermediate consumption | 110438 | 6.2 | 6.1 | 5.9 | 5.6 | 5.4 |
| 18. Social payments | 446252 | 25.1 | 23.8 | 24.1 | 23.8 | 23.5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *of which: Unemployment benefits* | 19579 | 1.1 | 0.9 | 0.8 | 0.8 | 0.8 |
| 18a. Social transfers in kind supplied via market producers | 47060 | 2.7 | 2.5 | 2.4 | 2.3 | 2.3 |
| 18b. Social transfers other than in kind | 399192 | 22.5 | 21.3 | 21.7 | 21.4 | 21.2 |
| 19. Interest expenditure | 62863 | 3.5 | 3.5 | 3.1 | 3.0 | 3.0 |
| 20. Subsidies | 35756 | 2.0 | 2.4 | 2.1 | 1.9 | 1.9 |
| 21. Gross fixed capital formation | 50709 | 2.9 | 3.1 | 3.6 | 3.5 | 3.6 |
| 22. Capital transfers | 55096 | 3.1 | 2.0 | 1.7 | 1.1 | 1.1 |
| 23. Other | 48538 | 2.7 | 2.6 | 2.5 | 2.4 | 2.4 |
| 23a. Other current expenditure | 47511 | 2.7 | 2.6 | 2.5 | 2.4 | 2.3 |
| 23b. Other capital expenditure | 1027 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 |
| 24. Total expenditure | 985961 | 55.5 | 53.6 | 52.5 | 50.5 | 49.6 |
| *Current primary expenditure* | *816266* | 46.0 | 45.0 | 44.1 | 42.8 | 42.0 |
| *Total primary expenditure* | *923098* | 52.0 | 50.1 | 49.4 | 47.5 | 46.6 |
| (1) The first line shows values under policy scenario; the other values show baseline estimates under existing legislation. Discrepancies, if any, are due to rounding.<br> (2) Values in millions.<br> (3) The difference is due to the effect of the decree law announced by the Government.<br> (4) The positive sign indicates one-off measures to reduce the deficit | (1) The first line shows values under policy scenario; the other values show baseline estimates under existing legislation. Discrepancies, if any, are due to rounding.<br> (2) Values in millions.<br> (3) The difference is due to the effect of the decree law announced by the Government.<br> (4) The positive sign indicates one-off measures to reduce the deficit | (1) The first line shows values under policy scenario; the other values show baseline estimates under existing legislation. Discrepancies, if any, are due to rounding.<br> (2) Values in millions.<br> (3) The difference is due to the effect of the decree law announced by the Government.<br> (4) The positive sign indicates one-off measures to reduce the deficit | (1) The first line shows values under policy scenario; the other values show baseline estimates under existing legislation. Discrepancies, if any, are due to rounding.<br> (2) Values in millions.<br> (3) The difference is due to the effect of the decree law announced by the Government.<br> (4) The positive sign indicates one-off measures to reduce the deficit | (1) The first line shows values under policy scenario; the other values show baseline estimates under existing legislation. Discrepancies, if any, are due to rounding.<br> (2) Values in millions.<br> (3) The difference is due to the effect of the decree law announced by the Government.<br> (4) The positive sign indicates one-off measures to reduce the deficit | (1) The first line shows values under policy scenario; the other values show baseline estimates under existing legislation. Discrepancies, if any, are due to rounding.<br> (2) Values in millions.<br> (3) The difference is due to the effect of the decree law announced by the Government.<br> (4) The positive sign indicates one-off measures to reduce the deficit | (1) The first line shows values under policy scenario; the other values show baseline estimates under existing legislation. Discrepancies, if any, are due to rounding.<br> (2) Values in millions.<br> (3) The difference is due to the effect of the decree law announced by the Government.<br> (4) The positive sign indicates one-off measures to reduce the deficit |

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| **44** | MINISTRY OF ECONOMY AND FINANCE |

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**V. ANNEX**<br>

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.6: SCENARIO UNDER UNCHANGED POLICIES (1)** | **TABLE V.6: SCENARIO UNDER UNCHANGED POLICIES (1)** | **TABLE V.6: SCENARIO UNDER UNCHANGED POLICIES (1)** | **TABLE V.6: SCENARIO UNDER UNCHANGED POLICIES (1)** | **TABLE V.6: SCENARIO UNDER UNCHANGED POLICIES (1)** | **TABLE V.6: SCENARIO UNDER UNCHANGED POLICIES (1)** | **TABLE V.6: SCENARIO UNDER UNCHANGED POLICIES (1)** |
|  | **2021** | **2021** | **2022** | **2023** | **2024** | **2025** |
|  | **Level (2)** | **% of GDP** | **% of GDP** | **% of GDP** | **% of GDP** | **% of GDP** |
| Total revenue at unchanged policies | 857634 | 48.3 | 48.5 | 48.9 | 47.4 | 47.0 |
| Total expenditure at unchanged policies | 985961 | 55.5 | 53.6 | 52.8 | 50.8 | 50.0 |
| Detailed items of expenditure |  |  |  |  |  |  |
| Current expenditure | 879129 | 49.5 | 48.5 | 47.5 | 46.1 | 45.2 |
| *Of which:* |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; *Compensation of employees* | *176309* | 9.9 | 10.0 | 9.7 | 9.3 | 9.0 |
| &nbsp;&nbsp;&nbsp; *Intermediate consumption* | *157498* | 8.9 | 8.6 | 8.4 | 8.0 | 7.7 |
| Capital expenditure | 106832 | 6.0 | 5.1 | 5.3 | 4.7 | 4.8 |
| *Of which:* |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; *Gross fixed capital formation* | *50709* | 2.9 | 3.1 | 3.6 | 3.6 | 3.7 |
| &nbsp;&nbsp;&nbsp; *Investment grants* | *20829* | 1.2 | 1.3 | 1.3 | 0.9 | 0.9 |
| (1) The table shows the impact of the refinancing of some measures that may be implemented in consideration of international commitments and legislative factors.<br> (2) Values in millions. | (1) The table shows the impact of the refinancing of some measures that may be implemented in consideration of international commitments and legislative factors.<br> (2) Values in millions. | (1) The table shows the impact of the refinancing of some measures that may be implemented in consideration of international commitments and legislative factors.<br> (2) Values in millions. | (1) The table shows the impact of the refinancing of some measures that may be implemented in consideration of international commitments and legislative factors.<br> (2) Values in millions. | (1) The table shows the impact of the refinancing of some measures that may be implemented in consideration of international commitments and legislative factors.<br> (2) Values in millions. | (1) The table shows the impact of the refinancing of some measures that may be implemented in consideration of international commitments and legislative factors.<br> (2) Values in millions. | (1) The table shows the impact of the refinancing of some measures that may be implemented in consideration of international commitments and legislative factors.<br> (2) Values in millions. |

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.7: EXPENDITURE TO BE EXCLUDED FROM THE EXPENDITURE RULE** | **TABLE V.7: EXPENDITURE TO BE EXCLUDED FROM THE EXPENDITURE RULE** | **TABLE V.7: EXPENDITURE TO BE EXCLUDED FROM THE EXPENDITURE RULE** | **TABLE V.7: EXPENDITURE TO BE EXCLUDED FROM THE EXPENDITURE RULE** | **TABLE V.7: EXPENDITURE TO BE EXCLUDED FROM THE EXPENDITURE RULE** | **TABLE V.7: EXPENDITURE TO BE EXCLUDED FROM THE EXPENDITURE RULE** | **TABLE V.7: EXPENDITURE TO BE EXCLUDED FROM THE EXPENDITURE RULE** |
|  | **2021** | **2021** | **2022** | **2023** | **2024** | **2025** |
|  | **Level (1)** | **% of GDP** | **% of GDP** | **% of GDP** | **% of GDP** | **% of GDP** |
| Expenditure on EU programs fully matched byEU funds revenue (2) | 4093.0 | 0.2 | 1.1 | 1.8 | 0.8 | 0.6 |
| &nbsp;&nbsp;&nbsp; *Of which investment expenditure fully matched by EU funds revenue (3)* | *2076.2* | 0.1 | 0.3 | 0.6 | 0.4 | 0.4 |
| Cyclical unemployment benefit expenditure (4) | 202.6 | 0.0 | 0.0 | -0.1 | -0.1 | -0.1 |
| Effect of discretionary revenue measures (5) | -9395.4 | -0.5 | -0.6 | 0.1 | -0.4 | 0.8 |
| Revenues in-creased mandated by law | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| (1) Values in millions.<br> (2) The estimates include Next Generation EU grants for 0.1 percent of GDP for 2021, 1.0 percent for 2022, 1.7 percent for 2023 and 0.8 percent for 2024.<br> (3) The estimates include Next Generation EU grants for 0.2 percent of GDP for 2022, 0.5 percent for 2023, 0.3 percent for 2024 and 0.3 percent for 2025.<br> (4) The cyclical expenditure component for unemployment benefits was calculated using the methodology currently used by the European Commission, based on the unemployment gap.<br> (5) Discretionary contribution revenue is included. | (1) Values in millions.<br> (2) The estimates include Next Generation EU grants for 0.1 percent of GDP for 2021, 1.0 percent for 2022, 1.7 percent for 2023 and 0.8 percent for 2024.<br> (3) The estimates include Next Generation EU grants for 0.2 percent of GDP for 2022, 0.5 percent for 2023, 0.3 percent for 2024 and 0.3 percent for 2025.<br> (4) The cyclical expenditure component for unemployment benefits was calculated using the methodology currently used by the European Commission, based on the unemployment gap.<br> (5) Discretionary contribution revenue is included. | (1) Values in millions.<br> (2) The estimates include Next Generation EU grants for 0.1 percent of GDP for 2021, 1.0 percent for 2022, 1.7 percent for 2023 and 0.8 percent for 2024.<br> (3) The estimates include Next Generation EU grants for 0.2 percent of GDP for 2022, 0.5 percent for 2023, 0.3 percent for 2024 and 0.3 percent for 2025.<br> (4) The cyclical expenditure component for unemployment benefits was calculated using the methodology currently used by the European Commission, based on the unemployment gap.<br> (5) Discretionary contribution revenue is included. | (1) Values in millions.<br> (2) The estimates include Next Generation EU grants for 0.1 percent of GDP for 2021, 1.0 percent for 2022, 1.7 percent for 2023 and 0.8 percent for 2024.<br> (3) The estimates include Next Generation EU grants for 0.2 percent of GDP for 2022, 0.5 percent for 2023, 0.3 percent for 2024 and 0.3 percent for 2025.<br> (4) The cyclical expenditure component for unemployment benefits was calculated using the methodology currently used by the European Commission, based on the unemployment gap.<br> (5) Discretionary contribution revenue is included. | (1) Values in millions.<br> (2) The estimates include Next Generation EU grants for 0.1 percent of GDP for 2021, 1.0 percent for 2022, 1.7 percent for 2023 and 0.8 percent for 2024.<br> (3) The estimates include Next Generation EU grants for 0.2 percent of GDP for 2022, 0.5 percent for 2023, 0.3 percent for 2024 and 0.3 percent for 2025.<br> (4) The cyclical expenditure component for unemployment benefits was calculated using the methodology currently used by the European Commission, based on the unemployment gap.<br> (5) Discretionary contribution revenue is included. | (1) Values in millions.<br> (2) The estimates include Next Generation EU grants for 0.1 percent of GDP for 2021, 1.0 percent for 2022, 1.7 percent for 2023 and 0.8 percent for 2024.<br> (3) The estimates include Next Generation EU grants for 0.2 percent of GDP for 2022, 0.5 percent for 2023, 0.3 percent for 2024 and 0.3 percent for 2025.<br> (4) The cyclical expenditure component for unemployment benefits was calculated using the methodology currently used by the European Commission, based on the unemployment gap.<br> (5) Discretionary contribution revenue is included. | (1) Values in millions.<br> (2) The estimates include Next Generation EU grants for 0.1 percent of GDP for 2021, 1.0 percent for 2022, 1.7 percent for 2023 and 0.8 percent for 2024.<br> (3) The estimates include Next Generation EU grants for 0.2 percent of GDP for 2022, 0.5 percent for 2023, 0.3 percent for 2024 and 0.3 percent for 2025.<br> (4) The cyclical expenditure component for unemployment benefits was calculated using the methodology currently used by the European Commission, based on the unemployment gap.<br> (5) Discretionary contribution revenue is included. |

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| MINISTRY OF ECONOMY AND FINANCE | **45** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

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| **TABLE V.8: PUBLIC DEBT DETERMINANTS (percentage of GDP) (1)** | **TABLE V.8: PUBLIC DEBT DETERMINANTS (percentage of GDP) (1)** | **TABLE V.8: PUBLIC DEBT DETERMINANTS (percentage of GDP) (1)** | **TABLE V.8: PUBLIC DEBT DETERMINANTS (percentage of GDP) (1)** | **TABLE V.8: PUBLIC DEBT DETERMINANTS (percentage of GDP) (1)** | **TABLE V.8: PUBLIC DEBT DETERMINANTS (percentage of GDP) (1)** |
|  | **2021** | **2022** | **2023** | **2024** | **2025** |
| Gross debt (2) | 150.8 | 147.0 | 145.2 | 143.4 | 141.4 |
| Change in gross debt ratio | -4.4 | -3.8 | -1.9 | -1.8 | -2.0 |
| Contributions to changes in gross debt: |  |  |  |  |  |
| Primary balance | 3.7 | 2.1 | 0.8 | 0.3 | -0.2 |
| *Snow-ball effect* | -6.8 | -5.4 | -3.4 | -2.2 | -1.6 |
| &nbsp;&nbsp;&nbsp;&nbsp; *Of which: Interest expenditure* | 3.5 | 3.5 | 3.1 | 3.0 | 3.0 |
| Stock-flow adjustment | -1.3 | -0.5 | 0.7 | 0.1 | -0.2 |
| *of which: Differences between cash and accruals* | -1.1 | -1.4 | 0.0 | -0.4 | -0.5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Net accumulation of financial assets (3)* | 0.0 | 1.0 | 0.6 | 0.5 | 0.4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *of which Privatisation proceeds* | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Valuation effects* | -0.5 | 0.2 | 0.2 | 0.1 | 0.1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Others (4)* | 0.3 | -0.2 | -0.1 | -0.1 | -0.1 |
| p.m.: Implicit interest rate on debt | 2.4 | 2.5 | 2.2 | 2.1 | 2.2 |
| (1) Discrepancies, if any, are due to rounding.<br> (2) Value gross of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. At the end of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM Programme (see Bank of Italy, 'Statistical Bulletin of Public Finances, Borrowing Requirement and Debt, March 2022'). The MEF's liquidity stock is assumed to be reduced of about -0.2 percent of GDP in 2022 and -0.1 percent of GDP in each following year, with the objective to bring the stock back to the level of end 2019. In addition, the estimates take into account the repurchase of SACE, the use of 'Patrimonio destinato', and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was compiled.<br> (3) Includes the effects of contributions for GLF and the ESM Programme.<br> (4) The item 'Other', residual compared to the preceding items, includes changes in MEF's liquidity stock; statistical discrepancies; Eurostat reclassifications; contributions in support of the Euro Area envisaged by the EFSF Programme. | (1) Discrepancies, if any, are due to rounding.<br> (2) Value gross of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. At the end of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM Programme (see Bank of Italy, 'Statistical Bulletin of Public Finances, Borrowing Requirement and Debt, March 2022'). The MEF's liquidity stock is assumed to be reduced of about -0.2 percent of GDP in 2022 and -0.1 percent of GDP in each following year, with the objective to bring the stock back to the level of end 2019. In addition, the estimates take into account the repurchase of SACE, the use of 'Patrimonio destinato', and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was compiled.<br> (3) Includes the effects of contributions for GLF and the ESM Programme.<br> (4) The item 'Other', residual compared to the preceding items, includes changes in MEF's liquidity stock; statistical discrepancies; Eurostat reclassifications; contributions in support of the Euro Area envisaged by the EFSF Programme. | (1) Discrepancies, if any, are due to rounding.<br> (2) Value gross of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. At the end of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM Programme (see Bank of Italy, 'Statistical Bulletin of Public Finances, Borrowing Requirement and Debt, March 2022'). The MEF's liquidity stock is assumed to be reduced of about -0.2 percent of GDP in 2022 and -0.1 percent of GDP in each following year, with the objective to bring the stock back to the level of end 2019. In addition, the estimates take into account the repurchase of SACE, the use of 'Patrimonio destinato', and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was compiled.<br> (3) Includes the effects of contributions for GLF and the ESM Programme.<br> (4) The item 'Other', residual compared to the preceding items, includes changes in MEF's liquidity stock; statistical discrepancies; Eurostat reclassifications; contributions in support of the Euro Area envisaged by the EFSF Programme. | (1) Discrepancies, if any, are due to rounding.<br> (2) Value gross of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. At the end of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM Programme (see Bank of Italy, 'Statistical Bulletin of Public Finances, Borrowing Requirement and Debt, March 2022'). The MEF's liquidity stock is assumed to be reduced of about -0.2 percent of GDP in 2022 and -0.1 percent of GDP in each following year, with the objective to bring the stock back to the level of end 2019. In addition, the estimates take into account the repurchase of SACE, the use of 'Patrimonio destinato', and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was compiled.<br> (3) Includes the effects of contributions for GLF and the ESM Programme.<br> (4) The item 'Other', residual compared to the preceding items, includes changes in MEF's liquidity stock; statistical discrepancies; Eurostat reclassifications; contributions in support of the Euro Area envisaged by the EFSF Programme. | (1) Discrepancies, if any, are due to rounding.<br> (2) Value gross of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. At the end of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM Programme (see Bank of Italy, 'Statistical Bulletin of Public Finances, Borrowing Requirement and Debt, March 2022'). The MEF's liquidity stock is assumed to be reduced of about -0.2 percent of GDP in 2022 and -0.1 percent of GDP in each following year, with the objective to bring the stock back to the level of end 2019. In addition, the estimates take into account the repurchase of SACE, the use of 'Patrimonio destinato', and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was compiled.<br> (3) Includes the effects of contributions for GLF and the ESM Programme.<br> (4) The item 'Other', residual compared to the preceding items, includes changes in MEF's liquidity stock; statistical discrepancies; Eurostat reclassifications; contributions in support of the Euro Area envisaged by the EFSF Programme. | (1) Discrepancies, if any, are due to rounding.<br> (2) Value gross of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. At the end of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM Programme (see Bank of Italy, 'Statistical Bulletin of Public Finances, Borrowing Requirement and Debt, March 2022'). The MEF's liquidity stock is assumed to be reduced of about -0.2 percent of GDP in 2022 and -0.1 percent of GDP in each following year, with the objective to bring the stock back to the level of end 2019. In addition, the estimates take into account the repurchase of SACE, the use of 'Patrimonio destinato', and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this Document was compiled.<br> (3) Includes the effects of contributions for GLF and the ESM Programme.<br> (4) The item 'Other', residual compared to the preceding items, includes changes in MEF's liquidity stock; statistical discrepancies; Eurostat reclassifications; contributions in support of the Euro Area envisaged by the EFSF Programme. |

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| **TABLE V.9: CYCLICALLY ADJUSTED PUBLIC FINANCES (as percentage of GDP)** | **TABLE V.9: CYCLICALLY ADJUSTED PUBLIC FINANCES (as percentage of GDP)** | **TABLE V.9: CYCLICALLY ADJUSTED PUBLIC FINANCES (as percentage of GDP)** | **TABLE V.9: CYCLICALLY ADJUSTED PUBLIC FINANCES (as percentage of GDP)** | **TABLE V.9: CYCLICALLY ADJUSTED PUBLIC FINANCES (as percentage of GDP)** | **TABLE V.9: CYCLICALLY ADJUSTED PUBLIC FINANCES (as percentage of GDP)** | **TABLE V.9: CYCLICALLY ADJUSTED PUBLIC FINANCES (as percentage of GDP)** | **TABLE V.9: CYCLICALLY ADJUSTED PUBLIC FINANCES (as percentage of GDP)** |
|  | **2019** | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| 1. Real GDP growth | 0.5 | -9.0 | 6.6 | 3.1 | 2.4 | 1.8 | 1.5 |
| 2. Net Lending of general government | -1.6 | -9.6 | -7.2 | -5.6 | -3.9 | -3.3 | -2.8 |
| 3. Interest expenditure | 3.4 | 3.5 | 3.5 | 3.5 | 3.1 | 3.0 | 3.0 |
| 4. One-off and other temporary measures (2) | 0.1 | 0.1 | 0.4 | 0.7 | 0.3 | 0.1 | 0.1 |
| Of which one-offs on the revenue side:<br> general government | 0.1 | 0.2 | 0.4 | 0.6 | 0.3 | 0.1 | 0.0 |
| Of which one-offs on the expenditure side:<br> general government | -0.1 | -0.1 | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 |
| 5. Potential GDP growth (%) | -0.1 | 0.1 | 0.3 | 1.0 | 1.2 | 1.3 | 1.3 |
| Contributions: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Labour* | -0.5 | -0.1 | -0.1 | 0.3 | 0.5 | 0.5 | 0.5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Capital* | 0.0 | -0.1 | 0.1 | 0.3 | 0.4 | 0.4 | 0.5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Total Factor Productivity* | 0.4 | 0.4 | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 |
| 6. Output gap | 0.6 | -8.6 | -2.8 | -0.7 | 0.5 | 1.1 | 1.3 |
| 7. Cyclical budgetary component | 0.4 | -4.7 | -1.5 | -0.4 | 0.3 | 0.6 | 0.7 |
| 8. Cyclically adjusted balance | -1.9 | -4.9 | -5.7 | -5.2 | -4.2 | -3.9 | -3.5 |
| 9. Cyclically adjusted primary balance | 1.4 | -1.5 | -2.2 | -1.7 | -1.1 | -0.9 | -0.5 |
| 10. Structural balance (3) | -2.0 | -5.0 | -6.1 | -5.9 | -4.5 | -4.0 | -3.6 |
| 11. Structural primary surplus (3) | 1.3 | -1.5 | -2.6 | -2.4 | -1.4 | -1.0 | -0.6 |
| 12. Change in structural budget balance | 0.3 | -3.0 | -1.1 | 0.2 | 1.4 | 0.5 | 0.4 |
| 13. Change in structural primary surplus | 0.0 | -2.9 | -1.0 | 0.1 | 1.0 | 0.4 | 0.4 |
| (1) Discrepancies, if any, are due to rounding.<br> (2) The positive sign indicates one-off measures to reduce the deficit.<br> (3) Cyclically adjusted net of one-off and other temporary measures. | (1) Discrepancies, if any, are due to rounding.<br> (2) The positive sign indicates one-off measures to reduce the deficit.<br> (3) Cyclically adjusted net of one-off and other temporary measures. | (1) Discrepancies, if any, are due to rounding.<br> (2) The positive sign indicates one-off measures to reduce the deficit.<br> (3) Cyclically adjusted net of one-off and other temporary measures. | (1) Discrepancies, if any, are due to rounding.<br> (2) The positive sign indicates one-off measures to reduce the deficit.<br> (3) Cyclically adjusted net of one-off and other temporary measures. | (1) Discrepancies, if any, are due to rounding.<br> (2) The positive sign indicates one-off measures to reduce the deficit.<br> (3) Cyclically adjusted net of one-off and other temporary measures. | (1) Discrepancies, if any, are due to rounding.<br> (2) The positive sign indicates one-off measures to reduce the deficit.<br> (3) Cyclically adjusted net of one-off and other temporary measures. | (1) Discrepancies, if any, are due to rounding.<br> (2) The positive sign indicates one-off measures to reduce the deficit.<br> (3) Cyclically adjusted net of one-off and other temporary measures. | (1) Discrepancies, if any, are due to rounding.<br> (2) The positive sign indicates one-off measures to reduce the deficit.<br> (3) Cyclically adjusted net of one-off and other temporary measures. |

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| **46** | MINISTRY OF ECONOMY AND FINANCE |

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**V. ANNEX**<br>

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| **TABLE V.10: DIFFERENCES COMPARED TO THE PREVIOUS STABILITY PROGRAMME (1)** | **TABLE V.10: DIFFERENCES COMPARED TO THE PREVIOUS STABILITY PROGRAMME (1)** | **TABLE V.10: DIFFERENCES COMPARED TO THE PREVIOUS STABILITY PROGRAMME (1)** | **TABLE V.10: DIFFERENCES COMPARED TO THE PREVIOUS STABILITY PROGRAMME (1)** | **TABLE V.10: DIFFERENCES COMPARED TO THE PREVIOUS STABILITY PROGRAMME (1)** |
|  | **2021** | **2022** | **2023** | **2024** |
| REAL GDP GROWTH (%) |  |  |  |  |
| Previous update (SP 2021) | 4.5 | 4.8 | 2.6 | 1.8 |
| Current update (SP 2022) | 6.6 | 3.1 | 2.4 | 1.8 |
| Difference | 2.1 | -1.7 | -0.2 | 0.0 |
| GENERAL GOVERNMENT NET LENDING (% of GDP) |  |  |  |  |
| Previous update (SP 2021) | -11.8 | -5.9 | -4.3 | -3.4 |
| Current update (SP 2022) | -7.2 | -5.6 | -3.9 | -3.3 |
| Difference | 4.6 | 0.3 | 0.3 | 0.1 |
| GENERAL GOVERNMENT GROSS DEBT (% of GDP) |  |  |  |  |
| Previous update (SP 2021) | 159.8 | 156.3 | 155.0 | 152.7 |
| Current update (SP 2022) | 150.8 | 147.0 | 145.2 | 143.4 |
| Difference | -9.0 | -9.2 | -9.8 | -9.3 |
| (1) Discrepancies, if any, are due to rounding. |  |  |  |  |

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| MINISTRY OF ECONOMY AND FINANCE | **47** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

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| **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** | **TABLE V.11: PUBLIC EXPENDITURE FORECASTS FOR PENSIONS, HEALTHCARE, LONG-TERM CARE AND EDUCATION (% OF GDP) (1)** |
|  | **2010** | **2015** | **2020** | **2025** | **2030** | **2035** | **2040** | **2045** | **2050** | **2055** | **2060** | **2065** | **2070** |
| Total expenditure | 49.7 | 50.3 | 57.0 | 49.5 | 50.8 | 52.1 | 53.0 | 53.7 | 53.8 | 53.6 | 53.2 | 52.9 | 53.0 |
| *Of which:* |  |  |  |  |  |  |  |  |  |  |  |  |  |
| *Age-related expenditures* | 26.6 | 26.9 | 29.6 | 26.7 | 27.6 | 28.5 | 28.8 | 28.7 | 28.0 | 27.0 | 26.2 | 25.6 | 25.5 |
| Pension expenditure (2) (3) | 14.7 | 15.6 | 17.0 | 16.1 | 16.7 | 17.4 | 17.3 | 16.8 | 15.8 | 14.6 | 13.7 | 13.3 | 13.3 |
| Health care (2) (4) | 6.9 | 6.6 | 7.4 | 6.2 | 6.4 | 6.7 | 6.9 | 7.1 | 7.3 | 7.4 | 7.4 | 7.4 | 7.3 |
| Long-term care (this was earlier included in the health care) | 0.7 | 0.7 | 0.8 | 0.7 | 0.7 | 0.7 | 0.8 | 0.9 | 0.9 | 1.0 | 1.0 | 1.0 | 1.0 |
| LTC - socio-assistance comp. (2) (4) | 1.1 | 1.1 | 1.2 | 1.0 | 1.0 | 1.1 | 1.2 | 1.2 | 1.4 | 1.5 | 1.5 | 1.5 | 1.5 |
| Education expenditure (5) | 3.9 | 3.6 | 4.0 | 3.5 | 3.4 | 3.4 | 3.4 | 3.5 | 3.6 | 3.6 | 3.5 | 3.5 | 3.4 |
| Interest expenditure | 4.3 | 4.1 | 3.5 | 3.0 | 3.4 | 3.9 | 4.5 | 5.3 | 6.1 | 6.8 | 7.3 | 7.5 | 7.8 |
| Total revenue | 45.5 | 47.8 | 47.4 | 46.6 | 46.6 | 46.6 | 46.6 | 46.6 | 46.6 | 46.6 | 46.6 | 46.6 | 46.6 |
| *Of which: property income* | 0.6 | 0.7 | 1.1 | 0.8 | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 |
| &nbsp;&nbsp; ASSUMPTIONS (%) |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Labour productivity growth | 2.6 | 0.1 | 1.4 | 0.2 | 0.6 | 1.3 | 1.7 | 1.7 | 1.7 | 1.7 | 1.6 | 1.6 | 1.5 |
| Real GDP growth | 1.7 | 0.8 | -9.0 | 1.5 | 0.4 | 0.7 | 1.0 | 1.3 | 1.5 | 1.5 | 1.5 | 1.4 | 1.3 |
| Participation rate males (aged 20-64) | 72.4 | 73.7 | 72.9 | 76.1 | 76.0 | 76.5 | 76.9 | 76.9 | 76.4 | 75.8 | 75.8 | 76.1 | 76.4 |
| Participation rates females (aged 20-64) | 50.8 | 54.1 | 54.1 | 59.7 | 60.9 | 61.9 | 62.6 | 62.7 | 62.4 | 62.3 | 62.3 | 62.4 | 62.6 |
| Total participation rates (aged 20-64) | 61.6 | 63.8 | 63.5 | 68.0 | 68.6 | 69.3 | 69.9 | 70.0 | 69.6 | 69.3 | 69.3 | 69.5 | 69.8 |
| Unemployment rate | 8.5 | 12.0 | 9.3 | 7.9 | 8.1 | 7.9 | 7.7 | 7.2 | 6.7 | 6.6 | 6.6 | 6.5 | 6.5 |
| Population aged 65+ over total population | 20.4 | 21.9 | 23.2 | 24.8 | 27.2 | 29.8 | 32.2 | 33.5 | 33.7 | 33.6 | 33.2 | 33.0 | 33.1 |
| Dependence index of the elderly<br> (65 and over / [20-64]) | 31.1 | 34.0 | 36.4 | 39.3 | 44.2 | 50.6 | 57.0 | 60.9 | 61.8 | 61.1 | 60.0 | 59.3 | 59.8 |
| (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. | (1) For the four-year period 2022-2025 growth assumptions are in line with the macroeconomic baseline scenario under existing legislation underlying the Stability Programme 2022. For the following period, the scenario is coherent with the EPC-WGA exercise prepared for the 2021 round of age-related expenditures projections. <br> (2) Until 2021, expenditure on social benefits refers to National Accounting data. For the period 2022-2025, the forecast values are in line with those underlying the forecast of the public finance scenario. <br> (3) Budget Law No. 234/2021 deleted the 'Fund for the revision of the early retirement system and to encourage the hiring of young workers', established by the Law No. 145/2018, p. 256. The resources previously earmarked in that fund have been used to finance, up to 2023, the burden resulting from the social security provisions of Decree Law No. 4/2019, through the substantial zeroing of the relative expenditure allocation. In the following years, the repeal of the above-mentioned fund deletes the expenditure allocations, that amounted to 1.8 billion for 2024; 2.8 billion for 2025; 3.8 billion for 2026-2031; 3.9 billion as of 2032. <br> (4) Starting from 2015, the health expenditure data takes into account the revision of the time series of the national accounts, based on the ESA 2010. This revision was carried out in coordination with Eurostat and with most of the EU countries. With regard to the period 2022¬2025, the forecast reflects: charges related to the renovation of the economic treatment of dependent and contracted staff of the National Health System (NHS) for the period 2019-2021; the expenditures for the implementation of the National Recovery and Resilience Plan (NRRP) amounting to about 3.5 billion ('Mission 6: Health'); the planned commitments to strengthen the performances of the NHS, including in terms of timeliness of response to health emergencies. Starting from 2026, the forecast is made using the reference scenario methodology. <br> (5) The aggregate includes the ISCED education levels 1-8 according to the OECD classification (ISCED 2011 level). It does not include expenditure on adult education (lifelong learning) and pre-primary school. The expenditure aggregate is built on data from UNESCO / OECD / EUROSTAT (UOE) sources. The forecast incorporates the UOE data updated to the financial year 2018. With regard to the period 2022¬2025, the projection reflects the greater expenditure for personnel necessary to face the epidemiological emergency linked to the spread of the Covid-19 (D.L. No. 18/2020, D.L. No. 34/2020, D.L. No. 104/2020, D.L. No. 137/2020, L. No. 178/2020, D.L. No. 30/2021, D.L. No. 41/2021, D.L. No. 105/2021, and L. No. 234/2021). The forecast of education expenditure in relation to GDP includes current and capital account measures financed through the Next Generation EU programme for ISCED 1-8 classes. These expenditures amount to about 22.5 billion, overall, up to 2026. |

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| **48** | MINISTRY OF ECONOMY AND FINANCE |

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**V. ANNEX**<br>

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|:---|:---|:---|:---|:---|
| **TABLE V.12: PUBLIC GUARANTEES IN 2020 AND 2021 (in millions)** | **TABLE V.12: PUBLIC GUARANTEES IN 2020 AND 2021 (in millions)** | **TABLE V.12: PUBLIC GUARANTEES IN 2020 AND 2021 (in millions)** | **TABLE V.12: PUBLIC GUARANTEES IN 2020 AND 2021 (in millions)** | **TABLE V.12: PUBLIC GUARANTEES IN 2020 AND 2021 (in millions)** |
|  | **2020** | **2020** | **2021** | **2021** |
|  | Level | % of GDP | Level | % of GDP |
| Stock of guarantees | 215428 | 13.0 | 282337 | 15.9 |
| *of which: financial sector (1)* | *13396* | 0.8 | *14600* | 0.8 |
| (1) Italian banks, Cassa Depositi e Prestiti and GACS. | (1) Italian banks, Cassa Depositi e Prestiti and GACS. | (1) Italian banks, Cassa Depositi e Prestiti and GACS. | (1) Italian banks, Cassa Depositi e Prestiti and GACS. | (1) Italian banks, Cassa Depositi e Prestiti and GACS. |

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|:---|:---|:---|:---|:---|:---|
| **TABLE V.13: BASIC ASSUMPTIONS** | **TABLE V.13: BASIC ASSUMPTIONS** | **TABLE V.13: BASIC ASSUMPTIONS** | **TABLE V.13: BASIC ASSUMPTIONS** | **TABLE V.13: BASIC ASSUMPTIONS** | **TABLE V.13: BASIC ASSUMPTIONS** |
|  | **2021** | **2022** | **2023** | **2024** | **2025** |
| Short-term interest rate (annual average) (1) | n. a. | -0.4 | 0.9 | 1.4 | 1.5 |
| Long-term interest rate (annual average) (2) | 0.8 | 1.8 | 2.3 | 2.4 | 2.5 |
| USD/EUR exchange rate (annual average) | 1.18 | 1.11 | 1.11 | 1.11 | 1.11 |
| Nominal effective exchange rate | 1.0 | 0.0 | 0.1 | 0.0 | 0.0 |
| World excluding EU, GDP growth | 5.1 | 3.3 | 2.9 | 2.8 | 2.8 |
| EU GDP growth | 5.2 | 3.2 | 2.8 | 2.1 | 1.5 |
| Growth of relevant foreign markets | 11.3 | 4.8 | 3.4 | 3.3 | 2.8 |
| World import volumes, excluding EU | 6.3 | 4.5 | 3.9 | 3.0 | 2.5 |
| Oil prices (Brent, USD/barrel) | 70.8 | 99.8 | 87.6 | 81.2 | 77.2 |
| (1) Short-term interest rate refers to the average of the rates applied to 3-month government bonds issued during the year.<br> (2) Long-term interest rate refers to the average of the rates applied to 10-year government bonds issued during the year. | (1) Short-term interest rate refers to the average of the rates applied to 3-month government bonds issued during the year.<br> (2) Long-term interest rate refers to the average of the rates applied to 10-year government bonds issued during the year. | (1) Short-term interest rate refers to the average of the rates applied to 3-month government bonds issued during the year.<br> (2) Long-term interest rate refers to the average of the rates applied to 10-year government bonds issued during the year. | (1) Short-term interest rate refers to the average of the rates applied to 3-month government bonds issued during the year.<br> (2) Long-term interest rate refers to the average of the rates applied to 10-year government bonds issued during the year. | (1) Short-term interest rate refers to the average of the rates applied to 3-month government bonds issued during the year.<br> (2) Long-term interest rate refers to the average of the rates applied to 10-year government bonds issued during the year. | (1) Short-term interest rate refers to the average of the rates applied to 3-month government bonds issued during the year.<br> (2) Long-term interest rate refers to the average of the rates applied to 10-year government bonds issued during the year. |

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.14: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – GRANTS** | **TABLE V.14: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – GRANTS** | **TABLE V.14: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – GRANTS** | **TABLE V.14: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – GRANTS** | **TABLE V.14: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – GRANTS** | **TABLE V.14: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – GRANTS** | **TABLE V.14: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – GRANTS** |
|  | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| REVENUE FROM RRF GRANTS (% GDP) |  |  |  |  |  |  |
| RRF GRANTS as included in the revenue projections | 0.0 | 0.1 | 0.7 | 1.1 | 0.8 | 0.5 |
| Cash disbursements of RRF GRANTS from EU | 0.0 | 0.5 | 1.1 | 0.6 | 0.4 | 0.4 |
| EXPENDITURE FINANCED BY RRF GRANTS (% GDP) |  |  |  |  |  |  |
| TOTAL CURRENT EXPENDITURE | 0.0 | 0.0 | 0.1 | 0.2 | 0.2 | 0.1 |
| Gross fixed capital formation P.51g | 0.0 | 0.0 | 0.2 | 0.3 | 0.3 | 0.3 |
| Capital transfers D.9 | 0.0 | 0.1 | 0.3 | 0.5 | 0.1 | 0.0 |
| TOTAL CAPITAL ACCOUNT EXPENDITURE | 0.0 | 0.1 | 0.5 | 0.7 | 0.3 | 0.3 |
| OTHER COSTS FINANCED BY RRF GRANTS (% GDP) (1) |  |  |  |  |  |  |
| Reduction in tax revenue | 0.0 | 0.0 | 0.1 | 0.2 | 0.3 | 0.1 |
| Other costs with impact on revenue | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Financial transactions | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. |

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| MINISTRY OF ECONOMY AND FINANCE | **49** |

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ITALY'S STABILITY PROGRAMME 20**22**<br>

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.15: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – LOANS** | **TABLE V.15: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – LOANS** | **TABLE V.15: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – LOANS** | **TABLE V.15: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – LOANS** | **TABLE V.15: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – LOANS** | **TABLE V.15: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – LOANS** | **TABLE V.15: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS – LOANS** |
|  | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
| CASH FLOW FROM RRF LOANS PROJECTED IN THE PROGRAMME (% GDP) | CASH FLOW FROM RRF LOANS PROJECTED IN THE PROGRAMME (% GDP) | CASH FLOW FROM RRF LOANS PROJECTED IN THE PROGRAMME (% GDP) |  |  |  |  |
| Disbursements of RRF LOANS from EU | 0.0 | 0.9 | 1.2 | 1.2 | 1.0 | 1.0 |
| Repayments of RRF LOANS to EU | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| EXPENDITURE FINANCED BY RRF LOANS (% GDP) |  |  |  |  |  |  |
| TOTAL CURRENT EXPENDITURE | 0.0 | 0.0 | 0.1 | 0.1 | 0.1 | 0.1 |
| Gross fixed capital formation P.51g | 0.1 | 0.1 | 0.7 | 0.9 | 1.4 | 1.4 |
| Capital transfers D.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| TOTAL CAPITAL ACCOUNT EXPENDITURE | 0.1 | 0.1 | 0.8 | 1.0 | 1.4 | 1.4 |
| OTHER COSTS FINANCED BY RRF LOANS (% GDP) (1) |  |  |  |  |  |  |
| Reduction in tax revenue | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Other costs with impact on revenue | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Financial transactions | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. |

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|:---|:---|:---|:---|:---|
| **TABLE V.16: STOCK OF PUBLIC GUARANTEES AT 31 DECEMBER 2021 (as percentage of GDP)** | **TABLE V.16: STOCK OF PUBLIC GUARANTEES AT 31 DECEMBER 2021 (as percentage of GDP)** | **TABLE V.16: STOCK OF PUBLIC GUARANTEES AT 31 DECEMBER 2021 (as percentage of GDP)** | **TABLE V.16: STOCK OF PUBLIC GUARANTEES AT 31 DECEMBER 2021 (as percentage of GDP)** | **TABLE V.16: STOCK OF PUBLIC GUARANTEES AT 31 DECEMBER 2021 (as percentage of GDP)** |
|  | **Measures** | **Date of adoption (1)** | **Maximum amount of contingent liabilities (2)** | **Take-up (3)** |
| IN RESPONSE TO COVID-19 | Central Guarantee Fund for SMEs | 17/03/2020 |  | 8.3 |
| IN RESPONSE TO COVID-19 | SACE- 'Garanzia Italia' | 08/04/2020 | 11.3 | 1.6 |
| IN RESPONSE TO COVID-19 | Commercial credits insurance | 19/05/2020 | 0.1 | 0.1 |
| IN RESPONSE TO COVID-19 | Guarantee fund for first homes | 26/05/2021 |  | 0.0 |
|  | SUBTOTAL |  |  | 10.1 |
| OTHERS | Central Guarantee Fund for SMEs |  |  | 1.0 |
| OTHERS | TAV S.p.A. |  |  | 0.0 |
| OTHERS | Guarantees provided by local authorities |  |  | 0.1 |
| OTHERS | Italian banks |  |  | 0.0 |
| OTHERS | GACS |  |  | 0.7 |
| OTHERS | Bond issues by CDP S.p.A. |  | 0.3 | 0.2 |
| OTHERS | Guarantee fund for first homes |  |  | 0.6 |
| OTHERS | Guarantee for non-market risks in favour of SACE | 08/04/2020 | 6.8 | 3.1 |
| OTHERS | *Green New Deal* Guarantees | 15/09/2020 | 0.1 | 0.1 |
| OTHERS | State guarantees in favour of ILVA |  |  | 0.0 |
| OTHERS | SUBTOTAL |  |  | 5.8 |
|  | TOTAL |  |  | 15.9 |
| (1) The date of adoption refers to the legislative provision or ministerial decree that introduced or revised the guarantee scheme.<br> (2) Theoretical ceiling established by law (if exists).<br> (3) Actual granted take-up.<br> Discrepancies, if any, are due to rounding. | (1) The date of adoption refers to the legislative provision or ministerial decree that introduced or revised the guarantee scheme.<br> (2) Theoretical ceiling established by law (if exists).<br> (3) Actual granted take-up.<br> Discrepancies, if any, are due to rounding. | (1) The date of adoption refers to the legislative provision or ministerial decree that introduced or revised the guarantee scheme.<br> (2) Theoretical ceiling established by law (if exists).<br> (3) Actual granted take-up.<br> Discrepancies, if any, are due to rounding. | (1) The date of adoption refers to the legislative provision or ministerial decree that introduced or revised the guarantee scheme.<br> (2) Theoretical ceiling established by law (if exists).<br> (3) Actual granted take-up.<br> Discrepancies, if any, are due to rounding. | (1) The date of adoption refers to the legislative provision or ministerial decree that introduced or revised the guarantee scheme.<br> (2) Theoretical ceiling established by law (if exists).<br> (3) Actual granted take-up.<br> Discrepancies, if any, are due to rounding. |

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| **50** | MINISTRY OF ECONOMY AND FINANCE |

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**V. ANNEX**<br>

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|:---|:---|
| MINISTRY OF ECONOMY AND FINANCE | **51** |

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The

ECONOMIC AND FINANCIAL DOCUMENT 2022

is available on-line

at the internet address listed below:

**<u>www.mef.gov.it</u>** • **<u>www.dt.mef.gov.it//it/</u>** • **<u>www.rgs.mef.gov.it</u>**

ISSN 2239-5539

## Exhibit 99.6

**Exhibit (6)**

**** 

![](image0.jpg)

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|:---|:---|
|  | **UPDATE OF THE** |
|  | **Economic**<br> **and Financial Document** |
|  | **2022** |
| ![](image00017.jpg) | **Abridged version** |

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| | |
|:---|:---|
|  | **UPDATE OF THE** |
|  | **Economic<br> and Financial Document** |
|  | **2022** |
|  | **Abridged version** |
|  | Submitted by Prime Minister |
|  | **Mario Draghi** |
|  | and Minister of the Economy and Finance |
|  | **Daniele Franco** |
| ![](image00017.jpg) | **Approved by the Cabinet on 28 September 2022** |

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FOREWORD

*This Update of the Economic and Financial Document was submitted to, and approved by, the Italian Council of Ministers in compliance with national legislation on economic and financial planning<sup>1</sup>. The analysis of current trends and the fore-casts for the Italian economy and the public finances presented here are confined to the baseline scenario under existing legislation. The next government will set the public finance targets for the 2023-2025 period and subsequently draft the 2023 budget.*

*After the deep recession of 2020, the Italian economy experienced a strong recovery, with six quarters of higher-than-expected growth, which in the second quarter of this year took GDP 0.6 percentage points above the average level of 2019, the year before the outbreak of the pandemic. In a context in which the health emergency subsided and related restrictions were gradually lifted, the recovery was supported not only by consumption, with a strong contribution from tourist services in the most recent phase, but also by investments and exports, demonstrating the regained dynamism of the economy. In the first seven months of this year, the average level of employment rose by 3.1 percent over the same period in 2021, surpassing the pre-pandemic level.*

*Nevertheless, the economic outlook appears less favourable. The summer months saw a worsening of business confidence and a softening of several economic indicators, including the industrial production index.*

*The global and European economies are experiencing a marked slowdown that can be attributed to two main factors.*

*The first is the rise in energy prices, due not only to the recovery in global demand, but also, and above all, to the policy of rationing natural gas supplies to Europe that has been followed by Russia since last year and then hardened after the attack against Ukraine, also in response to EU sanctions.*

*In recent months, the reduction in the supply of natural gas and fears of a complete blockage of inflows from Russia, as well as the rush of European countries to fill their storages in view of the winter season, have caused the price of natural gas to rise further. Given the key role of gas in electricity generation, its rising cost, coupled with the negative impact of the drought on hydropower production and the temporary shutdown of several French nuclear power plants, pushed Euro-pean electricity prices to new highs. Recent data on Italian industrial production shows that energy-intensive sectors have experienced the largest output falls.*

*The second cause of slowing global growth, which is closely linked to the first, is the rising inflation rate. Inflation has reached its highest level in forty years,*<br>

### ___

<sup>1</sup> The Economic and Financial Document comprises several economic policy documents, including those that are foreseen by the European Semester, namely the Stability Programme and the National Reform Programme.

MINISTRY OF ECONOMY AND FINANCE<sub>1</sub>

------

  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

*hurting households' real incomes, and has also prompted central banks to end their expansionary policies and to embark on a series of interest rate hikes unprece-dented in recent decades, particularly in the case of the US Federal Reserve.*

*Rate hikes make the economic outlook more complex, not least because of the speed whereby it was implemented. It will have a downward impact on economic activity and real estate markets.*

*In Italy, the rise in interest rates is compounded by the widening of the spread between our government bonds and the Bund, which has risen by 150 basis points on the 10-year maturity compared with a year ago, peaking at over 250 basis points this month.*

*Soaring energy prices have boosted the value of our energy imports to an un-precedented extent. After almost ten years of uninterrupted surpluses, Italy's trade balance will show a deficit in 2022. In the first seven months of the year, while the trade balance excluding energy recorded a surplus of over 46 billion, the energy balance recorded a deficit of 60 billion, more than three times higher than in the same period of 2021. This is a huge transfer of resources to energy-producing countries, including Russia, which highlights the fact that the ecological transition is crucial not only from an environmental point of view, but also for the country's economic and social security and resilience.*

*At the same time, rising inflation has resulted in tax revenue dynamics that far exceeded previous official projections. The Government has monitored this trend and used the additional revenue generated to lower electricity and gas bills, support the most vulnerable households and businesses most affected by rising en-ergy prices, and mitigate fuel price increases.*

*As part of the numerous measures introduced in 2022 (amounting to approxi-mately 66 billion), substantial resources have been allocated to counteract the increase in energy costs, without changing the planned net borrowing target of the general government, set at 5.6 percent of GDP for 2022. This is more than 53 billion worth of interventions, including the one-off subsidies provided for the most vul-nerable households, in addition to 3.8 billion already earmarked to counter the rise in energy prices in the 2022 budget. Altogether, this amounts to around 57 billion, or 3.0 percent of GDP (up from 2021 5.5 billion interventions in 2021).*

*According to ISTAT estimates, the measures to lower the cost of energy for households and businesses have reduced the increase in the inflation rate by more than one percentage point, mitigating not only the loss of purchasing power of households, but also the risk of a price-wage spiral. In addition, other financial support was provided to a wide range of citizens, with contribution relief and pen-sion revaluations. Measures were implemented to support local governments and the health sector. As part of the measures planned to support the productive sys-tem, industry and innovation, industrial policy interventions were arranged, such as the introduction of support for the transformation of the automotive sector, the reintroduction of incentives for the purchase of zero- or low-polluting emission vehicles, and the provision of a fund to support the semiconductor industry.*

*In response to the humanitarian emergency caused by Russian aggression, fi-nancial aid was also provided to Ukraine, and resources were allocated for assis-tance to Ukrainian refugees in Italy. These interventions were conducted as part*

2 MINISTRY OF ECONOMY AND FINANCE

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FOREWARD<br>

*of the international initiatives in support of Ukraine, which were coordinated at the EU and G7 level.*

*At the same time, in pursuit of the fundamental objectives of decarbonisation and energy security, Italy and Europe are committed to diversifying natural gas procurement and accelerating the development of renewable energy sources. These actions will rebalance the European natural gas market and lead to a nor-malisation of prices. The recovery of Italian natural gas production and the devel-opment of biofuels will further contribute to the security and resilience of our energy system.*

*The Recovery and Resilience Plan (RRP) has endowed the country with substan-tial resources to promote the ecological and digital transition, relaunch growth, and improve social, regional, generational and gender inclusion. The implementa-tion of the Plan is progressing in line with the stages agreed with the European Commission, which has given the go-ahead for the disbursement to Italy of the second instalment of grants and loans, amounting to 21 billion, related to the 45 objectives achieved in the first half of the year. Some of these relate to progress in implementing the important reform agenda contained in the Plan, particularly in the areas of justice, public administration and procurement. Significant progress was also made on the 55 targets to be completed by the second half of the year.*

*The amount of resources actually spent on RRP projects in the course of this year will be lower than the projections presented in the DEF due to the delayed start-up of some projects; in addition to the time needed to adapt to the RRP's innovative procedures, this reflects the effects of the soaring costs of public works. On the latter front, the Government has intervened to increase the funds allocated to compensate for the higher costs, both for works in progress and for that of the Plan.*

*The most recent estimates indicate that, of the 191.5 billion allocated to Italy by the European Recovery and Resilience Facility, about 21 billion will actually be spent by the end of this year. This leaves approximately 170 billion to be spent in the next three and a half years, which is an impressive volume of resources. If fully utilised, they will make a significant contribution to economic growth from 2023 onwards, the year in which, according to the new assessments, the most significant increase in RRP-funded expenditure will occur.*

*In addition to the implementation of the RRP, growth will be supported by the resources provided by REACTEU and the national supplementary fund, and by the implementation of the strategy for energy savings, diversification of natural gas supply sources, and the development of renewables, which the Government has developed in line with the European Commission's REPowerEU plan.*

*As in previous planning documents, the economic forecasts presented in this Update are based on a prudential approach and have been endorsed by the Parlia-mentary Budget Office for the 2022-23 period. Even in the current difficult con-text, we believe there is room for these forecasts to be exceeded.*

*The coming months will be complex in light of geopolitical risks and the likely continuation of high energy prices. However, the resources available to the country to revive public investment and promote private investment, both in new plants and in innovation, are unprecedented in recent history and will be able to generate*<br>

MINISTRY OF ECONOMY AND FINANCE<sub>3</sub>

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

*sustainable, high growth, thus ending the economy's long period of substantial stagnation.*

*The GDP growth forecast for this year has been revised upwards, to 3.3 percent from 3.1 percent in the DEF policy scenario, thanks to the higher-than-expected growth recorded in the first half of the year and despite a slight fall in GDP in the second half of the year. On the other hand, the weakening of the international and European cycle has affected the growth forecast for 2023, which has fallen to 0.6 percent from the 2.4 percent indicated in the DEF. GDP growth forecasts for 2024 and 2025 remain unchanged from the DEF, at 1.8 and 1.5 percent respectively.*

*These forecasts obviously do not take into account the economic policy action that may be implemented with the next budget law and other measures.*

*The forecast update also shows an upward shift in the path of inflation and wage growth; however, the inflation rate is still expected to start falling by the end of this year. In contrast to the situation to date, the GDP deflator is expected to catch up with consumer inflation and slightly exceed it in 2024. Higher deflator dynamics result in nominal GDP developments that are equal to those projected in the DEF for 2023 and higher for the following two years.*

*In the updated projections for 2022, public finance benefits from the positive revenue performance and the moderation in primary expenditure recorded so far this year, while it is affected by the impact on debt servicing of the increase in interest rates and the revaluation of the notional amount of inflation-indexed gov-ernment bonds. Nonetheless, trend net borrowing at existing legislation falls by more than two percentage points compared with last year, from 7.2 percent to 5.1 percent of GDP (compared with the policy target of 5.6 percent), thanks to a marked improvement in the primary balance, which has fallen to -1.1 percent of GDP, from -3.7 percent in 2021.*

*In 2023, the adjustment to this year's high inflation will increase pension ex-penditure, the effects of rising interest rates will persist, and public investment will accelerate, as mentioned with reference to the RRP. The remaining compo-nents of primary expenditure, on the other hand, will have a moderate dynamic; revenues will continue to grow at a good pace, albeit lower than in 2022 due to the decline in nominal growth. The net borrowing at existing legislation is projected at 3.4 percent of GDP, below the DEF policy target (3.9 percent). Interest expendi-ture will be 3.9 percent of GDP. The primary balance will show a surplus of 0.5 percent of GDP, whereas the DEF projected a deficit of -0.8 percent of GDP.*

*As regards 2024 and 2025, an overall moderate trend in current primary ex-penditure and a high dynamic of public investment have been confirmed, which will rise to 3.7 percent of GDP in 2025, from an average of 2.7 percent in 2021-22. Tax revenues will grow moderately in 2024 and more rapidly in 2025. All this will result in a positive primary balance in 2024 (0.2 percent of GDP) and 2025 (0.7 percent of GDP), both better than the DEF projections (-0.3 percent and 0.2 per-cent relative to GDP, respectively). However, given an interest expenditure of 3.8 percent of GDP in 2024 and 3.9 percent of GDP in 2025, net borrowing at existing legislation would rise to 3.5 percent of GDP in 2024, and then fall back to 3.2 percent of GDP in 2025.*

*Overall, compared to the DEF, the general government primary balance pro-jections for 2022-25 have improved, while interest expenditure has increased. This*<br>

4 MINISTRY OF ECONOMY AND FINANCE

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FOREWARD<br>

*results in lower deficit-to-GDP levels in 2022 and 2023 and slightly higher deficits in 2024 and 2025 compared to the spring forecast.*

*The public debt-to-GDP ratio is projected to fall sharply this year, from 150.3 percent in 2021 (as revised down by 0.5 percentage points thanks to the new ISTAT data on nominal GDP) to 145.4 percent, and then decline to 139.3 percent in the final year of the projection, 2025. These levels are lower than those projected in the DEF by about two percentage points over the 2022-25 four-year period.*

*In conclusion, the public finance trends presented in this document are reas-suring, although debt servicing co are rising. In 2024, the Stability and Growth Pact – in the version that will result from a consultation that the European Commission will soon open on the basis of its proposal to reform fiscal rules – will come back into force.*

*The Government concludes its work in a very complex geopolitical and eco-nomic phase, but with clear signs of renewed vigour of the Italian economy. Our wish is that the recovery that started after the pandemic crisis will continue and consolidate, supported by private and public investments, higher employment rates and a higher productivity dynamic – and in the context of a gradual reduction of the deficit and of the public debt ratio.*

*Daniele Franco*

*Minister of Economy and Finance*

MINISTRY OF ECONOMY AND FINANCE<sub>5</sub>

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6 MINISTRY OF ECONOMY AND FINANCE

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INDEX

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|:---|:---|
| I. | RECENT TRENDS IN THE ECONOMY AND PUBLIC FINANCE |
| II. | MACROECONOMIC SCENARIO UNDER EXISTING LEGISLATION |
| II.1 | UPDATE OF GDP FORECAST IN LIGHT OF NEW EXOGENOUS FACTORS |
| II.2 | NATURAL GAS CONSUMPTION AND SUPPLY SCENARIO |
| II.3 | INFLATION AND OTHER MAIN VARIABLES IN THE FORECAST UNDER EXISTING LEGISLATION |
| II.4 | RISKS TO THE FORECAST |
| III. | PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION |
| III.1 | THE EXPECTED PERFORMANCE OF NET BORROWING |
| III.2 | STRUCTURAL BALANCE AND FISCAL STANCE INDICATORS |
| III.3 | DEBT-TO-GDP RATIO AND THE DEBT RULE |
| III.4 | SENSITIVITY ANALYSES ON PUBLIC FINANCE AND DEBT-TO-GDP RATIO PROJECTIONS IN THE MEDIUM TERM |
| IV. | REFORMS AND RECOMMENDATIONS OF THE COUNCIL OF THE EUROPEAN UNION |
| IV.1 | PURSUING A PRUDENT FISCAL POLICY (CSR 1) |
| IV.2 | IMPLEMENTATION OF RRP AND FINALISATION OF THE NEGOTIATIONS FOR THE 2021-2027 COHESION POLICY INSTRUMENTS (CSR 2) |
| IV.3 | REDUCING THE USE OF FOSSIL FUELS, DIVERSIFYING ENERGY IMPORT, DEVELOPING RENEWABLE ENERGIES (CSR 3) |
| V. | ANNEX |

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MINISTRY OF ECONOMY AND FINANCE<sub>7</sub>

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

8 MINISTRY OF ECONOMY AND FINANCE

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I. RECENT TRENDS IN THE ECONOMY AND PUBLIC FINANCE

Gross domestic product (GDP) grew more than expected in the first half of the year, rising 0.6 percent above the average level of 2019, the year before the pandemic. After a cyclical slowdown to 0.1 percent in the first quarter (from 0.7 percent in the fourth quarter of 2021), a robust increase in GDP was recorded in the second quarter, up 1.1 percent over the previous period.

As a result of the good performance of the first half of the year, the GDP growth forecast for 2022 rises to 3.3 percent, up from the 3.1 percent in the Stability Programme, even though prospects for the second half are less favourable than anticipated in April<sup>2</sup>.

Indeed, amidst a weakening of global and European cyclical indicators, economic and inflation trends continue to be affected by the war in Ukraine and soaring prices of natural gas, electricity, fuels and food commodities, especially cereals.

![](image00023.jpg)

The measures implemented this year by the government to lower energy bills and fuel prices and the aids provided to households and businesses amounted to 57.1 billion (3.0 percent of GDP) in gross terms. Despite this, energy bills for Italian<br>

<sup>2</sup> Based on data for the second quarter, the carry-over on the quarterly average figure for the current year is 3.5 percent. Including in the calculations the projection of a slight cyclical decline in GDP in the second half of the year, the average growth now expected on the quarterly data is 3.4 percent. However, due to fewer working days than in 2021, this estimate translates into a slightly lower annual GDP growth of 3.3 percent.

MINISTRY OF ECONOMY AND FINANCE<sub>9</sub>

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

businesses and households continued to rise due to wholesale energy prices that in August peaked at 12 times the average for the five-year period 2016-2020 in the case of natural gas and almost 11 times in the case of electricity - an unprecedented price shock. Oil prices also followed an upward trend until June, peaking at USD 128 per barrel on the Brent benchmark in early March, only to recently fall back below USD 90 per barrel.

Driven by energy and food prices, inflation continued to rise, reaching 9.1 percent in August both in the euro area and in Italy, according to the Harmonised Index of Consumer Prices. The price increase progressively propagated from energy and food to the other components of the index, bringing core inflation (net of energy and fresh food) to 5.5 percent in August in the euro area and 4.9 percent in Italy.

![](image00024.jpg)

The sudden rise in inflation prompted the major central banks to adopt restrictive monetary policy measures. The resulting rise in interest rates has been accompanied by a marked flattening of the yield curve. The markets expect the rise in inflation and the resulting monetary tightening to last no longer than two years, also based on the expected fall in energy prices and a slowdown in global growth.

The European Central Bank (ECB) was a few months late in following the restrictive moves of the US Federal Reserve and the Bank of England, however, as of 1 July it terminated its programme of purchases of fixed-income securities on the open market (quantitative easing - QE) and then raised its key interest rates by a total of 125 basis points in two stages (July and September), raising the main refinancing operations rate from zero to 1.25 percent. The ECB's most recent macroeconomic forecast points to an inflation rate above the 2 percent target even over a two-year horizon, which would justify further increases in the key interest rates at the upcoming Governing Council meetings.

Aside from the surge in inflation, it should not be overlooked that the euro area unemployment rate fell to a new all-time low of 6.6 percent in July and the vacancy<br>

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| **10** | MINISTRY OF ECONOMY AND FINANCE |

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<u> I. RECENT TRENDS IN THE ECONOMY AND PUBLIC FINANCE </u>  

rate rose to 3.2 percent in the second quarter, while labour cost growth increased to 4.0 percent from 2.5 percent in the fourth quarter of 2021. In light of the stance on future monetary policy decisions communicated by the ECB itself, all this leads markets to expect further policy rate hikes. As a result, euro swap rates are currently 3.1 percentage points higher on the one-year maturity and almost 3 percentage points higher on the ten-year maturity compared to their level at the beginning of 2022.

![](image00025.jpg)

With regard to the Italian government bond market, the impact of the rise in euro rates was accompanied by the widening of the yield differential against the swap rate and the German Bund: the spread over the Bund on the ten-year maturity, which a year ago fluctuated around one percent, has recently risen to around 2.5 percent, resulting in the yield on the ten-year BTP currently standing at 4.7 percent, against 0.7 percent a year ago (while the Bund went from -0.32 percent to 2.21 percent).

The energy shock also caused a sudden decline in Italy's trade balance, as well as that of high surplus countries such as Germany. In the first seven months of 2022, Italy's trade balance recorded a deficit of 13.7 billion, against a surplus of 37.5 billion in the same period last year, with the energy balance deteriorating to 60.0 billion from 19.4 billion in the first seven months of 2021. The non-energy trade balance, while remaining broadly in surplus from January to July (at 46.3 billion), also deteriorated by about 10 billion compared to the same period in 2021, due to both a decline in the terms of trade and a higher growth in import volumes than in export volumes<sup>3</sup>.

According to ISTAT data, export growth in nominal terms remained positive until the end of July. However, in terms of volumes, the performance of Italian<br>

<sup>3</sup> A decline in the terms of trade indicates a higher growth in import prices than in export prices. According to the latest ISTAT data, average unit export values in the first seven months grew by 1.1 percent on average.

MINISTRY OF ECONOMY AND FINANCE<sub>11</sub>

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

goods exports was broadly positive in the first quarter, when exported volumes grew by 5.2 percent on a trend basis, only to slow down in the second quarter (-1.2 percent) and in July (-4.0 percent), mainly as a result of a slowdown in world trade.

Reflecting the decline in the trade balance, the balance of payments on current account in the first seven months of 2022 also recorded a deficit of 9.1 billion, against a surplus of 31.9 billion in the same period of 2021.

![](image00026.jpg)

As mentioned, the unemployment rate in the euro area (and in the European Union) dropped to its lowest level in decades. The unemployment rate in Italy also dropped to 7.9 percent in July, the lowest level since 2009. According to the ISTAT labour force survey, the number of people employed in June and July exceeded 23.3 million, the highest figure since June 2019 and up 2 percent compared to the corresponding months of 2021. Due in part to the decline in the working-age population, the employment rate in June reached an all-time high of 60.4 percent, before slightly declining to 60.3 percent in July.

The results achieved so far in terms of GDP and employment growth were made possible not only by the dynamism of industry until the spring, but also by the considerable growth in the value added of the construction sector and the recovery of sectors that had previously been affected by social distancing measures. After peaking in January, new COVID-19 infections declined in the spring, only to rise again due to the spread of new sub-clusters of the Omicron variant. However, the rate of patients being hospitalised and in intensive care remained under control, allowing the process of normalisation of economic and social life to continue, with great benefits also in terms of foreign tourist arrivals.

As already mentioned, economic expectations and the performance of the manufacturing industry have worsened since the late spring. The most recent data point to a worsening of the international economic cycle during the third quarter: in August, the global PMI fell below the expansion threshold value of 50, more precisely to 49.3 from 50.8 in July and 53.5 in June, against the highest level of<br>

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| **12** | MINISTRY OF ECONOMY AND FINANCE |

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<u> I. RECENT TRENDS IN THE ECONOMY AND PUBLIC FINANCE </u>  

58.5 reached since the beginning of the pandemic in May last year. In the euro area, the composite PMI fell below the threshold value of 50 back in July (to 49.9), before falling further to 48.9 in August - with Germany recording the weakest figure (46.9) among the major euro area countries.

![](image00027.jpg)

In Italy, the seasonally adjusted index of industrial production in June-July fell by 2.4 percent over the previous two months. In addition, both the ISTAT economic survey and the manufacturing PMI reported that in August companies' assessments of current and expected levels of production and orders for the coming months declined. The indices of confidence in services and construction were also down, while the only positive note came from retail businesses, with the index recovering steadily from March onwards.

In terms of public finance, ISTAT's institutional sector accounts indicate a sharp reduction of net borrowing of the general government in the first quarter, to 9.0 percent of GDP from 12.8 percent in the corresponding period of 2021 (in non-seasonally adjusted terms)<sup>4</sup>. The revenue trend was particularly positive in the first seven months of the year, with tax revenues increasing by 13.2 percent and contribution revenues by 6.4 percent.

A marked improvement in public finance is also reported by the borrowing requirement data, which amounted to 33.7 billion in the first eight months of the year, an improvement of about 36.4 billion compared to 70.2 billion in the corresponding period last year. Even excluding from the comparison the grants received in August 2021 and April 2022 from the Recovery and Resilience Facility, the reduction in cash requirements in the first eight months of the year amounted to 35.4 billion (a decrease of about 45 percent). This is a very positive result also in<br>

<sup>4</sup> With the exception of 2020, an anomalous year as it was marked by the first phase of the pandemic and massive fiscal policy interventions, the first quarter normally records the highest levels of net borrowing for the whole year. As mentioned in the report, quarterly debt figures are not seasonally adjusted.

MINISTRY OF ECONOMY AND FINANCE<sub>13</sub>

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

light of the allocation of public resources for measures to lower energy prices and of aids to businesses and households carried out during the period in question.

![](image00028.jpg)

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| **14** | MINISTRY OF ECONOMY AND FINANCE |

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  <u> <br> </u>

II. MACROECONOMIC SCENARIO UNDER EXISTING LEGISLATION

II.1 UPDATE OF GDP FORECAST IN LIGHT OF NEW EXOGENOUS FACTORS

As already mentioned, the GDP growth forecast for the current year in the new scenario under existing legislation improved from 3.1 percent to 3.3 percent compared to the Stability Programme policy scenario. On the contrary, the forecast for 2023 fell substantially, from 2.4 percent to 0.6 percent. The forecasts for 2024 and 2025 remained unchanged, at 1.8 percent and 1.5 percent, respectively.

With regard to nominal GDP - a very relevant variable for public finance projections and deficit, debt and GDP ratios - the forecasts have been revised upwards compared to the Stability Programme, with the only exception being in 2023, when the drop in projected real growth exceeds the upward revision of GDP deflator growth projections.

More specifically, based on ISTAT data for the first two quarters of the year, the most up-to-date internal evaluations suggest a slightly negative change in GDP in the third quarter as a result of a cyclical contraction in the value added of the manufacturing and construction industries, only partially offset by an increase in the services sector. As for the fourth quarter, the most up-to-date estimates point to a slight contraction of real GDP, primarily attributable to the industry sector.

The expected performance in the second half of this year results in only a slight positive carryover (0.1 percentage points) on growth in 2023. A further decline in GDP is expected in the first quarter, which would then be followed by a pick-up in economic activity from the second quarter onwards, driven by an increase in global demand, a fall in the price of natural gas (albeit still higher than under 'normal' conditions) and an increasing contribution of the National Recovery and Resilience Plan (RRP) to GDP growth.

The lower GDP growth forecast for 2023 compared to the Stability Programme, equal to 1.8 percentage points, is due not only to the recent decline in business and household projections, but also and above all to changes in the main exogenous variables of the scenario. The growth forecast for world trade was significantly reduced in line with the most recent projections provided by Oxford Economics; the imports of Italy's main trading partners are now expected to grow by 1.5 percent in 2023, against the 3.4 percent forecast in the Stability Programme.

These forecasts do not, of course, take into account the economic policy measures that may be implemented with the next budget law and other actions.

With regard to energy prices, the profile outlined by the TTF natural gas futures contracts is significantly higher than the levels used for the Stability Programme<br>

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| MINISTRY OF ECONOMY AND FINANCE | **15** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

projections<sup>5</sup>. Expected Brent oil prices are also higher, albeit significantly behind the increase in gas prices.

Interest rates and yields on government bonds, as already mentioned, have risen sharply in recent months. Consequently, the forward rates and yields that are used for macroeconomic projections have also risen, with a negative impact on GDP that is marginal for this year but very significant for 2023 and relevant for the following years.

Of all the exogenous variables in the forecast, only the euro exchange rate is more competitive compared to the level used in the Stability Programme forecast and results in a more favourable impact on output growth. Overall, the impacts estimated with the ITEM model justify a downward revision of the real GDP growth forecast in 2023 by 1.9 percentage points.

Moreover, the most recent update of the public expenditure projections activated by the RRP with the resources of the Recovery and Resilience Facility (RRF) significantly lowers the estimate for 2022, while correspondingly increasing the expenditure projections in the final years of the Plan. Although the expenditure projection for 2023 is also slightly revised downward (while those for 2025-2026 go up), the expected change in 2023 expenditure tied to the RRP registers the highest upward revision compared to the data used in the Stability Programme (amounting to 12 billion). This leads to an estimated additional boost to GDP growth of 0.3 percentage points compared to the Stability Programme estimates.

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE II.1: RRF RESOURCES UNDER THE FORECAST, COMPARISON THIS UPDATE – STABILITY PROGRAMME (EUR billion)** | **TABLE II.1: RRF RESOURCES UNDER THE FORECAST, COMPARISON THIS UPDATE – STABILITY PROGRAMME (EUR billion)** | **TABLE II.1: RRF RESOURCES UNDER THE FORECAST, COMPARISON THIS UPDATE – STABILITY PROGRAMME (EUR billion)** | **TABLE II.1: RRF RESOURCES UNDER THE FORECAST, COMPARISON THIS UPDATE – STABILITY PROGRAMME (EUR billion)** | **TABLE II.1: RRF RESOURCES UNDER THE FORECAST, COMPARISON THIS UPDATE – STABILITY PROGRAMME (EUR billion)** | **TABLE II.1: RRF RESOURCES UNDER THE FORECAST, COMPARISON THIS UPDATE – STABILITY PROGRAMME (EUR billion)** | **TABLE II.1: RRF RESOURCES UNDER THE FORECAST, COMPARISON THIS UPDATE – STABILITY PROGRAMME (EUR billion)** |
|  | **2020-2021** | **2022** | **2023** | **2024** | **2025** | **2026** |
| **This Update 2022** |  |  |  |  |  |  |
| Total RRF | 5.5 | 15.0 | 40.9 | 46.5 | 47.7 | 35.9 |
| Annual change (levels) | 5.5 | 9.5 | 25.9 | 5.6 | 1.3 | -11.8 |
| **Stability Programme 2022** |  |  |  |  |  |  |
| Total RRF | 4.3 | 29.4 | 43.3 | 47.4 | 41.7 | 25.5 |
| Annual change (levels) | 4.3 | 25.1 | 13.9 | 4.1 | -5.7 | -16.2 |
| **This Update - Stability Programme differential** | **This Update - Stability Programme differential** | **This Update - Stability Programme differential** | **This Update - Stability Programme differential** | **This Update - Stability Programme differential** | **This Update - Stability Programme differential** | **This Update - Stability Programme differential** |
| Total RRF | 1.2 | -14.4 | -2.4 | -0.9 | 6.1 | 10.5 |
| Annual change (levels) | 1.2 | -15.6 | 12.0 | 1.5 | 7.0 | 4.4 |
| Source: MEF. |  |  |  |  |  |  |

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Overall, considering the change in exogenous factors and the RRP projections, the growth forecast for 2023 is expected to drop by 1.6 percentage points, from 2.4 percent in the Stability Programme policy scenario to 0.8 percent in the new scenario under existing legislation. However, it was decided to opt for a slightly more cautious forecast, i.e. the aforementioned 0.6 percent, due to two factors:

<sup>5</sup> TTF stands for Title Transfer Facility, a virtual gas market operated by the Dutch company Gasunie and which is considered the main reference price for the European market. Gas traded on the TTF network must have already entered the Gasunie transport system and all trades between counterparties must be reported to the market operator. Futures on the FTT are traded via the Intercontinental Exchange (ICE) telematic market.

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| **16** | MINISTRY OF ECONOMY AND FINANCE |

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<u> II. MACROECONOMIC SCENARIO UNDER EXISTING LEGISLATION </u>  

the first is that it is appropriate to take into account possible negative effects on the confidence of households and businesses in the complex geopolitical scenario expected for the coming months; the second is that the scenario presented is based on existing legislation and must take into account the fact that the measures to lower utility bills will only be in force until the end of 2022. A discontinuation of such measures would cause the cost of energy for businesses and households to rise at the beginning of 2023, which would have a negative impact on GDP, although simulations with the quarterly ITEM model indicate that GDP growth in 2023 will benefit from the delayed effects of the decree laws adopted in the second half of this year.

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| **TABLE II.2: MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (% change, except where otherwise specified)** | **TABLE II.2: MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (% change, except where otherwise specified)** | **TABLE II.2: MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (% change, except where otherwise specified)** | **TABLE II.2: MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (% change, except where otherwise specified)** | **TABLE II.2: MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (% change, except where otherwise specified)** | **TABLE II.2: MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (% change, except where otherwise specified)** |
|  | **2021** | **2022** | **2023** | **2024** | **2025** |
| **INTERNATIONAL EXOGENEOUS VARIABLES** |  |  |  |  |  |
| World Trade | 9.9 | 5.3 | 2.1 | 4.7 | 3.9 |
| Oil Price (Brent. USD/barrel. futures) | 70.8 | 101.5 | 89.9 | 83.4 | 79.0 |
| USD/EUR exchange rate | 1.183 | 1.050 | 1.002 | 1.002 | 1.002 |
| **ITALY MACRO DATA (VOLUMES)** |  |  |  |  |  |
| GDP | 6.7 | 3.3 | 0.6 | 1.8 | 1.5 |
| Imports of goods and services | 14.7 | 14.3 | 1.9 | 4.3 | 3.4 |
| Domestic final consumption | 4.2 | 3.1 | 0.0 | 0.9 | 1.1 |
| Private consumption expenditure | 5.2 | 3.9 | 0.6 | 1.3 | 1.4 |
| Government consumption expenditure | 1.5 | 0.7 | -1.8 | -0.5 | 0.2 |
| Gross fixed capital formation | 16.5 | 9.2 | 3.0 | 4.1 | 2.7 |
| - machinery. equipment and intangible assets | 12.4 | 6.2 | 2.1 | 4.7 | 2.7 |
| - transportation means | 9.8 | 1.9 | 3.0 | 4.1 | 4.1 |
| - construction | 21.8 | 13.0 | 3.9 | 3.4 | 2.7 |
| Exports of goods and services | 13.4 | 10.4 | 1.5 | 4.2 | 3.3 |
| *Memo item: Current account balance (% of GDP)* | 2.4 | *-0.8* | *-0.2* | 0.2 | 0.9 |
| **CONTRIBUTIONS TO GDP GROWTH (1)** |  |  |  |  |  |
| Net exports | 0.1 | -1.0 | -0.1 | 0.0 | 0.0 |
| Inventories | 0.3 | 0.2 | 0.0 | 0.1 | 0.1 |
| Domestic demand (excl. Inventories) | 6.3 | 4.1 | 0.7 | 1.6 | 1.5 |
| **PRICES** |  |  |  |  |  |
| Imports of goods and services deflator | 9.7 | 20.9 | 4.3 | -0.2 | -0.9 |
| Exports of goods and services deflator | 5.0 | 11.2 | 4.3 | 1.3 | 0.9 |
| GDP deflator | 0.5 | 3.0 | 3.7 | 2.5 | 1.9 |
| Nominal GDP | 7.3 | 6.4 | 4.4 | 4.3 | 3.5 |
| Private consumption deflator | 1.6 | 6.6 | 4.5 | 2.3 | 1.9 |
| **LABOUR** |  |  |  |  |  |
| Compensation of employees per FTE | 0.7 | 3.2 | 2.6 | 2.1 | 2.1 |
| Labour productivity (measured on GDP) | -0.8 | -0.9 | 0.2 | 0.7 | 0.5 |
| Unit labour cost (measured on GDP) | 1.5 | 4.2 | 2.4 | 1.4 | 1.6 |
| Employment (FTEs) | 7.6 | 4.3 | 0.4 | 1.1 | 1.0 |
| Unemployment rate | 9.5 | 8.2 | 8.0 | 7.7 | 7.5 |
| Employment rate (age 15-64) | 58.2 | 59.8 | 60.2 | 61.1 | 61.9 |
| *Memo item: Nominal GDP (absolute values in EUR millions)* | *1782050* | *1896182* | *1979197* | *2064350* | *2136555* |
| (1) Any inaccuracies are due to rounding.<br> Source: ISTAT. GDP and components in volume (chained linked values in reference year 2015), not seasonally adjusted data. | (1) Any inaccuracies are due to rounding.<br> Source: ISTAT. GDP and components in volume (chained linked values in reference year 2015), not seasonally adjusted data. | (1) Any inaccuracies are due to rounding.<br> Source: ISTAT. GDP and components in volume (chained linked values in reference year 2015), not seasonally adjusted data. | (1) Any inaccuracies are due to rounding.<br> Source: ISTAT. GDP and components in volume (chained linked values in reference year 2015), not seasonally adjusted data. | (1) Any inaccuracies are due to rounding.<br> Source: ISTAT. GDP and components in volume (chained linked values in reference year 2015), not seasonally adjusted data. | (1) Any inaccuracies are due to rounding.<br> Source: ISTAT. GDP and components in volume (chained linked values in reference year 2015), not seasonally adjusted data. |

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| MINISTRY OF ECONOMY AND FINANCE | **17** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

II.2 NATURAL GAS CONSUMPTION AND SUPPLY SCENARIO

As already mentioned, the scenario under existing legislation is based on natural gas prices derived from futures contracts on monthly maturities for the upcoming months of 2022 and for the years 2023-2025. With regard to Italian national consumption, which, according to data from the Italian Ministry of Economic Development (MISE), fell by 1.9 percent in the first seven months of 2022, a projection consistent with such prices, with the macro-sectoral composition of GDP growth, and with the expected trends in the composition of national electricity production has been drawn up. A sharper drop in natural gas consumption in the period from August to December is expected to bring the annual contraction in national consumption to -3.2 percent.

![](image00029.jpg)

In 2023, a partial shift of electricity production towards other fossil fuels and biofuels and an increase in hydropower and other renewables, together with a decline in household consumption, would bring national gas consumption down by a further 4.4 percent, followed by a further slight decline of 0.3 percent in 2024. This would bring gross consumption in 2024 to a level almost 8 percent below that of 2021, which was at 76.1 billion standard cubic metres (SCM). In 2025, with the consolidation of the economic recovery, gross national consumption would increase by one percent over the previous year to a level just below 71 billion SCM.

With regard to supplies, the scenario under existing legislation predicts that imports of Russian gas will further decline, not completely cease. However, an alternative scenario based on a complete interruption of inflows from Russia starting in October was elaborated, as discussed below.

In the baseline scenario, inflows from the Tarvisio gas entry point, through which most of the import from Russia passes, would fall from 29.1 billion SMC in 2021 to 12.9 billion SMC this year and then gradually to only 3.8 billion SMC in 2025. The replacement of Russian-sourced gas would occur, besides through lower<br>

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| **18** | MINISTRY OF ECONOMY AND FINANCE |

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<u> II. MACROECONOMIC SCENARIO UNDER EXISTING LEGISLATION </u>  

consumption, through higher inflows from the two main southern gas pipelines (Algeria and TAP), a strong increase in liquefied gas imports (due to the gradual but significant increase in regasification capacity) and a moderate increase in domestic production. The increase in regasification capacity would take place both by increasing the production of the three main existing plants and through the acquisition of two floating units: for the former option, production is supposed to start in spring 2023, for the latter in early autumn 2024.

On 25 September, Italy's natural gas storages were above 89.6 percent full. The 2022-2025 forecast scenario was constructed on a monthly basis for all variables of the national gas balance (production, imports, exports and consumption) by specifying volumes for all sources of supply in the national network and verifying that total storage does not fall below the level of the national strategic reserve (4.5 billion SCM) in any month of the year (the lowest level is normally reached at the end of winter). The projected import volumes for each access or regasification point are lower than the theoretical maximum capacity. However, the projection assumes that no major technical problems occur at any of the regasification plants and that a relatively high, albeit decreasing over time, gas inflow can be maintained from the Gries Pass entry point, through which gas from northern Europe arrives in Italy.

II.3 INFLATION AND OTHER MAIN VARIABLES IN THE FORECAST UNDER EXISTING LEGISLATION

The main adjustments made compared to the Stability Programme concern inflation and external accounts. All these revisions are due to the sharp rise in energy and raw material prices, already extensively discussed, which has resulted in an acceleration of inflation even higher than expected and a sudden turnaround in the foreign trade balance - something that, moreover, affects Italy as well as other energy-importing countries.

The household consumption deflator and GDP deflator are revised upwards. As in the previous forecast, the average annual growth of the consumption deflator peaks in 2022, at 6.6 percent (from 5.8 percent in the Stability Programme), and then declines more slowly than previously forecast, experiencing a still high growth rate (4.5 percent) in 2023 and then falling to 1.9 percent in 2025. The deflator growth forecast for 2022 remains at 3.0 percent, up to 3.7 percent in 2023 (from 2.2 percent in the Stability Programme) and then down to 1.9 percent in 2025 (1.8 percent in the Stability Programme).

More specifically, the inflation rate under existing legislation is expected to start falling in the fourth quarter of this year, as price index levels, especially for the energy component, will compare with the already quite high levels of the last months of 2021. Core inflation should rise until the first quarter of next year, given the delayed adjustment of prices of other goods and services, before following the downward trend of the overall index. Labour costs per employee unit (private sector), which is slow to respond to the rise in inflation given contractual wage adjustment mechanisms, are expected to accelerate from 1.0 percent in 2021 to 3.5 percent this year and 3.7 percent in 2023, before slowing in the following two years down to 2.8 percent in 2025.

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| MINISTRY OF ECONOMY AND FINANCE | **19** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

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| TABLE II.3: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (percentage changes, unless otherwise indicated) | TABLE II.3: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (percentage changes, unless otherwise indicated) | TABLE II.3: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (percentage changes, unless otherwise indicated) | TABLE II.3: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (percentage changes, unless otherwise indicated) | TABLE II.3: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (percentage changes, unless otherwise indicated) | TABLE II.3: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (percentage changes, unless otherwise indicated) |
|  | 2021 | 2022 | 2023 | 2024 | 2025 |
|  GDP | 6.7 | 3.3 | 0.6 | 1.8 | 1.5 |
|  GDP deflator | 0.5 | 3.0 | 3.7 | 2.5 | 1.9 |
|  Consumption deflator | 1.6 | 6.6 | 4.5 | 2.3 | 1.9 |
|  Nominal GDP | 7.3 | 6.4 | 4.4 | 4.3 | 3.5 |
|  Employment (FTEs) (2) | 7.6 | 4.3 | 0.4 | 1.1 | 1.0 |
|  Employment (LF) (3) | 0.8 | 2.3 | 0.3 | 0.9 | 0.8 |
|  Unemployment rate | 9.5 | 8.2 | 8.0 | 7.7 | 7.5 |
|  Labour cost per FTE (4) | 1.0 | 3.5 | 3.7 | 3.3 | 2.8 |
|  Current account balance (% of GDP) | 2.4 | -0.8 | -0.2 | 0.2 | 0.9 |
| (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. |

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The forecasts for employment and unemployment are revised upwards, especially for this year, based on the data recorded in the first seven months of the year in terms of both growth in employment and drop in the unemployment rate. The latter is expected to fall from an average of 8.2 percent in 2022 to 7.5 percent in 2025.

The balance of current account in the balance of payments is expected to be in deficit in 2022 and 2023, before returning to a slight surplus in the following two years due mainly to falling natural gas (and to a lesser extent oil) prices.

*The macroeconomic forecast under existing legislation was validated by the Parliamentary Budget Office in a note dated 23 September 2022, following the discussions provided for in the UPB-MEF Memorandum of Understanding of*<br> *13 May 2022.*

II.4 RISKS TO THE FORECAST

A number of risk scenarios for the main exogenous variables of the forecast are analysed, most notably a more pronounced fall in the growth of the economy and world trade (which would imply a recession in Europe), a strengthening of the weighted exchange rate of the euro in line with forward exchange rates, and a further widening of the spread between Italian government bonds and the Bund.

The results of the simulations show that if the first and third shocks mentioned (lower global growth and widening of the spread) were to occur at the same time, GDP would grow by 0.3 percentage points less than the forecast under existing legislation in 2023 (thus halving the growth forecast for that year), by 0.6 percentage points in 2024 (resulting in a lower growth rate for that year to 1.2 percent) and by 0.2 percentage points in 2025 (reducing growth to 1.3 percent). Even more unfavourable trends would occur if there were also a marked strengthening of the euro exchange rate, a scenario that could occur if, contrary to what has happened so far, the US economy and other economies outside the euro<br>

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| **20** | MINISTRY OF ECONOMY AND FINANCE |

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<u> II. MACROECONOMIC SCENARIO UNDER EXISTING LEGISLATION </u>  

area were to experience a more pronounced fall in inflation - and, presumably, employment - than in the euro area itself.

In addition to these standard simulations, the issue of natural gas supplies already addressed in the Stability Programme was again addressed. Compared to the end of March, when two risk scenarios centred on a price shock with or without a gas shortage were elaborated, developments in recent months have been more similar to the price shock scenario elaborated at the time: Russian gas inflows have continued but have been accompanied by sharp price rises in the face of a storage campaign by all European countries.

At present, given that storage capacity is close to the target percentage of 90 percent and that imports from Russia continued in September, albeit with much lower volumes than in the past, the highest risk scenario is that of a complete stop in supplies from October onwards. As in the scenario under existing legislation, it was assumed that the monthly level of storage would never fall below Italy's strategic reserve.

Since the reduction in consumption is significant but not macroscopic (about 5.4 percent of estimated annual consumption in 2022), it was decided to model it as a price shock coupled with a high degree of compliance by citizens and businesses with the recently presented Ministry of Ecological Transition (MITE) Consumption Containment Plan<sup>6</sup>. This means that further demand contraction and additional gas imports are mainly activated by a higher price level than in the scenario under existing legislation.

In the simulation performed using the MACGEM model, it was assumed that the complete stop in inflows from Russia would lead to a 20 percent increase in average natural gas, electricity and oil prices compared to the scenario under existing legislation in the fourth quarter of this year and in 2023. In 2024 and 2025, prices would be 10 percent and 5 percent higher, respectively. The simulation results indicate a cumulative contraction of 4.9 percent in 2022 and 2023 (and 7.7 percent in 2022-2025), which is only slightly lower than assumed necessary but could be supplemented by behavioural changes in response to the MITE Containment Plan.

With regard to macroeconomic impacts, the risk scenario described here yields lower GDP growth compared to the scenario under existing legislation amounting to 0.2 p.p. in 2022 and 0.5 p.p. in 2023, while it would be 0.4 p.p. higher in 2024 and 0.2 p.p. higher in 2025 due to a rebound effect. The nominal GDP growth rate would decline more moderately due to a stronger deflator, falling by 0.1 p.p. this year<br>

<sup>6</sup> Italian Ministry of Ecological Transition (Ministero della Transizione Ecologica, MITE), National Plan for the Containment of Natural Gas Consumption (Piano Nazionale di Contenimento dei Consumi di Gas Naturale), 6 September 2022.

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| MINISTRY OF ECONOMY AND FINANCE | **21** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

compared to the scenario under existing legislation, by 0.3 p.p. in 2023 and rising by 0.2 pp. and 0.1 p.p. in 2024 and 2025, respectively. These impacts are much lower than those estimated in the Stability Programme risk scenarios. This reflects both the progress achieved, or expected in the next three years, in terms of alternative supplies and the inflows of natural gas from Russia in the first nine months of this year.

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| **22** | MINISTRY OF ECONOMY AND FINANCE |

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III. PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION

III.1 THE EXPECTED PERFORMANCE OF NET BORROWING

As already mentioned, the trend in tax and social security revenues in the first seven months of 2022 was surprisingly upward despite the government's impressive measures to mitigate the cost of energy, including through tax relief. The spike in imported energy prices and domestic inflation contributed significantly to the revenue growth, although the increase in GDP and employment also played their part.

The updated forecast of the general government account shows a growth in tax revenues in 2022 of 6.6 percent for direct taxes and 8.0 percent for indirect taxes. Social security contributions will rise by 7.9 percent. Due also to an increase in high current and capital revenues, total revenues will rise to 49.2 percent of GDP, up from 48.1 percent in 2021.

Regarding expenditure, contractual renewals in the public sector will lead to a 6.6 percent increase in expenditure on public wages and salaries. Intermediate consumption will increase by 6.3 percent, while social payments will rise by 2.9 percent and, among them, pension expenditure will rise by 3.9 percent. Other current expenditure (+29.3 percent) and interest payments (+17.9 percent) will increase significantly. The increase in the latter is due to both the rise in the cost of debt at issuance and the adjustment of the notional for inflation-indexed securities. Public investments are expected to contract slightly, -3.3 percent in nominal terms, after the 19.1 percent increase recorded in 2021, while private investment contributions will rise by 3.4 percent. Overall, primary expenditure (net of interest) is projected to fall to 50.3 percent of GDP, from 51.8 percent in 2021.

Given these forecasts, the primary balance in 2022 is projected to improve to -1.1 percent of GDP, from -3.7 percent in 2021, a better result than the -2.1 percent projected in the Stability Programme. On the other hand, interest expenditure is expected to increase to 4.0 percent of GDP, from 3.6 percent in 2021, significantly above the 3.5 percent estimated in the Stability Programme.

In summary, the projections show that net borrowing in 2022 will amount to 5.1 percent of GDP, half a percentage point lower than projected in the Stability Programme and certainly a very good result given the scale of the measures implemented by the government to support and help the economy and the increase in interest payments.

Looking at the trends based on existing legislation and forecast for the next three years, tax revenue growth is expected to slow in 2023 and the following years, with the exception of indirect tax revenues, which will accelerate in 2023. The total revenue to GDP ratio will rise slightly in 2023, up to 49.6 percent of GDP, and then decline in the following two years, down to 47.3 percent of GDP in 2025.

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| MINISTRY OF ECONOMY AND FINANCE | **23** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

With regard to expenditure, in 2023 there will be a slight reduction in nominal terms in wages and intermediate consumption, while the adjustment for inflation this year will increase pension expenditure (+7.9 percent). Interest payments will grow, albeit less rapidly than this year (+3.7 percent). On the other hand, a strong increase in public investment is expected (+33.8 percent), mainly due to the launch of many RRP projects.

Overall, primary expenditure in 2023 will fall to 49.0 percent of GDP, below total revenues, thus bringing the primary balance to a surplus of 0.5 percent of GDP, a much better result than that projected in the Stability Programme (-0.8 percent of GDP). Although interest expenditure is projected at 3.9 percent of GDP, only slightly lower than the 2022 figure, the overall deficit will fall to 3.4 percent of GDP, half a percentage point lower than in the Stability Programme policy forecast.

With regard to the two-year period 2024-2025, the trend of primary current expenditure remains moderate overall and public investment remains high, and is expected to rise to 3.7 percent of GDP in 2025, from an average of 2.7 percent in 2021-2022. Tax revenues are expected to rise mildly in 2024 (+1.8 percent) and more decisively in 2025 (+3.6 percent).

This will result in a slightly positive primary balance in 2024 (0.2 percent of GDP) and in 2025 (0.7 percent of GDP), and both results are better than the Stability Programme projections (-0.3 percent and 0.2 percent of GDP, respectively). However, with an interest expenditure equal to 3.8 percent of GDP in 2024 and 3.9 percent of GDP in 2025, net borrowing will amount to 3.5 percent of GDP in 2024 and 3.2 percent of GDP in 2025.

The projected deficits for 2024-25 are both expected to exceed the Stability Programme projections (3.3 and 2.8 percent, respectively) and the 3 percent threshold. The latter is likely to remain the European benchmark for excessive deficits, despite the planned revision of fiscal rules. Note that the European Commission envisages the reactivation of the Stability and Growth Pact as of 2024.

![](image00030.jpg)

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| **24** | MINISTRY OF ECONOMY AND FINANCE |

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<u> III. PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION </u>  

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| **TABLE III.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE III.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** |
|  | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
|  **POLICY SCENARIO** |  |  |  |  |  |  |
|  Net borrowing |  |  |  |  |  |  |
|  Primary balance |  |  |  |  |  |  |
|  Interest expenditure |  |  |  |  |  |  |
|  Structural net borrowing (2) |  |  |  |  |  |  |
|  Structural change |  |  |  |  |  |  |
|  Public debt (gross of subsidies) (3) |  |  |  |  |  |  |
|  Public debt (net of subsidies) (3) |  |  |  |  |  |  |
| **TREND SCENARIO UNDER EXISTING LEGISLATION** | **TREND SCENARIO UNDER EXISTING LEGISLATION** | **TREND SCENARIO UNDER EXISTING LEGISLATION** | **TREND SCENARIO UNDER EXISTING LEGISLATION** | **TREND SCENARIO UNDER EXISTING LEGISLATION** | **TREND SCENARIO UNDER EXISTING LEGISLATION** | **TREND SCENARIO UNDER EXISTING LEGISLATION** |
|  Net borrowing | -9.5 | -7.2 | -5.1 | -3.4 | -3.5 | -3.2 |
|  Primary balance | -6.0 | -3.7 | -1.1 | 0.5 | 0.2 | 0.7 |
|  Interest expenditure | 3.5 | 3.6 | 4.0 | 3.9 | 3.8 | 3.9 |
|  Structural net borrowing (2) | -5.0 | -6.4 | -5.5 | -3.6 | -3.9 | -3.7 |
|  Structural change | -3.1 | -1.4 | 0.9 | 1.9 | -0.3 | 0.2 |
|  Public debt (gross of subsidies) (3) | 154.9 | 150.3 | 145.4 | 143.2 | 140.9 | 139.3 |
|  Public debt (net of subsidies) (3) | 151.4 | 147.1 | 142.5 | 140.4 | 138.2 | 136.7 |
| **MEMO: POLICY SCENARIO OF THE STABILITY PROGRAMME 2022** | **MEMO: POLICY SCENARIO OF THE STABILITY PROGRAMME 2022** | **MEMO: POLICY SCENARIO OF THE STABILITY PROGRAMME 2022** | **MEMO: POLICY SCENARIO OF THE STABILITY PROGRAMME 2022** | **MEMO: POLICY SCENARIO OF THE STABILITY PROGRAMME 2022** | **MEMO: POLICY SCENARIO OF THE STABILITY PROGRAMME 2022** | **MEMO: POLICY SCENARIO OF THE STABILITY PROGRAMME 2022** |
|  Net borrowing | -9.6 | -7.2 | -5.6 | -3.9 | -3.3 | -2.8 |
|  Primary balance | -6.1 | -3.7 | -2.1 | -0.8 | -0.3 | 0.2 |
|  Interest expenditure | 3.5 | 3.5 | 3.5 | 3.1 | 3.0 | 3.0 |
|  Structural net borrowing (2) | -5.0 | -6.1 | -5.9 | -4.5 | -4.0 | -3.6 |
|  Variation in structural balance | -3.0 | -1.1 | 0.2 | 1.4 | 0.5 | 0.4 |
|  Public debt (gross of subsidies) | 155.3 | 150.8 | 147.0 | 145.2 | 143.4 | 141.4 |
|  Public debt (net of subsidies) | 151.8 | 147.6 | 144.0 | 142.3 | 140.7 | 138.8 |
|  *Nominal GDP under existing legislation (absolute values x 1,000)* | 1660.6 | 1782.1 | 1896.2 | 1979.2 | 2064.3 | 2136.6 |
| (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. As of 2021, the amount of these shares was approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). It is assumed that the MEF's cash holdings will be reduced by approximately -0.2 percent of GDP in 2022 and by approximately -0.1 percent of GDP in each subsequent year, with the aim of bringing the balance back to the level of the end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of the earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled. |

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III.2 STRUCTURAL BALANCE AND FISCAL STANCE INDICATORS

Public finance forecasts under the scenario based on existing legislation for 2022 and 2023 show an improvement in the structural budget balance. The structural deficit, which is now estimated at 5.5 percent of GDP in 2022, is projected to decline by 0.9 percentage points of GDP in 2022 compared to 2021 and by 1.9 percentage points of GDP in 2023 compared to 2022. This result is due to<br>

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| MINISTRY OF ECONOMY AND FINANCE | **25** |

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lower nominal net borrowing, as the cyclical correction is essentially zero for both years. The structural balance under the existing legislation scenario will worsen by 0.3 percentage points in 2024, while in 2025 a further slight improvement of 0.2 percentage points is projected.

The assessment to be conducted by the European Commission as part of the multilateral surveillance will only consider the years up to 2023, for which the general escape clause of the Stability and Growth Pact remains in force.

With reference to the expenditure rule, the recommendations of the Commission and the Council refer to the fiscal stance indicator linked to current expenditure financed by domestic resources, which should not exert an expansionary impact on the economy in 2023. In essence, the relevant expenditure aggregate must grow less than nominal potential GDP<sup>7</sup>. The construction of this variable assumes the quantification of expenditure measures and revenue reductions linked to COVID-19 of a temporary and emergency nature, which are excluded from net expenditure. Defining the perimeter of these measures is partly arbitrary and related to possible different assessments; moreover, their quantification may be subject to significant revisions over time.

Since the spring months, the difficulty of considering the interventions made to cushion the social and economic impact of higher energy prices had been added. These measures should be also considered temporary and emergency in nature, even if the Commission confirmed that it continues to consider only the measures related to COVID-19 within the relevant aggregate. By the way, in its recommendations for the European level and Italy, the Commission explicitly mentioned that fiscal policy should deal with the energy crisis by means of targeted and temporary interventions. It also requested the Member States to provide a precise quantification of these measures in the Draft Budgetary Plan.

That said, according to internal estimates based on the trend scenario at existing legislation and continuing to use the definition adopted in the European Commission's Spring Forecast, the fiscal stance for 2023 would be much better than the one published by the Commission, approaching the value of -1.5.

The growth rate of expenditure for 2023 is significantly affected by financial resources earmarked to cushion the increase in energy prices and to compensate the most vulnerable households and businesses through transfers or lower taxation, which became extremely significant in 2022<sup>8</sup>. The expenditure forecast based on existing legislation incorporates all the measures taken up to September, whose budgetary impact mainly refer to the current year. The end of these measures in 2023 leads to an improvement for that year, i.e., the fiscal stance becomes<br>

<sup>7</sup> The expenditure aggregate relevant for the assessment of fiscal stance is equal to total general government expenditure net of interest, unemployment benefits, temporary expenditure and emergency expenditure. The fiscal stance is then calculated as the difference between the actual expenditure aggregate and what it should have been based on the potential GDP growth rate and inflation. The higher expenditure is then adjusted for the change in discretionary revenue. By construction, if the fiscal stance indicator has a negative sign, the budget impact on the economy is expansionary: the higher expenditure is not financed by the higher discretionary revenue. By subtracting the resources received from the European Union, it is possible to calculate the impact deriving from public expenditure financed with national resources alone. For a complete description of the expenditure aggregate and the calculation of fiscal policy stance indicators, see the Focus on 'The fiscal policy stance and measurement proposals' on p. 78 of Update of the Stability Programme 2021.

<sup>8</sup> These measures are described and assessed in Focus 'Italian government initiatives in response to high energy costs'.

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| **26** | MINISTRY OF ECONOMY AND FINANCE |

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<u> III. PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION </u>  

restrictive. On the other hand, if these expenditures were entirely excluded from 2022, the assessment for 2023 would worsen. An intermediate approach, where only some of the emergency-related expenditure items are considered temporary, would lead to intermediate values of the fiscal stance. A marked tendency towards moderation of current expenditure is confirmed from 2024 onwards, as indicated by positive values of this index.

Regarding the other public spending aggregates used to assess the fiscal stance, an expansionary impact on the economy is expected from public investments - judged favourably by the Commission-, including both the component financed by national resources and the funds provided by the EU in relation to the RRP.

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| MINISTRY OF ECONOMY AND FINANCE | **27** |

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| FOCUS  | **Action taken by the Italian government in response to high energy prices** |
| FOCUS  | In 2021, the Italian government began implementing a series of measures to mitigate the impact of inflation on households and businesses. Initially limited to energy prices, the growth in prices has gradually spread to other goods, leading to a sharp increase in consumer prices and in core inflation excluding energy costs and fresh food. |
|  | The package of measures adopted has a financial impact of about 62.6 billion (3.3 percent of GDP) on 2021 and 2022, of which 5.5 billion (0.3 percent of GDP) on 2021 and 57.1 billion (3.0 percent of GDP) on 2022, including 3.8 billion allocated under the 2022 budget law. |
|  | This financial impact is expressed in gross terms, i.e., it is not reduced by the amount of rev-enue-raising measures or reductions in other expenditures simultaneously enacted in order not to impact the budget deficit. Furthermore, it is an ex-ante estimate, based on the financial impact included in the technical reports and summary tables of the financial effects of regu-latory measures, and does not include the indirect effects in terms of higher revenue, led by the measures. |
|  | The analysis takes into account regulatory provisions adopted from March 2021 to September 2022<sup>9</sup>. Consistent with the approach followed by the European Commission, temporary measures aimed at containing energy costs for households and businesses are factored in, as well as those aimed at safeguarding the purchasing power of lower incomes in order to cope with rising energy costs and the general increase in inflation. |
|  | The main measures, whose primary objective is to prevent the marked increases in wholesale prices from falling entirely on the final prices borne by households and businesses, concern: |
|  | •&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Containment of bill costs**, amounting to 5.1 billion in 2021 (0.3 percent of GDP) and 14.7 billion in 2022 (0.8 percent of GDP). Such containment is implemented through the reduction to zero of the rates of general system charges on electricity and gas bills, and the reduction to 5 percent of the VAT rate on gas bills. |
|  | •&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Social bonuses for electricity and gas users**, amounting to 0.5 billion in 2021 (0.03 per-cent of GDP) and 2.8 billion in 2022 (0.15 percent of GDP). These bonuses, already in force since 2008, are intended for economically fragile families, or families with mem-bers in physical distress. They have been adjusted to minimise the impact of higher bills; moreover, the ISEE threshold for access to the bonuses has been increased from EUR 8,265 to EUR 12,000 (EUR 20,000 for large families), for the entire year 2022. |
|  | •&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Tax credits for companies**, amounting to 18.3 billion in 2022 (1,0 percent of GDP). This measure is aimed at compensating the extra costs incurred by companies for the pur-chase of energy or natural gas. The relief can only be used as an offset, it is not a tax base and cannot be combined with other tax allowances. Companies whose quarterly average costs have increased by at least 30 percent compared to the same quarter in 2019 are eligible. Initially introduced in favour of energy-intensive or natural gas-inten-sive businesses to cover 20 percent of expenses incurred in the relevant quarter, during the year these credits were extended to a wider range of businesses and increased to cover up to 40 percent of expenses incurred. Other tax credits are provided for specific sectors, such as transport, agriculture and fishing, in order to cover expenses for energy components or fuels. |
|  | •&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Reduction in excise duties on fuels**, amounting to 7.7 billion in 2022 (0.4 percent of GDP). Reductions in excise duties also include those arranged by MEF-MITE Inter-minis-terial decrees to compensate for higher VAT revenues from the rise in international crude oil prices. |

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<sup>9</sup> Decree law No. 41/2021 (decreto 'Sostegni'), D.L. No. 73/2021 (decreto 'Sostegni bis'), D.L. No. 130/2021, 2022 Budget law (law No. 234/2021), D.L. No. 4/2022 (decreto 'Sostegni ter'), D.L. No. 17/2022, D.L. No. 21/2022, D.L. No. 38/2022, D.L. No. 50/2022 (decreto 'Aiuti'), D.L. No. 80/2022, D.L. No. 115/2022 (decreto 'Aiuti bis'), D.L. No. 144/2022 (decreto 'Aiuti ter'), MEF-MITE Inter-ministerial decrees of March, April, June, July, August and September 2022.

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| **28** | MINISTRY OF ECONOMY AND FINANCE |

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| Among the measures aimed at countering the general rise in prices, the most notable is un-doubtedly the disbursement of one-off monetary transfers (9.8 billion) to various categories of workers, pensioners and recipients of other social benefits: the first, worth EUR 200, dis-bursed in July to those with annual incomes up to EUR 35,000; the second, worth EUR 150, will be disbursed in November to those whose incomes are up to EUR 20,000. Other measures include the transport bonus, an increase in social contributions exemption for employees orig-inally introduced by the 2022 budget law, and a two-percentage point increase for pensions up to EUR 2,692 from October to December 2022. |
| The composition of the package of measures fully responds to the EU Council recommenda-tions for 2022-2023 and the Eurogroup orientations on policy fiscal stance for 2023, as tem-porary measures targeted at families and businesses most vulnerable to energy price in-creases account for about 43.2 percent of the total amount and 46.6 percent of the amount for 2022. These include social bonuses for electricity and gas utilities, one-off monetary trans-fers, raises for lower pensions, benefits targeted at specific sectors such as transport, fishing and agriculture, and those for energy and gas-intensive businesses. In addition to these, tar-geted measures of a regulatory nature were introduced (e.g., instalment of bills). These measures, although relevant to the beneficiaries, have zero impact on public accounts and thus on the overall package. |
| <br>![](image00018.jpg)<br>|
| By international comparison, apart from inevitable differences in the amount and operating modalities, the rationale behind the measures adopted in Italy is similar to that of the measures introduced in the main European countries (Germany, France and Spain). |
| Below are the most relevant measures starting with those introduced in March 2021. |
| **Decree law No. 41/2021**<sup>10</sup> **('*Sostegni'* decree).** The decree provides for cut in system charges on electricity bills for the second quarter of 2021. |

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<sup>10</sup> Converted by law No. 69 of 21 May 2021.

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| MINISTRY OF ECONOMY AND FINANCE | **29** |

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| **Decree law No. 73/2021**<sup>11</sup> **('*Sostegni bis*' decree).** The decree extends the containment of electricity prices to the third quarter of 2021. |
| **Decree law No. 130/2021**<sup>12</sup>**.** It provides for a reduction in the rates on system charges for electricity and gas utilities for the fourth quarter of 2021 and a reduction in the VAT rate on natural gas to 5 percent. It also provides for the reassessment of social bonuses on electricity rates<sup>13</sup> and natural gas supply<sup>14</sup> for economically disadvantaged customers or those with se-rious health conditions. |
| **2022 budget law**<sup>15</sup>**.** The measures provided for in D.L. No. 130/2021 are extended to the first quarter of 2022. In addition, in case domestic end customers default on bills issued from 1 January 2022 to 30 June 2022, operators are required to offer an interest-free instalment plan. |
| **Decree law No. 4/2022**<sup>16</sup> **('*Sostegni ter*' decree).** The decree extends the zeroing of the rates on system charges for electric utilities to the first quarter of 2022, including for utilities with available power greater than 16.5 kW, for public lighting uses, and for electric vehicle charg-ing. Tax credits are introduced for energy-intensive enterprises (20 percent), and gas-intensive enterprises (10 percent). |
| **Decree law No. 17/2022**<sup>17</sup> **('*Energia*' decree).** Reductions in rates on utility bills, strengthen-ing of social bonuses, and tax credits for energy and gas-intensive enterprises are extended to the second quarter of 2022. The decree provides for the extension of the granting of ex-traordinary SACE guarantees to enterprises with proven liquidity needs due to rising energy costs. |
| **Decree law No. 21/2022**<sup>18</sup>**.** The decree provides for a reduction in fuel excise taxes; it extends tax credits for energy and gas purchase expenditures incurred in the second quarter of 2022; it increases tax credits from 20 percent to 25 percent for energy-intensive businesses and from 15 percent to 20 percent for gas-intensive businesses. It raises the ISEE threshold for access to the electricity and gas social bonuses to EUR 12,000, for the entire 2022. The de-cree introduces a tax on companies in the energy, gas, or oil sectors, equal to 10 percent of the extra profits due to the increase in international reference prices. |
| **Decree Law No. 38/2022**<sup>19</sup>**.** The decree provides for the reduction of fuel excise taxes from 3 May to 8 July 2022. |
| **Decree Law No. 50/2022**<sup>20</sup> **('*Aiuti*' decree).** The decree increases tax credits for the second quarter of 2022: to 25 percent for the purchase of natural gas; to 15 percent for energy spending of enterprises with a power of at least 16.5 kW. In addition, an increase from 10 |

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<sup>11</sup> Converted by law No. 106 of 23 July 2021.

<sup>12</sup> Converted by law No. 171 of 25 November 2021.

<sup>13</sup> As per decree of the Minister for Economic Development of 28 December 2007.

<sup>14</sup> As per article 3, paragraph 9 of D.L. No. 185/2008, converted by law No. 2 of 28 January 2009.

<sup>15</sup> Law No. 234 of 30 December 2021.

<sup>16</sup> Converted by law No. 25 of 28 March 2022.

<sup>17</sup> Converted by law No. 34 of 27 April 2022.

<sup>18</sup> Converted by law No. 51 of 20 May 2022.

<sup>19</sup> Incorporated into D.L. No. 21/2022 during its conversion into law.

<sup>20</sup> Converted by law No. 91 of 15 July 2022.

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| **30** | MINISTRY OF ECONOMY AND FINANCE |

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| percent to 25 percent in the tax rate on extra-profits of energy enterprises is planned. A one-off monetary transfer of EUR 200 is introduced for employees, the self-employed, pensioners and social benefit recipients with an annual income below EUR 35,000, as well as a bonus for the purchase of public transport passes. |
| **Decree Law No. 80/2022**<sup>21</sup>**.** The reduction of system charges and VAT on utilities is extended to the third quarter of 2022. Retroactive access to social bonuses is granted for households now eligible due to the higher ISEE threshold. |
| **Decree Law No. 115/2022**<sup>22</sup> **('*Aiuti bis*' decree).** The decree extends the reduction of system charges and VAT on utilities and the restatement of social bonuses to the fourth quarter of 2022. The fuel excise tax cut is extended until 20 September 2022. Tax credits for businesses are extended through the third quarter of 2022. The EUR 200 monetary transfers are ex-tended to some previously excluded categories; the contributory cut for workers with incomes up to EUR 35,000, provided for in the 2022 budget law, is increased from 0.8 to 2 percentage points. Lastly, an increase for pensions up to EUR 2,692 is envisaged. |
| **Decree Law No. 144/2022**<sup>23</sup> **('*Aiuti ter*' decree).** Tax credits are extended and increased: to 40 percent for the purchase of natural gas; 40 percent for energy-intensive enterprises; 30 percent for non-energy-intensive enterprises, whose minimum available power requirement is reduced from 16.5 to 4.5 kW. The fuel excise tax reduction is extended until 31 October 2022. A new one-off monetary transfer of EUR 150 will be provided, with a reduction in annual in-come threshold to EUR 20,000. |
| **MEF-MITE Inter-ministerial decrees.** In the current year, six MEF-MITE inter-ministerial decrees (21 March, 6 April, 24 June, 19 July, 31 August, 13 September) have been approved. They provide for the reduction of excise taxes on fuels to offset higher VAT revenues from the in-crease in the international price of crude oil, without further burdening the State budget<sup>24</sup>. |

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<sup>21</sup> Incorporated into D.L. No. 50/2022 during its conversion into law.

<sup>22</sup> Converted by law No. 142 of 21 September 2022.

<sup>23</sup> The decree, in effect since 23 September, has not yet entered the process of conversion into law.

<sup>24</sup> Pursuant to law 244/2007, art. 1, paragraphs 290 - 294.

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| MINISTRY OF ECONOMY AND FINANCE | **31** |

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III.3 DEBT-TO-GDP RATIO AND THE DEBT RULE

#### Public debt as a ratio of GDP: forecast based on existing legislation
The high nominal growth of the economy expected this year, the improvement in the primary balance and the favourable contribution of the so-called snow-ball and stock-flow components (also thanks to the subsidies received from the RRF) will result, according to the new projections, in a more pronounced decline in the gross debt-to-GDP ratio than that forecast in the Stability Programme, regardless of the fact that interest rates are expected to rise significantly more than what was assumed in April. Indeed, the debt-to-GDP ratio is expected to fall by 4.8 percentage points, from 150.3 percent in 2021<sup>25</sup> to 145.4 percent in 2022 (147.0 percent in the Stability Programme).

The new projections of the debt-to-GDP ratio for the next three years are also about two percentage points lower than in the Stability Programme thanks to slightly stronger nominal GDP dynamics and an improvement in the primary balance. These positive factors more than offset the rise in the implicit cost of debt financing resulting from higher yields on fixed-income government bonds and higher inflation adjustments for securities indexed to consumer prices.

On the one hand, although the forecast scenario continues to be characterised by a high level of uncertainty due to the war, nominal GDP growth is estimated at 4.4 percent in 2023 and 3.9 percent on average in 2024-2025. This dynamic is mainly due to the inflationary impulse initially linked to energy prices, which then passed on to non-energy goods, driving up domestic prices and thus the GDP deflator.

On the other hand, the increase in the cost of debt will be limited mainly because of its average maturity, which is currently particularly high (over 7 years). Indeed, although the expected interest rates are higher than those in the Stability Programme, mainly as a result of the ECB's recent monetary policy decisions in response to the above-mentioned inflationary pressures, the average cost of debt is expected to rise by about 30 basis points in 2022 compared to 2021 and then stabilise at around 2.8 percent in the following years.

As a result of these trends, the snow-ball component will continue to exert a significant downward impulse on the debt-to-GDP ratio until at least 2025, the final year of the projection, when the gross debt of the general government sector under the existing legislation scenario is 139.3 percent of the GDP, against the 141.4 percent projected in the Stability Programme.

The reduction of the debt-to-GDP ratio also reflects a gradual reduction in the Treasury liquidity holdings which, at the end of 2025, will be brought back to a level slightly higher than at the end of 2019, i.e., to values prior the beginning of the pandemic crisis.

Net of Italy's share of loans to EMU Member States, bilaterally or through the EFSF, and of the contribution to the capital of the ESM, forecast of the debt-to-GDP ratio stands at 136.7 percent in 2025.

### ___

<sup>25</sup> The most recent estimates by the Bank of Italy and ISTAT slightly reduce the debt-to-GDP ratio for the last two years, following the upward revision of nominal GDP by about 3.7 billion and 6.6 billion in 2020 and 2021, respectively. According to the preliminary estimates in March, the debt-to-GDP ratio was 155.3 percent in 2020 and 150.8 percent in 2021. Thus, the reduction in 2021 over 2020 amounted to 4.5 percentage points.

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| **32** | MINISTRY OF ECONOMY AND FINANCE |

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| TABLE III.2 GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP) | TABLE III.2 GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP) | TABLE III.2 GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP) | TABLE III.2 GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP) | TABLE III.2 GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP) | TABLE III.2 GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP) |
|  | 2021 | 2022 | 2023 | 2024 | 2025 |
|  Gross of Euro Area financial support (2) |  |  |  |  |  |
|  General government | 2677910 | 2757968 | 2835054 | 2908739 | 2975957 |
|  *% of GDP* | 150.3 | 145.4 | 143.2 | 140.9 | 139.3 |
|  Central government (3) | 2601834 | 2679768 | 2756992 | 2830888 | 2898470 |
|  Local governments (3) | 119241 | 121365 | 121226 | 121015 | 120652 |
|  Social security funds (3) | 95 | 95 | 95 | 95 | 95 |
|  Net of Euro Area financial support (2) |  |  |  |  |  |
|  General government | 2620585 | 2701144 | 2778730 | 2852915 | 2920866 |
|  *% of GDP* | 147.1 | 142.5 | 140.4 | 138.2 | 136.7 |
|  Central government (3) | 2544509 | 2622943 | 2700668 | 2775064 | 2843379 |
|  Local governments (3) | 119241 | 121365 | 121226 | 121015 | 120652 |
| Social security funds (3) | 95 | 95 | 95 | 95 | 95 |
| (1) Note: Any inaccuracies result from rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, bilateral or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). The MEF's liquidity holdings are expected to be reduced by 0.2 percent of GDP in 2022 and by 0.1 percent in each following year with the objective to take back the stock towards the level of end 2019. In addition, estimates take into account the repurchase of SACE, the use of earmarked assets, and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts arising from the forward rates on Italian government bonds during the period covered by this document.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. | (1) Note: Any inaccuracies result from rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, bilateral or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). The MEF's liquidity holdings are expected to be reduced by 0.2 percent of GDP in 2022 and by 0.1 percent in each following year with the objective to take back the stock towards the level of end 2019. In addition, estimates take into account the repurchase of SACE, the use of earmarked assets, and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts arising from the forward rates on Italian government bonds during the period covered by this document.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. | (1) Note: Any inaccuracies result from rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, bilateral or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). The MEF's liquidity holdings are expected to be reduced by 0.2 percent of GDP in 2022 and by 0.1 percent in each following year with the objective to take back the stock towards the level of end 2019. In addition, estimates take into account the repurchase of SACE, the use of earmarked assets, and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts arising from the forward rates on Italian government bonds during the period covered by this document.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. | (1) Note: Any inaccuracies result from rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, bilateral or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). The MEF's liquidity holdings are expected to be reduced by 0.2 percent of GDP in 2022 and by 0.1 percent in each following year with the objective to take back the stock towards the level of end 2019. In addition, estimates take into account the repurchase of SACE, the use of earmarked assets, and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts arising from the forward rates on Italian government bonds during the period covered by this document.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. | (1) Note: Any inaccuracies result from rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, bilateral or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). The MEF's liquidity holdings are expected to be reduced by 0.2 percent of GDP in 2022 and by 0.1 percent in each following year with the objective to take back the stock towards the level of end 2019. In addition, estimates take into account the repurchase of SACE, the use of earmarked assets, and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts arising from the forward rates on Italian government bonds during the period covered by this document.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. | (1) Note: Any inaccuracies result from rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, bilateral or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt', September 2022). The MEF's liquidity holdings are expected to be reduced by 0.2 percent of GDP in 2022 and by 0.1 percent in each following year with the objective to take back the stock towards the level of end 2019. In addition, estimates take into account the repurchase of SACE, the use of earmarked assets, and the EIB and SURE guarantees. The interest rate scenario used for the estimates is based on the implicit forecasts arising from the forward rates on Italian government bonds during the period covered by this document.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. |

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![](image00019.jpg)

#### Assessment of the debt rule compliance
Among the Member States with a public debt exceeding 60 percent of GDP at the end of 2021, five of them did not comply with the reference benchmark for debt reduction as defined by the Treaty and Regulation of the European Commission (EC)

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| MINISTRY OF ECONOMY AND FINANCE | **33** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

No. 1467/1997<sup>26</sup>: Belgium, Finland, France, Hungary and Italy. The Commission acknowledged that complying with the adjustment path for the reduction of public debt would entail an excessive budgetary effort in the context of the present economic climate, in the aftermath of the COVID-19 crisis and with high uncertainty surrounding the developments of events in Ukraine after Russia's aggression.

As announced, the EC has not launched new Excessive Deficit Procedures in the recent past but will reconsider the opportunity to do so after the upcoming Autumn Forecasts.

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| | | | |
|:---|:---|:---|:---|
| **TABLE III.3: COMPLIANCE WITH THE DEBT RULE, FORWARD LOOKING AND CYCLICALLY ADJUSTED CRITERION** | **TABLE III.3: COMPLIANCE WITH THE DEBT RULE, FORWARD LOOKING AND CYCLICALLY ADJUSTED CRITERION** | **TABLE III.3: COMPLIANCE WITH THE DEBT RULE, FORWARD LOOKING AND CYCLICALLY ADJUSTED CRITERION** | **TABLE III.3: COMPLIANCE WITH THE DEBT RULE, FORWARD LOOKING AND CYCLICALLY ADJUSTED CRITERION** |
|  | 2021 | 2022 | 2023 |
|  Debt in year t+ 2 (% of GDP) | 143.2 | 140.9 | 139.9 |
|  Gap compared to backward-looking benchmark (% of GDP) | 16.6 | 7.1 | 1.9 |
|  Gap compared to forward-looking benchmark (% of GDP) | 1.9 | 10.5 | 10.1 |
| Cyclically adjusted debt gap (% of GDP) | 7.8 | 0.5 | 13.3 |

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III.4 SENSITIVITY ANALYSES ON PUBLIC FINANCE AND DEBT-TO-GDP RATIO PROJECTIONS IN THE MEDIUM TERM

This section presents sensitivity analyses on public finance aggregates under different financial and macroeconomic risk scenarios.

First, the effects on the budget balance and the debt-to-GDP ratio of shocks on economic growth and on the yield curve are presented; these shocks correspond to those described in section II.4. The subsequent section presents stochastic simulations of the debt-to-GDP ratio, displayed through fan charts. In the last section, the debt-to-GDP ratio is projected beyond the forecast horizon of the present document and into the medium-term (up to year 2033); two alternative projections show debt-to-GDP ratio profiles in line with 'stylised' paths to fiscal consolidation beyond the 2025 horizon.

#### Sensitivity of public finance to growth and interest rates
This section presents the simulation of two risk scenarios in which the macroeconomic shocks affect the 2022-2025 public finance aggregates, according to standard sensitivity assumptions<sup>27</sup>.

The baseline scenario corresponds to the existing legislation scenario of this document. The sensitivity analysis aims at outlining the budget balance path and the debt dynamics derived by assuming two of the alternative scenarios presented in section II.4.

### ___

<sup>26</sup> The debt reduction benchmark is calculated over a three-year horizon that can be prospective (t-1 to t+ 1), retrospective (t-3 to t-1) and cyclically adjusted. If the debt ratio is below 60 percent of GDP in any of the years, the benchmark cannot be calculated in a meaningful way.

<sup>27</sup> See section III.4 of the Methodological note on criteria for the elaboration of trend forecasts of the DEF 2022, available at:

<u>https://www.rgs.mef.gov.it/_Documenti/VERSIONE-I/Attivit--i/Contabilit_e_finanza_pubblica/DEF/2022/Nota- Metodologica-2022.pdf.</u>

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| **34** | MINISTRY OF ECONOMY AND FINANCE |

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<u> III. PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION </u>  

The financial risk scenario considers risk elements linked to the economy's financial conditions, incorporating a widening of 100 basis points of the BTP-Bund spread and a subsequent impact on economic growth. The exchange rate risk scenario assumes an appreciation of the euro and a consequent impact on exports and on economic growth.

The outcomes on GDP (used to estimate potential output and the output gap) are derived from the ITEM model. The figures related to interest rates (in the financial risk scenario) and to changes in interest expenditure are calculated with the Treasury's SAPE model – based on data on current and projected government securities.

Table III.4 reports the main macroeconomic and public finance variables across the three different scenarios in the forecast horizon considered in this document (up to 2025).

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE III.4: SENSITIVITY SCENARIOS (percentage values)** | **TABLE III.4: SENSITIVITY SCENARIOS (percentage values)** | **TABLE III.4: SENSITIVITY SCENARIOS (percentage values)** | **TABLE III.4: SENSITIVITY SCENARIOS (percentage values)** | **TABLE III.4: SENSITIVITY SCENARIOS (percentage values)** | **TABLE III.4: SENSITIVITY SCENARIOS (percentage values)** | **TABLE III.4: SENSITIVITY SCENARIOS (percentage values)** |
|  |  | **2021** | **2022** | **2023** | **2024** | **2025** |
|  | Baseline | -7.9 | 7.6 | 6.4 | 4.3 | 3.5 |
| Growth rate of nominal GDP | Financial risk scenario | -7.9 | 7.6 | 6.3 | 3.8 | 2.6 |
|  | Exchange rate risk scenario | -7.9 | 7.5 | 5.4 | 3.3 | 2.3 |
|  | Baseline | -8.9 | 6.0 | 4.7 | 2.8 | 1.9 |
| Growth rate of real GDP | Financial risk scenario | -8.9 | 6.0 | 4.6 | 2.2 | 1.1 |
|  | Exchange rate risk scenario | -8.9 | 5.9 | 3.6 | 2.2 | 1.1 |
|  | Baseline | -9.6 | -9.4 | -5.6 | -3.9 | -3.3 |
| Deficit/GDP | Financial risk scenario | -9.6 | -9.5 | -5.9 | -5.0 | -5.2 |
|  | Exchange rate risk scenario | -9.6 | -9.5 | -6.3 | -5.1 | -5.2 |
|  | Baseline | -6.1 | -6.0 | -2.7 | -1.3 | -0.8 |
| Primary balance/GDP | Financial risk scenario | -6.1 | -6.1 | -2.8 | -1.9 | -2.2 |
|  | Exchange rate risk scenario | -6.1 | -6.1 | -3.3 | -2.4 | -2.6 |
|  | Baseline | 2.4 | 2.4 | 2.0 | 1.9 | 1.7 |
| Implicit interest rate | Financial risk scenario | 2.4 | 2.4 | 2.1 | 2.1 | 2.1 |
|  | Exchange rate risk scenario | 2.4 | 2.4 | 2.0 | 1.9 | 1.7 |
|  | Baseline | 155.6 | 153.5 | 149.4 | 147.6 | 146.1 |
| Debt/GDP | Financial risk scenario | 155.6 | 153.7 | 150.4 | 150.6 | 152.4 |
|  | Exchange rate risk scenario | 155.6 | 153.7 | 151.5 | 152.3 | 154.3 |

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![](image00020.jpg)

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| MINISTRY OF ECONOMY AND FINANCE | **35** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

Figure III.2 illustrates the change of the debt-to-GDP ratio across the three scenarios. The existing legislation forecasts show a continuous decreasing trend. The alternative scenarios display a more contained reduction, but debt dynamics appear still steady.

#### Stochastic simulations of debt-to-GDP dynamics
In order to present a sensitivity analysis on the debt-to-GDP ratio trend that considers the uncertainties underlying the forecasts on the yield curve, public finances and economic growth, stochastic simulations have been implemented. These simulations consider the historical volatility of short and long-term interest rates, nominal economic growth and primary budget balances. The simulations have been carried out using the Monte Carlo method, applying stochastic shocks on the debt-to-GDP ratio dynamics in the baseline scenario at existing legislation presented in this Update. Said shocks are simulated based on the historical volatility of interest rates (short and long-term), nominal GDP growth rates and primary budget balances resulting from 2,000 draws from a normal distribution with average equal to zero and variance/covariance matrix as recorded since the first quarter of 1999.

Taking into account the extraordinary volatility of the variables of interest observed since the first quarter of 2020, in the present document two scenarios for the shocks are presented. In the first (high-volatility shocks hypothesis), the entirety of available series is taken into consideration for the construction of the shocks, including data up until the first quarter of 2022. The second scenario (limited-volatility shocks hypothesis) does not consider the volatility registered following the first quarter of 2020. In both cases, the simulated shocks are symmetrical and of temporary nature<sup>28</sup>.

In case of high-volatility shocks, the debt stands around an average value of 140.3 percent of GDP at the end of the time horizon, 6.2 percentage points higher than the figure recorded in 2019 (134.1), but 14.6 percentage points lower than the 2020 value (154.9). Great uncertainty surrounds the outcome for 2025, as shown by a gap of 53.5 percentage points between the 10th and 90th percentile of the expected debt distribution. After the sudden increase in 2020, followed by a decline in 2021 and 2022, the debt-to-GDP ratio would keep decreasing in the following three years in 60 percent of the simulated scenarios.

If the volatility of the shocks is limited to the period preceding the COVID-19 pandemic (limited-volatility shocks), the results of the simulations are visibly more concentrated around the debt-to-GDP ratio forecasted under the existing legislation scenario. In this instance, the uncertainty surrounding the 2025 results is much smaller, registering a 14.4 percentage points difference between the 10th and 90th percentile of the expected debt distribution; furthermore, the debt-to-GDP ratio keeps decreasing in all simulated scenarios.

### ___

<sup>28</sup> For further information on the adopted methodology, see Berti K., (2013), '*Stochastic public debt projections using the historical variance-covariance matrix approach for EU countries*', Economic Papers 480 and European Commission, 2020, Debt Sustainability Monitor 2019, Institutional Papers 120, available at: <u>https://ec.europa.eu/info/sites/info/files/economy-finance/ip120_en.pdf</u>.

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| **36** | MINISTRY OF ECONOMY AND FINANCE |

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<u> III. PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION </u>  

The 'non-increasing debt cap', the median value of public debt in 2025 that ensures (with 90 percent probability) that even in adverse conditions the debt-to-GDP ratio will not exceed the value forecasted in the baseline scenario, is equal to 142.9 percent, 3.6 percentage points higher than the debt-to-GDP ratio projected for 2025.

![](image00021.jpg)

#### Medium-term projections of the debt-to-GDP ratio
In this section, the debt-to-GDP ratio related to the macroeconomic and public finance scenario is projected beyond the forecast horizon up to 2033. The macroeconomic scenario matches the one under existing legislation up to 2025; starting from 2026, medium-term growth is in line with the estimated potential GDP growth (according with the 't+10' methodology developed by the Output Gap Working Group).

Yearly interests are calculated with the Treasury's SAPE model, by taking the composition and maturity structure of the existing debt stock underlying to the last projection year (2025).

In terms of public finance, three scenarios are simulated. In the existing legislation scenario, the structural primary balance (SPB) is set equal to the value forecasted for 2025 and adjusted in the medium term for variations in property income of the general government sector (obtained following the methodology described in the 2021 EC Ageing Report) and in age-related expenditures (calculated by the State General Accounting Department)<sup>29</sup>. In the historical SPB scenario, consistent with what is usually proposed by the EC in their Debt Sustainability<br>

### ___

<sup>29</sup> For methodological details, see: '*Le tendenze di medio-lungo periodo del sistema pensionistico e socio-sanitario - Rapporto n. 23*', prepared by the State General Accounting Department, available on:

<u>https://www.rgs.mef.gov.it/_Documenti/VERSIONE-I/Attivit--i/Spesa-</u>

<u>soci/Attivita_di_previsione_RGS/2022 /Rapporto2022.pdf.</u>

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| MINISTRY OF ECONOMY AND FINANCE | **37** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

Analysis (DSA), the structural primary balance converges in the 2026-2029 period to its 2006-2020 average (1.66 percent of GDP) and is kept constant afterwards. In the zero structural balance (SB) scenario, the SB converges to zero from 2026 with an annual correction of 0.6 percentage points, in line with the adjustment path required by the Stability and Growth Pact.

The additional fiscal adjustment under the historical SPB and the zero SB scenarios (vs. existing legislation) causes a feedback effect on real GDP growth in line with the EC methodology adopted in the 2021 Fiscal Sustainability Report.

The following Figure shows the development of the debt-to-GDP ratio across the three simulated scenarios. In the existing legislation scenario – with no additional fiscal adjustment beyond 2025 – the debt-to-GDP ratio decreases up to 2026, then increases up to 151.2 percent in 2033. In the historical SPB scenario, public debt stays essentially constant to 139 percent of GDP -beyond 2026- until 2033. Lastly, in the zero SB scenario the trajectory of the debt-to-GDP ratio declines to 127.3 percent in 2033.

The increasing trend of the debt-to-GDP ratio in the existing legislation scenario is mainly due to two factors that worsen both primary balance and interest expenditure. On the one hand, the projection includes an increase in ageing costs; on the other hand, present projections of forward rates reflect market expectations and lead to an increase of the implicit rate paid on public debt securities from 2026. It is likely that a credible planning for fiscal adjustment, as hypothesised in the alternative scenarios, would have a positive impact on market expectations, lowering interest expenditure. Said variation in expectations is not included in the simulations, whose results should therefore be interpreted as prudent.

Unlike the medium-term simulations illustrated in the Stability Programme of April, no medium-term growth projection was made based on a scenario that fully incorporates the effects of the RRP. If the latter were to produce the estimated impact on GDP growth, the fiscal adjustment necessary to reduce the debt-to-GDP ratio may be smaller than that suggested in the simulations here presented.

![](image00022.jpg)

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| **38** | MINISTRY OF ECONOMY AND FINANCE |

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IV. REFORMS AND RECOMMENDATIONS OF THE<br> COUNCIL OF THE EUROPEAN UNION

In the closing months of the legislature, the government's reform efforts remained focused on the implementation of the Recovery and Resilience Plan (RRP). This chapter summarises the main results achieved since the publication of the 2022 Economic and Financial Document (*Documento di Economia e Finanza*, DEF), which was approved by the Council of Ministers on 5 April and included the Stability Programme and the National Reform Programme.

In June, the Council of the European Union issued three Country-specific recommendations (CSRs) to Italy. Consistent with the national guidelines for official policy documents, it was deemed appropriate to structure the illustration of progress achieved in terms of reforms and economic policy around the three CSRs.

The first Recommendation concerns the public finances and invites the country to follow a prudent fiscal policy in the face of a sharp rise in energy prices, concentrating budgetary resources on supporting the most vulnerable segments of the population, as well as the ecological and digital transition and energy security, also in light of the RePowerEU initiative. From 2023 onwards, Italy is also required to orientate fiscal policy toward a credible and gradual reduction of public debt, ensuring its sustainability in the medium term through a gradual consolidation of the public finances, as well as investments and reforms aimed at improving the economy's growth potential. To the same end, Italy is also urged to adopt and appropriately implement the enabling law on the tax reform.

The second Recommendation is to fully proceed with the implementation of the RRP and to finalise negotiations with the European Commission on the 2021-2027 cohesion policy programmes.<br> Finally, the third Recommendation concerns energy. The Council urges Italy to reduce its overall reliance on fossil fuels and to diversify energy imports. It also calls on Italy to overcome bottlenecks and to increase the capacity of internal gas transmission, to develop electricity interconnections, to accelerate the deployment of additional renewable energy capacity and to adopt measures to increase the energy efficiency of buildings and to promote sustainable mobility.

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| MINISTRY OF ECONOMY AND FINANCE | **39** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

IV.1 PURSUING A PRUDENT FISCAL POLICY (CSR 1)

With regard to the topic of public investments for the green and digital transition and for energy security referred to in the CSR 1, in recent months a number of important measures have been put in place. Recent decrees<sup>30</sup> aim to streamline procedures to increase national regasification capacity, while the enabling law for the reform of procurement code speeds up the approval process for energy infrastructure. Simplification measures were approved for the construction of power plants using renewable energy sources, and the program for the energy conversion of buildings continued. In the RRP, the green transition is also supported by other investments such as those for reducing CO2 emissions and combating hydrogeological risks. It is crucial that investments in the green transition go hand in hand with digital transformation, and thus the RRP is giving a significant boost to Italy's already positive performance in this sector, especially in terms of connectivity<sup>31</sup>. Through the RRP, internet access facilities and research infrastructure have become more widespread, with the next steps aiming to progressively support the growth of venture capital investment<sup>32</sup>.

With regard to the Council's request to Italy to properly adopt and implement the enabling law on tax reform, at the end of June, the draft of such law<sup>33</sup> was approved by the Chamber of Deputies. However, the Senate was unable to fully examine it as early general elections were called.

The draft aimed to simplify the tax system and set out principles for the revision of the personal income taxation system. It reaffirmed the goal of simplifying and streamlining the taxation of business income in addition to rationalising VAT and excise taxes and progressively abolishing the IRAP tax (regional tax on productive activities). The draft also required the government to change the discipline governing the cadastral system and implement a review of municipal and regional IRPEF (personal income tax) surcharges. Some progress has also been made outside the scope of the enabling act, with the implementation of a number of proposals contained in the 'Report to Guide Government Actions'<sup>34</sup> of December 2021, aimed at combating tax evasion.

Finally, the first chapter of this document reports on the debt reduction policy implemented by the outgoing government. The policy plan for 2023-2025 will be updated by the new government and illustrated in a subsequent document.

<sup>30</sup> Decree law No. 21/2022 and decree law No. 50/2022.

<sup>31</sup> In this regard, the country's improvement in the 2022 DESI index of the European Commission is to be noted.

<sup>32</sup> For details, see the Annual Report of the Ministry of Economic Development (MISE) on Innovative Start-ups and SMEs.<sup>33</sup> Originally approved by the Council of Ministers on 5 October 2021,

<sup>34</sup> <u>Relazione-per-orientare-le-azioni-di-governo-volte-a-ridurre-l'evasione-fiscale-derivante-da-omessa-fatturazione.pdf</u>

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| **40** | MINISTRY OF ECONOMY AND FINANCE |

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<u> IV. REFORMS AND RECOMMENDATIONS OF THE COUNCIL OF THE EUROPEAN UNION </u>  

IV.2 IMPLEMENTATION OF RRP AND FINALISATION OF THE NEGOTIATIONS FOR THE 2021-2027 COHESION POLICY INSTRUMENTS (CSR 2)

As of 30 June 2022, all 45 milestones and targets concerning the first semester had been correctly achieved, thus enabling the MEF to request the European Commission for payment of the second installment.

Following the entry into force of the enabling law reforming the Procurement Code<sup>35</sup> and the laws to strengthen tax compliance, the commitments regarding the justice and public administration sectors and the 'enabling reforms' were met. The milestones achieved as of the end of June also concern other areas including: culture and tourism; ecological transition<sup>36</sup>; hydrogen; decarbonisation technologies; schools, universities and research<sup>37</sup>; construction of temporary housing, post stations and urban regeneration projects; reduction of housing shortage in the suburbs; and interventions in the health sector. Contracts have been awarded for fast internet connections projects<sup>38</sup> and 750 million allocated<sup>39</sup> to strengthen the competitiveness of the most innovative and/or strategic production chains.

Another 55 milestones and targets are set for December, the achievement of which determines the payment of the third installment.

Actions to reform the judicial system which were accomplished within the agreed include the completed recruitment process for the strengthening of the case management office and the approval of the reform of the tax justice system and the law reforming the judicial system<sup>40</sup>. In addition, the draft legislative decree implementing the Directive (EU) 2019/1023 on restructuring and insolvency was approved, and the related Code<sup>41</sup> came into force on 15 July 2022.

The goals regarding the Public administration (PA) reform set for 30 June 2022 have been timely completed: the *'PNRR bis'* decree law completed the framework for the civil service reform launched in 2021<sup>42</sup> by impacting the access mechanisms and selection procedures, modifying the simplified procedure for public hiring procedures<sup>43</sup> and providing for an update of the related discipline<sup>44</sup>. Starting from 1 November 2022, it will be necessary to register with the InPA Portal<sup>45</sup>, which has been operational since July, to access all public competitions.

<sup>35</sup> Law No. 78/2022.

<sup>36</sup> For example, in the context of strengthening the circular economy and managing waste, the National Strategy for the Circular Economy was adopted.

<sup>37</sup> The enactment of '*Aiuti ter*' decree law launched the reform of technical and professional institutes.

<sup>38</sup> These are the five interventions '*Italia a 1 Giga*', '*Italia 5G*', '*Scola connessa*' (Connected School), '*Sanità connessa*' (Connected Health) and '*Collegamento isole minori*' (Connecting Smaller Islands).

<sup>39</sup> For more details: <u>https://www.mise.gov.it/index.php/it/normativa/decreti-ministeriali/decreto-ministeriale-13-gennaio-2022-attuazione-dell-investimento-5-2-competitivita-e-resilienza-delle-filiere-produttive-del-piano-nazionale-di-ripresa-e-resilienza-pnrr</u>

<sup>40</sup> Law No. 71/2022.

<sup>41</sup> Introduced by legislative decree No. 14 of 2019.

<sup>42</sup> By decree laws No. 44 and No. 80 of 2021.

<sup>43</sup> Introduced by decree laws No. 44 del 2021.

<sup>44</sup> Defined by Presidential decree No. 487 of 1994.

<sup>45</sup> <u>www.InPA.gov.it</u>

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

In May, the new Technical Commission for Performance (*Commissione tecnica per la performance*) took office to implement the interventions included in the RRP to strengthen the public administrations. Among the investments for the training of public employees is the 'Re-Training the PA Plan' (*'Piano Ri-Formare la PA'*), while the platform 'Capacity Italy' was launched to provide support to the administrations involved in the RRP. Lastly, in June, the ministerial decree defining the contents and model scheme of the integrated activity and organization plans (*Piani integrati attività e organizzazione* - PIAO) was signed, and the related portal became operational on 1 July.

The '2021 Annual Law for the Market and Competition' *('legge annuale per il mercato e la concorrenza')* adopted in August<sup>46</sup>, responds to the commitment made by the government in the RRP to respect the annual cadence of the law itself. One of the changes made during the parliamentary debate concerns beach concessions. It extends to 31 December 2023 - and in any case no later than 31 December 2024 - the deadline for reforming licensing for tourism, recreation and sports purposes. The regulations on state concessions are to be reviewed within six months after the law comes into force. The law also updates legislation on ports, introducing the public evidence principle in the granting of concessions of state-owned port areas, and regulates the National Fuel Registry *(Anagrafe nazionale dei carburanti)*<sup>47</sup>. The enabling law for the reform of local public transport was also amended. Lastly, two draft legislative decrees on the reorganisation of the regulation of local public services of economic importance and on the mapping and transparency of concessionary regimes for public assets were recently approved in preliminary examination.

With regard to progress in the area of cohesion policy programming, it should be noted that on 15 July 2022, following the conclusion of formal negotiations initiated on 17 January 2022 by the Cohesion Policy Department, Italy's 2021-2027 Partnership Agreement was approved<sup>49</sup>. Respectively 8 national and 38 regional<br>

<sup>46</sup> Law No. 118 of 5 August 2022.

<sup>47</sup> Established by the 2017 Annual Law on Competition to ensure the streamlining of the fuel distribution system.

<sup>48</sup> Enabling law No. 78/ 2022.

<sup>49</sup> Decision C (2022) 4787. The Agreement concerns the support of the European Regional Development Fund (ERDF), the European Social Fund plus (ESF+), the Just Transition Fund (JTF), as part of the 'Investment for Jobs and Growth' objective49, as well as the European Maritime, Fisheries and Aquaculture Fund (EMFF), for the period from 1 January 2021 to 31 December 2027.

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| **42** | MINISTRY OF ECONOMY AND FINANCE |

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<u> IV. REFORMS AND RECOMMENDATIONS OF THE COUNCIL OF THE EUROPEAN UNION </u>  

programs are connected to the Agreement. In order to support the process of defining and notifying the programs, the Cohesion Policy Department has implemented a monitoring and accompanying action for the administrations. At the current stage, all programs are formally notified to the European Commission and a number of them have been approved by Implementing Decision.

IV.3 REDUCING THE USE OF FOSSIL FUELS, DIVERSIFYING ENERGY IMPORT, DEVELOPING RENEWABLE ENERGIES (CSR 3)

Tensions in energy markets, which began as early as 2021 and were exacerbated by the war in Ukraine and the risk of Russian gas supply disruptions, have prioritized the need to reconcile energy security, decarbonisation goals, and support for households and businesses. Regarding the latter, the measures adopted<sup>50</sup> range from the provision of a one-time EUR 200 monetary transfer to specific categories of taxpayers to widespread interventions for households and businesses. The two decrees *'Aiuti bis'* and *'Aiuti ter'*<sup>51</sup> consolidated some of these actions through urgent measures regarding energy, water emergency, social and industrial policies and an additional monetary transfer to low-income households, scheduled for November.

In terms of strengthening energy availability, to increase imports via the gas pipeline network connecting Italy to Mediterranean countries, the government has entered into agreements with Algeria, signed a Memorandum for the development of energy programs in the area of renewable energy, and committed to expanding LNG supplies from Egypt.

The decree to contain energy costs<sup>52</sup> also introduced measures to enhance domestic natural gas production and increase its supply and storage. It was established<sup>53</sup> that works aimed at increasing national regasification capacity represent strategic public utility interventions, for which a priority route for environmental assessments is provided, and the SACE guarantee is extended to natural gas storage companies. To reduce reliance on fossil fuels, it is planned to encourage the development of electricity grids and connections and, at the same time, the green hydrogen supply chain, including through the introduction of a series of tax incentives to support its production and use.

The government has repeatedly reiterated how the development of renewable sources is the key way to reduce the country's dependence on imported fossil fuels. To this end, it has approved the Green Transition Plan (*Piano per la Transizione Ecologica*, PTE), streamlined sectoral regulations and expedited the approval of projects to generate wind and photovoltaic power.

The most recent measures<sup>54</sup> involved the production of energy from biogas and the approval of numerous simplification measures to encourage the construction of<br>

<sup>50</sup> Decree laws No. 21/2022, No. 50/2022, and No. 80/2022.

<sup>51</sup> These are decree laws No. 115/2022 and No. 144/2022 (so-called '*Aiuti bis*' and '*Aiuti ter*' decrees).

<sup>52</sup> Decree law No. 17/2022, converted with amendments by law No. 34/2022.

<sup>53</sup> Decree law No. 50/2022, art. 5.

<sup>54</sup> Decree law No. 21/2022 and No. 50/2022.

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| MINISTRY OF ECONOMY AND FINANCE | **43** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

renewable energy production facilities and, in particular, ground-mounted photovoltaic systems.

A substantial portion of RRP resources is also devoted to improving the energy efficiency of buildings and to their requalification. The program to improve the energy performance of public buildings has been boosted and the regulations regarding the 110 percent Superbonus have been revised. In June 2022, one of the goals of the RRP aimed at simplifying and expediting procedures for the implementation of energy efficiency interventions based on four key actions including the launch of a national portal for energy efficiency in buildings<sup>55</sup> was achieved. In addition, the operational phase of the projects financed by the Central Government Energy Upgrading Program (*Programma di riqualificazione energetica della PA centrale*, PREPAC) was launched, and the Service for the Design of Public Assets and Buildings (*Struttura per la progettazione di beni ed edifici pubblici*) was created to support central and territorial administrations in the implementation of investments.

The Annex to the DEF, 'Infrastructure, Mobility and Logistics', provides the planning framework for mobility development, consistent with the Sustainable Development Goals of the UN 2030 Agenda and the European Green Deal.

To reinforce modal shift policies toward more sustainable modes of transport, the *'Aiuti'* decree law refinanced the so-called *marebonus* and *ferrobonus* subsidies for 2022, while in order to promote rail freight traffic in ports, the Port System Authorities were allowed to reduce concession fees. To promote private demand for sustainable mobility, the so-called ecobonuses for the purchase of environmentally friendly vehicles and the scrapping of the most polluting vehicles<sup>56</sup> have been reintroduced, using the resources allocated by the '*Aiuti bis'* decree law. The simplification of the regulations for the construction of electric vehicle charging points provided for in the *'Aiuti ter'* decree law will also encourage the spread of electric mobility. Furthermore, a fund was also established<sup>57</sup> by the Minister for Economic Development to encourage research and development and the technological transition of automotive companies.

<sup>55</sup> Already established by legislative decree No. 48/2020: <u>http://pnpe2.enea.it/</u>.

<sup>56</sup> The Prime Ministerial decree of 6 April 2022 allocates incentives for the purchase of electric, hybrid and low-emission vehicles, cars, and motorcycles, providing EUR 650 million for each of the years 2022-2023-2024.

<sup>57</sup> Decree law No. 17/2022.

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| **44** | MINISTRY OF ECONOMY AND FINANCE |

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V. ANNEX

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **TABLE V.1a: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (EUR millions)** | **TABLE V.1a: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (EUR millions)** | **TABLE V.1a: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (EUR millions)** | **TABLE V.1a: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (EUR millions)** | **TABLE V.1a: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (EUR millions)** | **TABLE V.1a: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (EUR millions)** |
|  | 2021 | 2022 | 2023 | 2024 | 2025 |
|  COMPONENTS OF EXPENDITURE |  |  |  |  |  |
|  Compensation of employees | 176548 | 188236 | 187104 | 185238 | 186053 |
|  Intermediate consumption | 157228 | 167130 | 165027 | 162313 | 162915 |
|  Social benefits | 397905 | 409600 | 427680 | 446180 | 458560 |
|  of which: Pensions | 286280 | 297350 | 320800 | 338290 | 349790 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other social benefits | 111625 | 112250 | 106880 | 107890 | 108770 |
|  Other current expenditure | 82562 | 106774 | 89745 | 87477 | 86850 |
|  Total current expenditure net of interest | 814243 | 871740 | 869557 | 881209 | 894377 |
|  Interest expenditure | 63753 | 75177 | 77990 | 77743 | 82429 |
|  Total current expenditure | 877996 | 946917 | 947546 | 958951 | 976806 |
|  of which: Health expenditure | 127834 | 133998 | 131724 | 128708 | 129428 |
|  Total capital expenditure | 108172 | 82369 | 100911 | 94871 | 101918 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross fixed capital formation | 50846 | 49185 | 65830 | 72256 | 78204 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital contributions | 21952 | 22694 | 26964 | 18002 | 19062 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other transfers | 35374 | 10490 | 8118 | 4613 | 4652 |
|  Total final expenditure net of interest | 922415 | 954109 | 970468 | 976080 | 996295 |
|  Total final expenditure | 986168 | 1029287 | 1048458 | 1053822 | 1078724 |
|  COMPONENTS OF REVENUE |  |  |  |  |  |
|  Total tax revenues | 527629 | 569090 | 580193 | 590465 | 611662 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Direct taxes | 267492 | 285033 | 273920 | 277140 | 288986 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Indirect taxes | 258539 | 279243 | 304833 | 311870 | 321207 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital taxes | 1598 | 4814 | 1440 | 1455 | 1469 |
|  Social contributions | 244988 | 264241 | 279730 | 287027 | 295529 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Actual contributions | 240501 | 259460 | 274875 | 282098 | 290499 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Imputed contributions | 4487 | 4781 | 4855 | 4929 | 5030 |
|  Other current revenues | 78386 | 89454 | 96765 | 90336 | 91163 |
|  Total current revenues | 849405 | 917970 | 955248 | 966372 | 996885 |
|  Non-tax capital revenues | 6263 | 9717 | 24140 | 13019 | 12793 |
|  Total final revenues | 857266 | 932501 | 980828 | 980846 | 1011146 |
|  *Memo: Tax burden* | 43.4 | 43.9 | 43.4 | 42.5 | 42.5 |
|  BALANCES |  |  |  | . |  |
|  Primary balance | -65149 | -21608 | 10360 | 4766 | 14851 |
|  *% of GDP* | -3.7 | -1.1 | 0.5 | 0.2 | 0.7 |
|  Current balance | -28591 | -28947 | 7701 | 7421 | 20078 |
|  *% of GDP* | -1.6 | -1.5 | 0.4 | 0.4 | 0.9 |
|  Net borrowing | -128902 | -96786 | -67630 | -72976 | -67578 |
|  *% of GDP* | -7.2 | -5.1 | -3.4 | -3.5 | -3.2 |
|  Nominal GDP under existing legislation (x 1.000) | 1782.1 | 1896.2 | 1979.2 | 2064.3 | 2136.6 |
|  Note: Any inaccuracies result from rounding. |  |  |  |  |  |

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| MINISTRY OF ECONOMY AND FINANCE | **45** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

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|:---|:---|:---|:---|:---|:---|
| **TABLE V.1b: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (% of GDP)** | **TABLE V.1b: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (% of GDP)** | **TABLE V.1b: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (% of GDP)** | **TABLE V.1b: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (% of GDP)** | **TABLE V.1b: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (% of GDP)** | **TABLE V.1b: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (% of GDP)** |
|  | 2021 | 2022 | 2023 | 2024 | 2025 |
|  COMPONENTS OF EXPENDITURE |  |  |  |  |  |
|  Compensation of employees | 9.9 | 9.9 | 9.5 | 9.0 | 8.7 |
|  Intermediate consumption | 8.8 | 8.8 | 8.3 | 7.9 | 7.6 |
|  Social benefits | 22.3 | 21.6 | 21.6 | 21.6 | 21.5 |
|  of which: Pensions | 16.1 | 15.7 | 16.2 | 16.4 | 16.4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other social benefits | 6.3 | 5.9 | 5.4 | 5.2 | 5.1 |
|  Other current expenditure | 4.6 | 5.6 | 4.5 | 4.2 | 4.1 |
|  Total current expenditure net of interest | 45.7 | 46.0 | 43.9 | 42.7 | 41.9 |
|  Interest expenditure | 3.6 | 4.0 | 3.9 | 3.8 | 3.9 |
|  Total current expenditure | 49.3 | 49.9 | 47.9 | 46.5 | 45.7 |
|  of which: Health expenditure | 7.2 | 7.1 | 6.7 | 6.2 | 6.1 |
|  Total capital expenditure | 6.1 | 4.3 | 5.1 | 4.6 | 4.8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross fixed capital formation | 2.9 | 2.6 | 3.3 | 3.5 | 3.7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital contributions | 1.2 | 1.2 | 1.4 | 0.9 | 0.9 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other transfers | 2.0 | 0.6 | 0.4 | 0.2 | 0.2 |
|  Total final expenditure net of interest | 51.8 | 50.3 | 49.0 | 47.3 | 46.6 |
|  Total final expenditure | 55.3 | 54.3 | 53.0 | 51.0 | 50.5 |
|  COMPONENTS OF REVENUE |  |  |  |  |  |
|  Total tax revenues | 29.6 | 30.0 | 29.3 | 28.6 | 28.6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Direct taxes | 15.0 | 15.0 | 13.8 | 13.4 | 13.5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Indirect taxes | 14.5 | 14.7 | 15.4 | 15.1 | 15.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital taxes | 0.1 | 0.3 | 0.1 | 0.1 | 0.1 |
|  Social contributions | 13.7 | 13.9 | 14.1 | 13.9 | 13.8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Actual contributions | 13.5 | 13.7 | 13.9 | 13.7 | 13.6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Imputed contributions | 0.3 | 0.3 | 0.2 | 0.2 | 0.2 |
|  Other current revenues | 4.4 | 4.7 | 4.9 | 4.4 | 4.3 |
|  Total current revenues | 47.7 | 48.4 | 48.3 | 46.8 | 46.7 |
|  Non-tax capital revenues | 0.4 | 0.5 | 1.2 | 0.6 | 0.6 |
|  Total final revenues | 48.1 | 49.2 | 49.6 | 47.5 | 47.3 |
|  *Memo: Tax burden* | 43.4 | 43.9 | 43.4 | 42.5 | 42.5 |
|  BALANCES |  |  |  |  |  |
|  Primary balance | -3.7 | -1.1 | 0.5 | 0.2 | 0.7 |
|  Current balance | -1.6 | -1.5 | 0.4 | 0.4 | 0.9 |
|  Net borrowing | -7.2 | -5.1 | -3.4 | -3.5 | -3.2 |
|  Note: Any inaccuracies result from rounding. |  |  |  |  |  |

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| **46** | MINISTRY OF ECONOMY AND FINANCE |

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V. ANNEX<br>

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|:---|:---|:---|:---|:---|
| **TABLE V.1c: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (percentage changes y/y)** | **TABLE V.1c: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (percentage changes y/y)** | **TABLE V.1c: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (percentage changes y/y)** | **TABLE V.1c: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (percentage changes y/y)** | **TABLE V.1c: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION (percentage changes y/y)** |
|  | **2022** | **2023** | **2024** | **2025** |
|  COMPONENTS OF EXPENDITURE |  |  |  |  |
|  Compensation of employees | 6.6 | -0.6 | -1.0 | 0.4 |
|  Intermediate consumption | 6.3 | -1.3 | -1.6 | 0.4 |
|  Social benefits | 2.9 | 4.4 | 4.3 | 2.8 |
|  of which: Pensions | 3.9 | 7.9 | 5.5 | 3.4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other social benefits | 0.6 | -4.8 | 0.9 | 0.8 |
|  Other current expenditure | 29.3 | -15.9 | -2.5 | -0.7 |
|  Total current expenditure net of interest | 7.1 | -0.3 | 1.3 | 1.5 |
|  Interest expenditure | 17.9 | 3.7 | -0.3 | 6.0 |
|  Total current expenditure | 7.8 | 0.1 | 1.2 | 1.9 |
|  of which: Health expenditure | 4.8 | -1.7 | -2.3 | 0.6 |
|  Total capital expenditure | -23.9 | 22.5 | -6.0 | 7.4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross fixed capital formation | -3.3 | 33.8 | 9.8 | 8.2 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital contributions | 3.4 | 18.8 | -33.2 | 5.9 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other transfers | -70.3 | -22.6 | -43.2 | 0.9 |
|  Total final expenditure net of interest | 3.4 | 1.7 | 0.6 | 2.1 |
|  Total final expenditure | 4.4 | 1.9 | 0.5 | 2.4 |
|  COMPONENTS OF REVENUE |  |  |  |  |
|  Total tax revenues | 7.9 | 2.0 | 1.8 | 3.6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Direct taxes | 6.6 | -3.9 | 1.2 | 4.3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Indirect taxes | 8.0 | 9.2 | 2.3 | 3.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital taxes | 201.3 | -70.1 | 1.0 | 1.0 |
|  Social contributions | 7.9 | 5.9 | 2.6 | 3.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Actual contributions | 7.9 | 5.9 | 2.6 | 3.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Imputed contributions | 6.5 | 1.5 | 1.5 | 2.1 |
|  Other current revenues | 14.1 | 8.2 | -6.6 | 0.9 |
|  Total current revenues | 8.1 | 4.1 | 1.2 | 3.2 |
|  Non-tax capital revenues | 55.1 | 148.4 | -46.1 | -1.7 |
|  Total final revenues | 8.8 | 5.2 | 0.0 | 3.1 |

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|:---|:---|:---|:---|:---|:---|:---|
| TABLE V.2: GENERAL GOVERNMENT CASH BALANCES (1) | TABLE V.2: GENERAL GOVERNMENT CASH BALANCES (1) | TABLE V.2: GENERAL GOVERNMENT CASH BALANCES (1) | TABLE V.2: GENERAL GOVERNMENT CASH BALANCES (1) | TABLE V.2: GENERAL GOVERNMENT CASH BALANCES (1) | TABLE V.2: GENERAL GOVERNMENT CASH BALANCES (1) | TABLE V.2: GENERAL GOVERNMENT CASH BALANCES (1) |
|  | 2021 | 2021 | **2022** | **2023** | **2024** | **2025** |
|  | Level (2) | % of GDP | % of GDP | % of GDP | % of GDP | % of GDP |
|  General government | -108984 | -6.1 | -3.4 | -3.3 | -3.6 | -3.5 |
|  Central government | -105754 | -5.9 | -3.3 | -3.3 | -3.7 | -3.5 |
|  State sector | -106326 | -6.0 | -3.3 | -3.4 | -3.7 | -3.5 |
|  Local governments | -3231 | -0.2 | -0.1 | 0.0 | 0.0 | 0.0 |
|  Social security funds | 0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| (1) From 2022 forecasts under the existing legislation scenario.<br> (2) Values in EUR millions. | (1) From 2022 forecasts under the existing legislation scenario.<br> (2) Values in EUR millions. | (1) From 2022 forecasts under the existing legislation scenario.<br> (2) Values in EUR millions. | (1) From 2022 forecasts under the existing legislation scenario.<br> (2) Values in EUR millions. | (1) From 2022 forecasts under the existing legislation scenario.<br> (2) Values in EUR millions. | (1) From 2022 forecasts under the existing legislation scenario.<br> (2) Values in EUR millions. | (1) From 2022 forecasts under the existing legislation scenario.<br> (2) Values in EUR millions. |

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| MINISTRY OF ECONOMY AND FINANCE | **47** |

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.3: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - GRANTS** | **TABLE V.3: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - GRANTS** | **TABLE V.3: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - GRANTS** | **TABLE V.3: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - GRANTS** | **TABLE V.3: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - GRANTS** | **TABLE V.3: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - GRANTS** | **TABLE V.3: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - GRANTS** |
|  | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
|  **Revenues from RRF grants (% GDP)** |  |  |  |  |  |  |
|  RRF grants as included in the revenue projections | 0.0 | 0.1 | 0.5 | 1.1 | 0.8 | 0.7 |
|  Cash disbursements of RRF grants from EU | 0.0 | 0.5 | 1.1 | 0.6 | 0.4 | 0.4 |
|  **Expenditure financed by RRF grants (% GDP)** |  |  |  |  |  |  |
|  TOTAL CURRENT EXPENDITURE | 0.0 | 0.0 | 0.0 | 0.2 | 0.2 | 0.2 |
|  Gross fixed capital formation P.51g | 0.0 | 0.0 | 0.1 | 0.2 | 0.4 | 0.3 |
|  Capital transfers D.9 | 0.0 | 0.1 | 0.2 | 0.5 | 0.1 | 0.1 |
|  TOTAL CAPITAL ACCOUNT EXPENDITURE | 0.0 | 0.1 | 0.3 | 0.7 | 0.4 | 0.4 |
|  **Other costs financed by RRF grants (% GDP) (1)** |  |  |  |  |  |  |
|  Reduction in tax revenue | 0.0 | 0.0 | 0.2 | 0.2 | 0.2 | 0.2 |
|  Other costs with impact on revenue | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
|  Financial transactions | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. |

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|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.4: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - LOANS** | **TABLE V.4: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - LOANS** | **TABLE V.4: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - LOANS** | **TABLE V.4: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - LOANS** | **TABLE V.4: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - LOANS** | **TABLE V.4: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - LOANS** | **TABLE V.4: IMPACT OF RECOVERY AND RESILIENCE FACILITY ON GENERAL GOVERNMENT BUDGETARY PROSPECTS - LOANS** |
|  | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
| &nbsp;&nbsp; **Cash flow from RRF loans projected in the programme (% GDP)** | &nbsp;&nbsp; **Cash flow from RRF loans projected in the programme (% GDP)** |  |  |  |  |  |
|  Disbursements of RRF loans from EU | 0.0 | 0.9 | 1.2 | 1.2 | 1.0 | 1.0 |
|  Repayments of RRF loans to EU | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
|  **Expenditure financed by RRF loans (% GDP)** |  |  |  |  |  |  |
|  TOTAL CURRENT EXPENDITURE | 0.0 | 0.0 | 0.0 | 0.1 | 0.1 | 0.1 |
|  Gross fixed capital formation P.51g | 0.1 | 0.1 | 0.2 | 0.9 | 1.3 | 1.4 |
|  Capital transfers D.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
|  TOTAL CAPITAL ACCOUNT EXPENDITURE | 0.1 | 0.1 | 0.3 | 0.9 | 1.3 | 1.4 |
|  **Other costs financed by RRF loans (% GDP) (1)** |  |  |  |  |  |  |
|  Reduction in tax revenue | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
|  Other costs with impact on revenue | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
|  Financial transactions | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. | (1) Reference is made to cost items not recorded as expenditure in the national accounts. Any inaccuracies result from rounding. |

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.5: NGEU RESOURCES UNDERLYING FORECASTS (EUR billions)** | **TABLE V.5: NGEU RESOURCES UNDERLYING FORECASTS (EUR billions)** | **TABLE V.5: NGEU RESOURCES UNDERLYING FORECASTS (EUR billions)** | **TABLE V.5: NGEU RESOURCES UNDERLYING FORECASTS (EUR billions)** | **TABLE V.5: NGEU RESOURCES UNDERLYING FORECASTS (EUR billions)** | **TABLE V.5: NGEU RESOURCES UNDERLYING FORECASTS (EUR billions)** | **TABLE V.5: NGEU RESOURCES UNDERLYING FORECASTS (EUR billions)** | **TABLE V.5: NGEU RESOURCES UNDERLYING FORECASTS (EUR billions)** |
|  | **2020-21** | **2022** | **2023** | **2024** | **2025** | **2026** | **Total** |
|  RRF grants | 1.5 | 9.0 | 21.7 | 16.2 | 14.8 | 5.7 | 68.9 |
|  RRF loans | 4.0 | 6.0 | 19.3 | 30.2 | 32.9 | 30.2 | 122.6 |
|  **TOTAL** | 5.5 | 15.0 | 40.9 | 46.5 | 47.7 | 35.9 | 191.5 |
|  Of which: |  |  |  |  |  |  |  |
|  Additive | 1.3 | 8.2 | 27.6 | 31.0 | 32.4 | 24.0 | 124.5 |
|  Substitutive | 4.2 | 6.8 | 13.3 | 15.5 | 15.3 | 11.9 | 67.0 |
|  **REACT-EU** |  | 4.2 | 10.2 |  |  |  | 14.4 |
|  Note: Any inaccuracies result from rounding. |  |  |  |  |  |  |  |

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|:---|:---|
| **48** | MINISTRY OF ECONOMY AND FINANCE |

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V. ANNEX<br>

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.6: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE V.6: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE V.6: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE V.6: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE V.6: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE V.6: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE V.6: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE V.6: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** |
|  | **2019** | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| 1. Growth rate of GDP at constant prices | 0.5 | -9.0 | 6.7 | 3.3 | 0.6 | 1.8 | 1.5 |
| 2. Net borrowing | -1.6 | -9.5 | -7.2 | -5.1 | -3.4 | -3.5 | -3.2 |
| 3. Interest expenditure | 3.4 | 3.5 | 3.6 | 4.0 | 3.9 | 3.8 | 3.9 |
| 4. One-off measures (1) | 0.1 | 0.1 | 0.4 | 0.4 | 0.2 | 0.1 | 0.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Of which: Revenue measures | 0.1 | 0.2 | 0.4 | 0.4 | 0.2 | 0.0 | 0.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Expenditure measures | -0.1 | -0.1 | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 |
| 5. Potential GDP growth rate | 0.0 | -0.2 | 0.1 | 1.0 | 0.7 | 1.1 | 1.1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Factor contribution to potential growth: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Labour | -0.4 | -0.4 | -0.4 | 0.4 | 0.1 | 0.4 | 0.4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital | 0.0 | -0.1 | 0.1 | 0.3 | 0.4 | 0.4 | 0.5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total factor productivity | 0.4 | 0.3 | 0.3 | 0.2 | 0.2 | 0.3 | 0.3 |
| 6. Output gap | 0.5 | -8.4 | -2.3 | 0.0 | -0.2 | 0.5 | 1.0 |
| 7. Cyclical component of budget balance | 0.3 | -4.6 | -1.3 | 0.0 | -0.1 | 0.3 | 0.5 |
| 8. Cyclically adjusted budget balance | -1.9 | -5.0 | -6.0 | -5.1 | -3.3 | -3.8 | -3.7 |
| 9. Cyclically adjusted primary balance | 1.5 | -1.5 | -2.4 | -1.1 | 0.6 | -0.1 | 0.2 |
| 10. Structural budget balance (2) | -1.9 | -5.0 | -6.4 | -5.5 | -3.6 | -3.9 | -3.7 |
| 11. Structural primary balance (2) | 1.4 | -1.6 | -2.8 | -1.5 | 0.4 | -0.1 | 0.1 |
| 12. Change in structural budget balance | 0.4 | -3.1 | -1.4 | 0.9 | 1.9 | -0.3 | 0.2 |
| 13. Change in structural primary balance | 0.1 | -3.0 | -1.2 | 1.3 | 1.9 | -0.5 | 0.3 |
| Note: Any inaccuracies result from rounding. | Note: Any inaccuracies result from rounding. | Note: Any inaccuracies result from rounding. | Note: Any inaccuracies result from rounding. | Note: Any inaccuracies result from rounding. | Note: Any inaccuracies result from rounding. | Note: Any inaccuracies result from rounding. | Note: Any inaccuracies result from rounding. |
| (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The positive sign indicates deficit reducing one-off measures.<br> (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cyclically adjusted and net of one-off and other temporary measures. | (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The positive sign indicates deficit reducing one-off measures.<br> (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cyclically adjusted and net of one-off and other temporary measures. | (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The positive sign indicates deficit reducing one-off measures.<br> (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cyclically adjusted and net of one-off and other temporary measures. | (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The positive sign indicates deficit reducing one-off measures.<br> (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cyclically adjusted and net of one-off and other temporary measures. | (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The positive sign indicates deficit reducing one-off measures.<br> (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cyclically adjusted and net of one-off and other temporary measures. | (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The positive sign indicates deficit reducing one-off measures.<br> (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cyclically adjusted and net of one-off and other temporary measures. | (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The positive sign indicates deficit reducing one-off measures.<br> (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cyclically adjusted and net of one-off and other temporary measures. | (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The positive sign indicates deficit reducing one-off measures.<br> (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cyclically adjusted and net of one-off and other temporary measures. |

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **TABLE V.7: ONE-OFF MEASURES UNDER UNCHANGED LEGISLATION (EUR millions)** | **TABLE V.7: ONE-OFF MEASURES UNDER UNCHANGED LEGISLATION (EUR millions)** | **TABLE V.7: ONE-OFF MEASURES UNDER UNCHANGED LEGISLATION (EUR millions)** | **TABLE V.7: ONE-OFF MEASURES UNDER UNCHANGED LEGISLATION (EUR millions)** | **TABLE V.7: ONE-OFF MEASURES UNDER UNCHANGED LEGISLATION (EUR millions)** | **TABLE V.7: ONE-OFF MEASURES UNDER UNCHANGED LEGISLATION (EUR millions)** | **TABLE V.7: ONE-OFF MEASURES UNDER UNCHANGED LEGISLATION (EUR millions)** |
|  | **FINAL DATA** | **FINAL DATA** | **FORECASTS** | **FORECASTS** | **FORECASTS** | **FORECASTS** |
|  | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
|  Total one-off measures | 1147 | 7305 | 7959 | 4932 | 1393 | 877 |
|  *% of GDP* | 0.1 | 0.4 | 0.4 | 0.2 | 0.1 | 0.0 |
|  - a) Revenue | 2666 | 7350 | 6756 | 4407 | 924 | 408 |
|  *% of GDP* | 0.2 | 0.4 | 0.4 | 0.2 | 0.0 | 0.0 |
|  - Various substitute taxes | 1582 | 5637 | 5153 | 3524 | 516 | 0.0 |
|  - Aligning of balance sheet values to IAS principles | 423 | 572 | 409 | 408 | 408 | 408 |
|  - Foreign capital emersion ('voluntary disclosure') | 1 | 1 | 1 | 0 | 0 | 0 |
|  - Tax bill scrapping (1) | 660 | 1140 | 1193 | 475 | 0 | 0 |
|  - b) Expenditure | -2437 | -940 | -385 | -340 | -340 | -340 |
|  *% of GDP* | *-0.1* | *-0.1* | 0.0 | 0.0 | 0.0 | 0.0 |
|  - Interventions for natural disasters: | -962 | -940 | -385 | -340 | -340 | -340 |
|  - Reclassification of MPS operation | -1045 | 0 | 0 | 0 | 0 | 0 |
|  - Reclassification of Banca Popolare di Bari loan | -430 | 0 | 0 | 0 | 0 | 0 |
|  - c) Real estate disposals | 918 | 895 | 1589 | 865 | 809 | 809 |
|  *% of GDP* | 0.1 | 0.1 | 0.1 | 0.0 | 0.0 | 0.0 |
|  Breakdown by subsectors |  |  |  |  |  |  |
|  - Central government | 308 | 6505 | 6403 | 4100 | 617 | 101 |
|  - Local governments | 644 | 370 | 550 | 500 | 500 | 500 |
|  - Social security funds | 195 | 430 | 1006 | 332 | 276 | 276 |
| Note: The positive sign indicates deficit reducing one-off measures. | Note: The positive sign indicates deficit reducing one-off measures. | Note: The positive sign indicates deficit reducing one-off measures. | Note: The positive sign indicates deficit reducing one-off measures. | Note: The positive sign indicates deficit reducing one-off measures. | Note: The positive sign indicates deficit reducing one-off measures. | Note: The positive sign indicates deficit reducing one-off measures. |
| (1) Including the measures of D.L. No. 193/2016. D.L. No. 148/2017. D.L. No. 119/2018. | (1) Including the measures of D.L. No. 193/2016. D.L. No. 148/2017. D.L. No. 119/2018. | (1) Including the measures of D.L. No. 193/2016. D.L. No. 148/2017. D.L. No. 119/2018. | (1) Including the measures of D.L. No. 193/2016. D.L. No. 148/2017. D.L. No. 119/2018. | (1) Including the measures of D.L. No. 193/2016. D.L. No. 148/2017. D.L. No. 119/2018. | (1) Including the measures of D.L. No. 193/2016. D.L. No. 148/2017. D.L. No. 119/2018. | (1) Including the measures of D.L. No. 193/2016. D.L. No. 148/2017. D.L. No. 119/2018. |

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| MINISTRY OF ECONOMY AND FINANCE | **49** |

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The Update of the

ECONOMIC AND FINANCIAL DOCUMENT 2022

is available on-line

at the internet address listed below:

<u>www.mef.gov.it</u> <u>www.dt.tesoro.it/</u> <u>www.rgs.mef.gov.it</u>

ISSN 2240-3280

## Exhibit 99.7

**Exhibit (7)**

![](image00031.jpg)

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| | |
|:---|:---|
|  | **Update of the Economic**<br> **and Financial Document** |
|  | **2022** |
| ![](image00017.jpg) | **Revised and integrated** |

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| | |
|:---|:---|
|  | **Update of the Economic**<br> **and Financial Document** |
|  | **2022** |
|  | **Revised and integrated** |
|  | Submitted by Prime Minister |
|  | **Giorgia Meloni** |
|  | and Minister of the Economy and Finance |
|  | **Giancarlo Giorgetti** |
| ![](image00017.jpg) | Approved by the Council of ministers on 4 November 2022 |

---

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### FOREWORD

*This Update of the Economic and Financial Document revises and integrates the update approved by the previous government on 28 September, which contained the updated macroeconomic and public finance forecasts under existing legislation, leaving to the future government the task of developing the policy scenario.*

*The Italian government therefore decided to immediately draft a new version of the Update in order to enable the new Parliament to analyse and debate an integrated economic and public finance framework, complete with a new policy scenario, and adopt a resolution on the same and on the proposed budget balances. This initial step will then be followed, in quick succession, by the update of the Draft Budgetary Plan, to be sent to the European Commission, and the 2023 Budget Law.*

*The economic scenario has in fact changed compared to the end of September: recent trends in the economy were better than expected, with GDP increasing, against all expectations, by 0.5 percent in the third quarter compared to the previous period, bringing the growth forecast for this year (on average quarterly data) to 3.9 percent. Additionally, although consumer inflation did unfortunately rise, the wholesale price of natural gas recently fell both at the European level and, to a greater extent, in the Italian market, suggesting a temporary relief for the economy in the immediate future. On the other hand, the expectations of businesses and households, and the estimates of domestic and international forecasters on the future performance of the economy, deteriorated considerably. The risk of a cyclical downturn is increased by large rate hikes at major central banks as a response to inflation data, which have an impact on household and corporate balance sheets.*

*On this basis, it was inevitable to update not only the macroeconomic and public finance policy scenario for 2022-2025, but also the baseline existing legislation forecast on which it is based. The GDP growth forecast in the scenario under existing legislation was revised upward for 2022, from 3.3 percent to 3.7 percent, while the forecast for 2023 was revised downward from 0.6 percent to 0.3 percent. The forecasts for the following two years, on the other hand, remained unchanged at 1.8 percent and 1.5 percent, respectively. The recent surge in inflation, together with the update of the exogenous variables, led also to an upward revision of the GDP deflator, resulting in the projected levels of nominal GDP for 2022 and the following years being higher than in the September forecast, with a positive impact on public finance forecasts.*

*The new estimates of the deficit under existing legislation scenario are consistent with those of the September version of the Update for 2022 and 2023, with net borrowing projected at 5.1 percent of GDP and 3.4 percent of GDP, respectively. On the other hand, there is a slight upward revision of the deficit*<br>

MINISTRY OF ECONOMY AND FINANCE I

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  <u> UPDATE OF THEECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

*forecasts for 2024, from 3.5 percent to 3.6 percent of GDP, and for 2025, from 3.2 percent to 3.3 percent, mainly due to higher interest charges on public debt caused by the recent rise in market yields.*

*Although energy prices have recently decreased, they remain at very high levels and risk spiking again during the winter months. Moreover, Italy's gas supply depends mainly on import flows subject to various risks under the current geopolitical situation.*

*Against this scenario, the Italian government's priority objective remained that of limiting as much as possible the impact of high energy prices on the budgets of households, especially the most fragile ones, as well as ensuring the survival and competitiveness of Italian companies both globally and in the European context, also in light of the substantial measures recently announced by other EU and non-EU countries.*

*This is why the Government decided to confirm the 2022 deficit target of 5.6 percent of GDP set out in the Economic and Financial Document and to use a majority share of the resulting budget margin, amounting to just over nine billion, to fund new measures to mitigate the cost of energy, such as the reintroduction of tax credits for companies and the cut in excise duties on fuels until 31 December.*

*With regard to the 2023-2025 manoeuvre, given the high level of uncertainty in the economic scenario and the need to continue countering high energy prices, the Italian government decided to use the Report attached to this document to request Parliament's authorisation to set a new policy course for the general government net borrowing. The new deficit-to-GDP policy levels are set at 4.5 percent for 2023, 3.7 percent for 2024 and 3.0 percent for 2025.*

*The resources for the net measures will be used to counter high energy prices in the first months of 2023.*

*The evolution of energy prices and their impact on businesses and households will be continuously monitored in early 2023. By the time the next Economic and Financial Document is drawn up, it will be assessed whether there is a need for further measures to lower energy prices and support businesses and households, and how such measures should be financed.*

*In the policy scenario, the real GDP growth rate is 0.6 percent in 2023, rising to 1.9 percent in 2024 and 1.3 percent in 2025.*

*Compared to the estimate under existing legislation, the higher growth in 2023 is mainly due to household consumption, which, boosted by an increase in nominal disposable income and the reduction in consumer inflation caused by the measures to lower prices, will increase by 1.0 percent in 2023 and 1.6 percent in 2024.*

*The work to prepare the budget law will proceed at a steady pace in the coming days, so that the 2023 draft budget law can be delivered to Parliament as soon as possible.*

*The Government's approach is based on the need to respond decisively to the energy crisis and soaring inflation and to protect the most economically fragile households and Italian businesses and the jobs they create. A strong effort will also be made to implement the Recovery and Resilience Plan, on which huge investments to relaunch the sustainable growth of the Italian economy depend.*

*With ambition, pragmatism, and prudence, the budget law will lay the foundations to overcome the complicated challenges faced in recent years and*<br>

II MINISTRY OF ECONOMY AND FINANCE

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FOREWORD<br>

*fulfil the hopes of citizens. This, however, without losing sight of the sustainability of public finance, as confirmed by the decline in the debt-to-GDP ratio from around 150 percent in 2021 to just over 141 percent in 2025 as envisaged by this document.*

*Giancarlo Giorgetti*

*Minister of Economy and Finance*

MINISTRY OF ECONOMY AND FINANCE III

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

IV MINISTRY OF ECONOMY AND FINANCE

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  <u> UPDATE OF THEECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

#### INDEX

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| | |
|:---|:---|
| **I.**  | **UPDATE OF THE MACROECONOMIC AND PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION**  |
| I.1 | Recent developments in macroeconomic and public finance variables |
| I.2 | Update of the macroeconomic scenario under existing legislation |
| I.3 | Public finance measures adopted after the publication of the 2022 Update |
| I.4 | Update of the public finance scenario under existing legislation |
| II. | **PUBLIC FINANCE AND MACROECONOMIC POLICY SCENARIO** |
| II.1 | Additional measures for 2022 and the 2023-25 manoeuvre |
| II.2 | Macroeconomic policy scenario |
| III. | **STRUCTURAL BALANCES AND DEBT-TO-GDP RATIO** |
| III.1 | Expected evolution of structural balances and the expenditure rule |
| III.2 | Evolution of the debt-to-GDP ratio |
| III.3 | The debt rule and other relevant factors |

---

MINISTRY OF ECONOMY AND FINANCE V

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

VI MINISTRY OF ECONOMY AND FINANCE

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&nbsp;&nbsp;&nbsp;&nbsp;**I.** **UPDATE OF THE MACROECONOMIC AND PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION** 

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|:---|:---|
| **I.1** | **RECENT DEVELOPMENTS IN MACROECONOMIC AND PUBLIC FINANCE VARIABLES** |

---

According to the latest estimates released by ISTAT, GDP growth decelerated in the third quarter of the year, but contrary to the expectations of all forecasters, it remained positive. Indeed, after the cyclical 1.1 percent increase recorded in the second quarter, GDP rose by 0.5 percent in the summer quarter compared to the previous quarter. The resilience of the economy in the summer months was the result of a strong contribution from services, while manufacturing and construction experienced a moderate contraction in value added.

![](image00032.jpg)

Thanks to the good performance levels reached in the third quarter, the acquired growth for the current year is 3.9 percent on average quarterly data, 4 tenths of a percentage point higher than the figure available at the time of the Update of the 2022 Economic and Financial Document (Update)<sup>1</sup>. Despite the<br>

### ___

<sup>1</sup> Data adjusted for calendar effects. In detail, the acquired change was revised upwards by one tenth of percentage point with the revision of the quarterly economic accounts of 5 October 2022, to which three tenth of a percentage point were added with the preliminary estimate for the third quarter released by ISTAT on 31 October 2022.

MINISTRY OF ECONOMY AND FINANCE 1

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

persistence of significant downside risks for the final part of the year, which are linked to the intensification of inflationary tensions and the weakening of the international economic cycle, as already outlined in the September Update, the GDP growth forecast for 2022 has risen to 3.7 percent, from the 3.3 percent projected in the Update of 28 September<sup>2</sup>.

Coinciding with a phase of substantial stability in crude oil prices, the domestic price of natural gas has recently fallen sharply from its peak in August. Although it is still at historically high levels, the price at the end of October practically cancelled out the increases seen in July and August. Moreover, due to the high level of storage reached at the end of September and the above-average temperatures that contributed to reducing the demand for gas, the price on the Italian virtual market was lower than that traded on the European reference market TTF.

In this context, the increase in natural gas prices during the summer pushed up the growth in energy import prices to 111 percent over the same period last year, which was passed on to producer prices (+41.8 percent in September) and consumer inflation in October. According to the Harmonised Index of Consumer Prices, the latter reached a new peak of 12.8 percent, up from 9.4 percent in September. Both unregulated and regulated energy prices contributed significantly to this increase. In particular, for the latter, the price of the electricity component of the protected market was 59 percent higher in October than in the previous quarter.

![](image00033.jpg)

On the other hand, the estimate of the price of natural gas in October may not include the actual reduction, as October will see ARERA begin to communicate the price for the protected market only at the beginning of the following month, since it is equal to the average of the spot prices recorded for the reference month. The

<sup>2</sup> The corresponding forecasts for the average quarterly data are 3.4 percent for the September Update and 3.8 percent for the current version.

2 MINISTRY OF ECONOMY AND FINANCE

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I. UPDATE OF THE MACROECONOMIC AND PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION<br>

spread of the price increase to the other index components brought core inflation (net of energy and fresh food) to 5.7 percent, again according to the harmonised index.

However, the surprisingly positive performance of economic activity in the third quarter was part of a macroeconomic context burdened by the worsening of qualitative indicators, as already foreshadowed in the Update at the end of September: information from the ISTAT surveys on business and consumer confidence continues to paint a picture dominated by uncertainty and deteriorating expectations, which is also reflected in the evolution of the PMI indexes, which have been below the expansion threshold since July.

![](image00034.jpg)

Despite the fact that the qualitative information pointed to a downturn scenario for the third quarter, the dynamics of the quantitative indicators were consistent with the context of substantially stable activity: in August, the seasonally adjusted index of industrial production recorded a new, unexpected economic increase (2.3 percent m/m; up from 0.5 percent in July), accompanied by the robust recovery of construction production (2.7 percent m/m) after two months of economic decline.

However, expectations of a slowdown in the economic cycle at a global level also persisted for October, with a downward revision of the most recent forecasts of national and international bodies dictated by persistent inflationary tensions and the decisive response of central banks.

Indeed, despite the restrictive monetary policy of the Federal Reserve, which on 2 November raised reference rates by 75 basis points for the fourth time in a row, the pressure on prices in the United States is hardly diminishing, especially if we consider price trends net of the energy and food components. While the overall index has slowed in recent months, reaching a growth rate of 8.2 percent in September (from a peak of 9.1 percent in June), the core component accelerates, reaching a trend growth rate of 6.6 percent.

MINISTRY OF ECONOMY AND FINANCE 3

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

Although underlying inflationary pressures continued to grow, US consumer spending increased more than expected in September. Together with the acceleration in exports and the recovery in overall government spending, the consumption trend contributed to the recovery in GDP, which grew at an annualised rate of 2.6 percent in the third quarter over the previous period, rebounding from the contraction in the previous two quarters (-1.6 percent and -0.6 percent q/q, respectively). Signs of weakening came instead from private investment, which declined for the second consecutive quarter despite the increase in non-residential and machinery investment. However, in spite of the positive GDP figure, the growth profile of final demand in the US declined over the course of the year, while inventories increased.

The US labour market is starting to feel the effects of weakening domestic demand. The drop in the unemployment rate to 3.5 percent in September is the result of a stagnation in the employment rate (which has remained unchanged at 60.1 percent for two months) and a slight reduction in the participation rate; the two rates are still 1.1 percentage points below pre-pandemic levels.

The most recent qualitative surveys show a general weakening of the US economic scenario due to the impact of inflation on household purchasing power and rising interest rates.

![](image00035.jpg)

The latest statistics on economic growth also confirm that the European economy is holding up, even though expectations for the second half of the year were pointing towards a slowdown in the cyclical phase. In the Euro Area, cyclical variation in GDP in the third quarter of the year was positive (0.2 percent) but slower than in the first two quarters of the year, with a trend variation of 2.1 percent.

The labour market continued to respond promptly to the economic cycle, with the unemployment rate standing at 6.6 percent in August - a historically low level

4 MINISTRY OF ECONOMY AND FINANCE

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I. UPDATE OF THE MACROECONOMIC AND PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION<br>

since the introduction of the euro. Despite this, going forward, it is believed that the weakening economy could lead to a turnaround in the labour market.

On the supply side, the Eurozone energy crisis remains the main concern of companies and a drag on activity, especially in energy-intensive sectors. Although production indexes in the Eurozone and in the main European economies showed a good degree of resilience in August - with the exception of Germany - industrial activity appears to have been affected by a downturn in demand, also linked to the sharp rise in producer prices. Economic surveys at the beginning of the quarter report a contraction in production levels and an increase in goods in stock. This backdrop is more strongly felt in European manufacturing, particularly in the sectors most exposed to energy price volatility, and in the services sector, due to lower demand induced by the rise in the cost of living and the tightening of economic conditions.

Indeed, commodity prices, especially those of energy, still exert strong upward pressure on the entire supply chain. Producer prices in August rose by 43.3 percent year on year and contributed to the rise in consumer prices, which in October accelerated to 10.7 percent year on year due mainly to the boost of energy and fresh food prices. However, core inflation also rose to 6.4 percent from 6.0 percent in September<sup>3</sup>.

In the face of rising inflation, the tightening of monetary policy by the European Central Bank (ECB) continues. The Governing Council has raised key interest rates by 2 percentage points in the last three meetings and introduced measures to reduce excess reserves in the banking system. These ECB actions resulted in a significant increase in euro market rates, which will not fail to have a depressive effect on GDP growth in the area.

On the public finance front, the institutional sector accounts published by ISTAT indicate a sharp reduction in the general government net borrowing in the first quarter, to 9.0 percent of GDP from 12.8 percent in the corresponding period of 2021 (in non-seasonally adjusted terms)<sup>4</sup> and 3.1 percent of GDP in the second quarter, up from 7.2 percent in the same quarter last year.

The revenue trend was particularly positive in the first eight months of the year, with tax revenues increasing by 14.7 percent and social security contributions by 7.8 percent<sup>5</sup>.

A marked improvement in public finance is also signalled by the central government cash requirement, which amounted to 56.5 billion in the first ten months of the year - an improvement of about 36.8 billion compared to 93.3 billion in the same period last year. Even excluding the grants received in August 2021 and April 2022 from the Recovery and Resilience Facility from the comparison, the reduction in cash requirement in the first ten months of the year amounted to 35.7 billion (a drop of about 35 percent). This is a very positive result also in light of the allocation of public resources for measure to lower energy prices and to aid businesses and households implemented during this period.

<sup>3</sup> The data in the paragraph is from Eurostat.

<sup>4</sup> Except for 2020 - a year out of the norm in that it was marked by the first phase of the pandemic and massive fiscal policy interventions - the first quarter normally records the highest levels of net borrowing for the whole year. As mentioned in the text, the quarterly net borrowing data are not seasonally adjusted.

<sup>5</sup> Report on tax and social security contributions revenue, January to August 2022, of the Department of Finance and the State General Accounting Department.

MINISTRY OF ECONOMY AND FINANCE 5

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

![](image00036.jpg)

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|:---|:---|
| **I.2** | **UPDATE OF THE MACROECONOMIC SCENARIO UNDER EXISTING LEGISLATION** |

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The GDP growth forecast for the current year has improved from the September Update, going from 3.3 percent to 3.7 percent. For 2023, on the other hand, a loss of momentum in activity is projected, with GDP growth revised downwards to 0.3 percent - from 0.6 percent. For 2024-2025, the end-September forecast is confirmed at 1.8 percent and 1.5 percent, respectively.

Nominal GDP growth has been revised upward: for 2022, the higher nominal GDP growth rate entirely reflects the improvement in the real component, while in 2023 it reflects an upward revision of GDP deflator growth that is more pronounced than the decline in real GDP.

In detail, the improvement in the forecast for 2022 stems from a more buoyant performance of activity in the third quarter than foreshadowed in the September Update. On the other hand, the most up-to-date internal assessments project a negative change in GDP for the last quarter of the year, which would result from a cyclical retreat in the value added of industry and a slowdown in the growth of services.

Nevertheless, the dynamics of activity in the second half of the year would exert a non-negligible carryover on 2023, amounting to 0.3 percent, 0.2 percentage points higher than the September forecast. In the new existing legislation scenario, the expectation of a further cyclical downturn in activity in the first quarter of 2023 is confirmed, as driven mainly by the weakening in household consumption, also considering the fact that the existing legislation scenario takes into account the discontinuation of the measures to lower energy costs for businesses and households.

6 MINISTRY OF ECONOMY AND FINANCE

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I. UPDATE OF THE MACROECONOMIC AND PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION<br>

![](image00037.jpg)

Starting in the second quarter of next year, cyclical GDP growth is expected to pick up, as supported by the fall in the price of natural gas and a subsequent slowdown in inflation, as well as by the improved outlook for the global economy and the boost provided by the investments of the Recovery and Resilience Plan (RRP). It should be noted that the recovery profile foreshadowed from the second quarter of 2023 onwards is in any case moderate and reflects conservative assessments in light of the many energy and geopolitical uncertainty factors, primarily the average gas price level also as a reflection of temperatures and consumption during the winter.

The downgrading of GDP growth in 2023 compared to the September Update by 0.3 percentage points is consistent with changes in the main exogenous variables of the forecast.

In particular, while recent futures price levels for natural gas and oil are less unfavourable compared to September, the euro exchange rate is less competitive, interest rates and expected yields are higher and Oxford Economics' forecast of world trade developments exerts a larger negative impact on growth, such that a total of 0.3 percentage points is subtracted from the real GDP expansion rate.

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| | | | | |
|:---|:---|:---|:---|:---|
| **TABLE I.1: EFFECTS ON GDP OF THE UPDATE OF THE INTERNATIONAL SCENARIO IN COMPARISON WITH THE UPDATE OF 28 SEPTEMBER 2022 (impact on growth rates)** | **TABLE I.1: EFFECTS ON GDP OF THE UPDATE OF THE INTERNATIONAL SCENARIO IN COMPARISON WITH THE UPDATE OF 28 SEPTEMBER 2022 (impact on growth rates)** | **TABLE I.1: EFFECTS ON GDP OF THE UPDATE OF THE INTERNATIONAL SCENARIO IN COMPARISON WITH THE UPDATE OF 28 SEPTEMBER 2022 (impact on growth rates)** | **TABLE I.1: EFFECTS ON GDP OF THE UPDATE OF THE INTERNATIONAL SCENARIO IN COMPARISON WITH THE UPDATE OF 28 SEPTEMBER 2022 (impact on growth rates)** | **TABLE I.1: EFFECTS ON GDP OF THE UPDATE OF THE INTERNATIONAL SCENARIO IN COMPARISON WITH THE UPDATE OF 28 SEPTEMBER 2022 (impact on growth rates)** |
| | **2022** | **2023** | **2024** | **2025** |
| 1. World trade | 0.0 | -0.2 | 0.0 | 0.1 |
| 2. Oil and gas prices | 0.0 | 0.1 | 0.0 | -0.1 |
| 3. Nominal effective exchange rate | 0.0 | -0.1 | 0.0 | 0.0 |
| 4. Interest rate assumptions | 0.0 | -0.1 | 0.0 | 0.0 |
| Total | 0.0 | -0.3 | 0.0 | 0.0 |

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Compared to the previous forecast, the new existing legislation scenario shows differences in the dynamics and composition of domestic demand, price

MINISTRY OF ECONOMY AND FINANCE 7

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

developments and foreign trade. The worsening of the contribution to growth made by domestic demand in 2023 - due to the lower growth rate of consumption and investment - is accompanied by a downward revision of exports consistent with the worsening of world trade projections.

In a context in which the latest inflation data showed an unexpected acceleration in October and a significant persistence of the core component, the GDP and consumption deflators dynamics were revised upward: while the GDP deflator is unchanged in 2022 with respect to the September Update due to the combined effect of a downward revision of the quarterly economic accounts and the prospects for greater dynamics in the second half of the year, the consumption deflator is raised to 7.0 percent (from 6.6 percent).

In 2023, on the other hand, the GDP and consumption deflators are projected to rise to 4.2 percent (from 3.7 percent) and 5.9 percent (from 4.5 percent previously), respectively, and then remain essentially unchanged in the 2024-2025 period.

The inflation rate is expected to show signs of easing from the beginning of 2023, as price index levels, especially energy prices, will compare with the already very high levels in early 2022. The core inflation component is expected to be more persistent than the overall index, due to the lags in the adjustment of prices of other goods and services, albeit it embarks on a path of gradual deceleration later next year. Consistent with this inflation scenario, the trend of labour costs per full-time equivalent in the private sector in 2023 is projected to be slightly higher than in the previous forecast (3.9 percent from 3.7 percent), also as a result of the time lag between the increase in inflation and the consequent adjustment of contractual wages.

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|:---|:---|:---|:---|:---|:---|
| TABLE I.2: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (% changes, except where otherwise specified) | TABLE I.2: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (% changes, except where otherwise specified) | TABLE I.2: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (% changes, except where otherwise specified) | TABLE I.2: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (% changes, except where otherwise specified) | TABLE I.2: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (% changes, except where otherwise specified) | TABLE I.2: SYNTHETIC MACROECONOMIC FRAMEWORK UNDER EXISTING LEGISLATION (1) (% changes, except where otherwise specified) |
|  | **2021** | **2022** | **2023** | **2024** | **2025** |
| GDP | 6.7 | 3.7 | 0.3 | 1.8 | 1.5 |
| GDP deflator | 0.5 | 3.0 | 4.2 | 2.5 | 2.0 |
| Consumption deflator | 1.6 | 7.0 | 5.9 | 2.3 | 2.0 |
| Nominal GDP | 7.3 | 6.8 | 4.6 | 4.3 | 3.6 |
| Employment (FTEs) (2) | 7.6 | 4.5 | 0.2 | 1.1 | 1.0 |
| Employment (LF) (3) | 0.8 | 2.3 | 0.2 | 0.9 | 0.8 |
| Unemployment rate | 9.5 | 8.1 | 8.0 | 7.7 | 7.5 |
| Labour costs per FTE (4) | 0.9 | 3.4 | 3.9 | 3.4 | 2.8 |
| Current account balance (% of GDP) | 3.1 | -0.5 | -0.2 | 0.3 | 0.9 |
| (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs).<br> (3) Number of employed people according to the Labour Force Survey (LFS).<br> (4) Private sector. |

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On the labour market front, employment picked up again in September, and the unemployment rate stood at 7.9 percent, unchanged from August and at its lowest level since 2009. In response to the expected loss of momentum in economic activity, employment dynamics were adjusted slightly downwards for the year 2023. Nevertheless, also due to labour force developments, the forecast of the

8 MINISTRY OF ECONOMY AND FINANCE

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I. UPDATE OF THE MACROECONOMIC AND PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION<br>

unemployment rate has been revised slightly downwards compared to the September Update in 2022 (8.1 percent, -0.1 percentage points) and is confirmed at 8.0 percent in 2023, 7.7 percent in 2024 and 7.5 percent in 2025.

The current account balance of the balance of payments is projected to be in deficit in 2022 and 2023, before returning to a small surplus in the following two years mainly due to the expected decline in energy prices. Compared to the September Update, the current account deficit in 2022 has been revised in improvement (from -0.8 percent to -0.5 percent) also due to a revision of the 2021 figure (from 2.4 percent to 3.1 percent).

The new existing legislation macroeconomic forecast for 2022 and 2023 was validated by the Parliamentary Budget Office in a note dated 4 November 2022, at the end of the interlocutions provided for in the UPB-MEF Memorandum of Understanding of 13 May 2022.

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| **I.3** | **PUBLIC FINANCE MEASURES ADOPTED AFTER THE PUBLICATION OF THE 2022 UPDATE** |

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The continuation of the energy crisis has made it necessary to further extend the measures concerning the reduction of excise duty rates on energy products used as fuels, including liquefied petroleum gases, the exemption from excise duty for natural gas used as motor fuel, and the reduction of the VAT rate to 5 percent for the supply of natural gas used as motor fuel, which were provided for by previous measures taken in 2022. These measures were arranged by the Ministerial Decree of 19 October 2022<sup>6</sup> for the period 1-3 November 2022 (with an effect of approximately 93 million in 2022) and by decree-law No. 153/2022<sup>7</sup> for the period 4-18 November 2022 (with burdens of approximately 465 million in 2022 and 21 million in 2024).

These extensions do not entail a worsening of the general government deficit, as the related financial effects are offset through the use of higher VAT revenues, deriving from the changes in the international price of crude oil recorded in the period from 1 September to 13 October 2022, as well as through the reduction and rationalisation of funds and expenditure in the State budget.

As a result of these measures, the gross amount of the measures to counter high energy prices adopted so far in 2022 can now be quantified at approximately 57.6 billion (3.0 percent of GDP), including the 3.8 billion originally allocated in the 2022 budget law. Temporary measures targeted at households and businesses most vulnerable to energy price increases account for about 46.1 percent of this amount. The size of the package remains stable at about 402 million in 2023, while the estimate rises slightly, from 207 million to 228 million, for 2024.

<sup>6</sup> Ministerial decree No. 247 of 19 October 2022 on measures concerning the 'Reduction of taxes on certain energy products used as fuels, period 1 - 3 November 2022', published in the Official Journal on 21 October 2022.

<sup>7</sup> Decree law No. 153 of 20 October 2022, on 'Urgent measures on excise duties and VAT on fuels'.

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| **I.4** | **UPDATE OF THE PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION** |

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The update of the public finance scenario under existing legislation takes into account the most up-to-date information available at the time this document was prepared, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the revision of existing legislation macroeconomic forecasts compared to the September Update;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the emergency measures to counter the economic repercussions of rising energy prices introduced by the above-mentioned decrees of 19 and 20 October.

In 2022 and 2023, the deficit-to-GDP ratio under existing legislation is expected to be 5.1 percent and 3.4 percent, respectively, confirming the September forecast.

In the following two years, the deficit-to-GDP ratio is projected to 3.6 percent in 2024 (3.5 percent in the September Update) and 3.3 percent in 2025 (3.2 percent in the September Update).

The projections for the general government account take into account the acceleration in inflation recorded in September and October first and then the subsequent upward revision of forecasts for the coming years, which impact on social benefit expenditure and inflation-indexed debt service. In addition, the expected interest rates used for the forecast were revised upwards as a result of developments in the market environment this past month, also following the latest ECB monetary policy decisions. As a result, the forecast of interest expenditure has increased by about 2 billion in 2022, 3.6 billion in 2023, 2.6 billion in 2024 and 4.7 billion in 2025 compared to the September Update. As a result of these increases and the new expected level of nominal GDP, which is also higher than in the September forecast, the profile of interest expenditure as a ratio of GDP shows only modest increases, ranging between 0.1 and 0.2 percentage points. The ratio of interest expenditure to GDP is now expected to rise to 4.1 percent in 2022, remain constant in 2023, fall to 3.9 percent in 2024 and stand at 4.0 percent in 2025.

Beyond the upward revision of interest expenditure, public finance trends continue to be positive, due to growth in tax revenues that will offset upward revisions to primary expenditure. In the years 2023-2025, the primary balance will therefore be slightly better than in September. Specifically, a primary surplus of 0.7 percent of GDP is projected in 2023 (0.5 percent projected in September), 0.2 percent in 2024 and 0.8 percent in 2025 (0.7 percent projected in September). The improvement in the primary balance forecast compared to the September forecast offsets, entirely in 2023 and partially in 2025, the deterioration in interest expenditure, thus limiting the upward revision of the deficit forecast.

On the primary expenditure side, the forecast of pension expenditure is increased by around 0.6 billion in 2023 and by around 7.1 billion in 2024 compared to the September Update existing legislation scenario. These higher burdens are substantially related to the different pension indexation assumptions following the revision of the forecast profile of the inflation rate.

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I. UPDATE OF THE MACROECONOMIC AND PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION<br>

The increases in nominal pension expenditure compared to the September forecast are about 5.6 billion in structural terms in 2025. The increase in 2025 is about 6 billion for total expenditure on cash benefits.

The combined effect of these increases and the expected new level of nominal GDP leads to a slightly higher profile of pension expenditure as a share of GDP than in September. After reaching a level of 16.6 percent of GDP in 2024, the ratio of pensions to GDP will stand at 16.5 percent in 2025, compared to the 16.4 percent projected for both years in September.

On the revenue side, the dynamics of tax revenues are stronger than expected in September, thanks to the higher nominal growth expected for the main macroeconomic aggregates<sup>8</sup>.

In 2023, indirect taxes are expected to grow at a rate that is more than one percentage point higher than the September forecast (+10.4 percent compared to +9.2 percent in September), while an average growth rate of +2.7 percent is confirmed for the following two-year period.

For direct taxes, greater dynamism is expected in the 2024-2025 period, in which this type of revenue is expected to grow at an average rate of +3.1 percent (+2.7 percent in September). The updated forecast takes into account, among other things, the new growth forecast for pension amounts, which has been updated to take into account the inflation-linked revaluation expected under the new macroeconomic scenario.

The trend in social security contributions remains broadly in line with the September Update forecast under existing legislation.

In light of the above elements, in 2022 the tax burden under existing legislation will rise to 43.8 percent of GDP, a level 0.1 percentage points lower than the September forecast. From 2023 to 2025, an average decline of about 0.4 GDP points per year is expected, to reach 42.5 percent of GDP at the end of the period.

<sup>8</sup> The revenue forecast incorporates the effects of the extension of the reduction of excise duties and VAT on fuels until 18 November 2022.

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|:---|:---|:---|:---|:---|:---|
| **TABLE I.3A: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (EUR millions)** | **TABLE I.3A: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (EUR millions)** | **TABLE I.3A: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (EUR millions)** | **TABLE I.3A: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (EUR millions)** | **TABLE I.3A: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (EUR millions)** | **TABLE I.3A: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (EUR millions)** |
| | **2021** | **2022** | **2023** | **2024** | **2025** |
| COMPONENTS OF EXPENDITURE |  |  |  |  |  |
| Compensation of employees | 176548 | 188236 | 187104 | 185238 | 186053 |
| Intermediate consumption | 157228 | 166930 | 165593 | 162839 | 163506 |
| Social benefits | 397905 | 409220 | 428270 | 453610 | 464530 |
| of which: Pensions | 286280 | 297350 | 321390 | 345380 | 355420 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other social benefits | 111625 | 111870 | 106880 | 108230 | 109110 |
| Other current expenditure | 82562 | 106374 | 89345 | 87067 | 86350 |
| Total current expenditure net of interest | 814243 | 870760 | 870312 | 888754 | 900438 |
| Interest expenditure | 63753 | 77234 | 81559 | 80325 | 87098 |
| Total current expenditure | 877996 | 947994 | 951871 | 969079 | 987536 |
| of which: Health expenditure | 127834 | 133998 | 131724 | 128708 | 129428 |
| Total capital expenditure | 108172 | 81707 | 100753 | 94728 | 101617 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross fixed capital formation | 50846 | 49035 | 66072 | 72513 | 78503 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital contributions | 21952 | 22629 | 26964 | 18002 | 18862 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other transfers | 35374 | 10043 | 7718 | 4213 | 4252 |
| Total final expenditure net of interest | 922415 | 952467 | 971065 | 983482 | 1002055 |
| Total final expenditure | 986168 | 1029701 | 1052624 | 1063807 | 1089153 |
| COMPONENTS OF REVENUE |  |  |  |  |  |
| Total tax revenue | 527629 | 568435 | 584079 | 596784 | 618150 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Direct Taxes | 267492 | 284456 | 274445 | 280008 | 291663 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Indirect Taxes | 258539 | 279146 | 308195 | 315322 | 325019 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital Taxes | 1598 | 4833 | 1439 | 1454 | 1468 |
| Social contributions | 244988 | 264341 | 280040 | 287588 | 296234 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Actual contributions | 240501 | 259560 | 275185 | 282659 | 291204 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Imputed contributions | 4487 | 4781 | 4855 | 4929 | 5030 |
| Other current revenue | 78386 | 89654 | 95814 | 90961 | 91861 |
| Total current revenue | 849405 | 917596 | 958494 | 973878 | 1004777 |
| Non-tax capital revenue | 6263 | 9717 | 24140 | 13019 | 12793 |
| Total final revenue | 857266 | 932146 | 984073 | 988351 | 1019037 |
| *p.m. Tax burden* | 43.4 | 43.8 | 43.4 | 42.6 | 42.5 |
| BALANCES |  |  |  |  |  |
| Primary balance | -65149 | -20321 | 13008 | 4869 | 16982 |
| *% of GDP* | *-3.7* | *-1.1* | 0.7 | 0.2 | 0.8 |
| Current balance | -28591 | -30398 | 6623 | 4800 | 17240 |
| *% of GDP* | *-1.6* | *-1.6* | 0.3 | 0.2 | 0.8 |
| Net borrowing | -128902 | -97555 | -68551 | -75456 | -70116 |
| *% of GDP* | *-7.2* | *-5.1* | *-3.4* | *-3.6* | *-3.3* |
| Nominal GDP under existing legislation (x 1,000) | 1782.1 | 1903.3 | 1990.2 | 2076.5 | 2151.0 |
| Note: Any inaccuracies are due to rounding. |  |  |  |  |  |

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12 MINISTRY OF ECONOMY AND FINANCE

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I. UPDATE OF THE MACROECONOMIC AND PUBLIC FINANCE SCENARIO UNDER EXISTING LEGISLATION<br>

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|:---|:---|:---|:---|:---|:---|
| **TABLE I.3B: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (% of GDP)** | **TABLE I.3B: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (% of GDP)** | **TABLE I.3B: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (% of GDP)** | **TABLE I.3B: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (% of GDP)** | **TABLE I.3B: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (% of GDP)** | **TABLE I.3B: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (% of GDP)** |
| | **2021** | **2022** | **2023** | **2024** | **2025** |
| COMPONENTS OF EXPENDITURE |  |  |  |  |  |
| Compensation of employees | 9.9 | 9.9 | 9.4 | 8.9 | 8.6 |
| Intermediate consumption | 8.8 | 8.8 | 8.3 | 7.8 | 7.6 |
| Social benefits | 22.3 | 21.5 | 21.5 | 21.8 | 21.6 |
| of which: Pensions | 16.1 | 15.6 | 16.1 | 16.6 | 16.5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other social benefits | 6.3 | 5.9 | 5.4 | 5.2 | 5.1 |
| Other current expenditure | 4.6 | 5.6 | 4.5 | 4.2 | 4.0 |
| Total current expenditure net of interest | 45.7 | 45.7 | 43.7 | 42.8 | 41.9 |
| Interest expenditure | 3.6 | 4.1 | 4.1 | 3.9 | 4.0 |
| Total current expenditure | 49.3 | 49.8 | 47.8 | 46.7 | 45.9 |
| of which: Health expenditure | 7.2 | 7.0 | 6.6 | 6.2 | 6.0 |
| Total capital expenditure | 6.1 | 4.3 | 5.1 | 4.6 | 4.7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross fixed capital formation | 2.9 | 2.6 | 3.3 | 3.5 | 3.6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital contributions | 1.2 | 1.2 | 1.4 | 0.9 | 0.9 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other transfers | 2.0 | 0.5 | 0.4 | 0.2 | 0.2 |
| Total final expenditure net of interest | 51.8 | 50.0 | 48.8 | 47.4 | 46.6 |
| Total final expenditure | 55.3 | 54.1 | 52.9 | 51.2 | 50.6 |
| COMPONENTS OF REVENUE |  |  |  |  |  |
| Total tax revenue | 29.6 | 29.9 | 29.3 | 28.7 | 28.7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Direct Taxes | 15.0 | 14.9 | 13.8 | 13.5 | 13.6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Indirect Taxes | 14.5 | 14.7 | 15.5 | 15.2 | 15.1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital Taxes | 0.1 | 0.3 | 0.1 | 0.1 | 0.1 |
| Social contributions | 13.7 | 13.9 | 14.1 | 13.8 | 13.8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Actual contributions | 13.5 | 13.6 | 13.8 | 13.6 | 13.5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Imputed contributions | 0.3 | 0.3 | 0.2 | 0.2 | 0.2 |
| Other current income | 4.4 | 4.7 | 4.8 | 4.4 | 4.3 |
| Total current revenue | 47.7 | 48.2 | 48.2 | 46.9 | 46.7 |
| Non-tax capital revenue | 0.4 | 0.5 | 1.2 | 0.6 | 0.6 |
| Total final revenue | 48.1 | 49.0 | 49.4 | 47.6 | 47.4 |
| *p.m. Tax burden* | 43.4 | 43.8 | 43.4 | 42.6 | 42.5 |
| BALANCES |  |  |  |  |  |
| Primary balance | -3.7 | -1.1 | 0.7 | 0.2 | 0.8 |
| Current balance | -1.6 | -1.6 | 0.3 | 0.2 | 0.8 |
| Net borrowing | -7.2 | -5.1 | -3.4 | -3.6 | -3.3 |
| Note: Ratios to GDP are calculated on the existing legislation scenario forecasts. Any inaccuracies are due to rounding. | Note: Ratios to GDP are calculated on the existing legislation scenario forecasts. Any inaccuracies are due to rounding. | Note: Ratios to GDP are calculated on the existing legislation scenario forecasts. Any inaccuracies are due to rounding. | Note: Ratios to GDP are calculated on the existing legislation scenario forecasts. Any inaccuracies are due to rounding. | Note: Ratios to GDP are calculated on the existing legislation scenario forecasts. Any inaccuracies are due to rounding. | Note: Ratios to GDP are calculated on the existing legislation scenario forecasts. Any inaccuracies are due to rounding. |

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MINISTRY OF ECONOMY AND FINANCE 13

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

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| | | | | |
|:---|:---|:---|:---|:---|
| **TABLE I.3C: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (percentage changes)** | **TABLE I.3C: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (percentage changes)** | **TABLE I.3C: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (percentage changes)** | **TABLE I.3C: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (percentage changes)** | **TABLE I.3C: GENERAL GOVERNMENT BUDGETARY PROSPECTS UNDER EXISTING LEGISLATION<br> (percentage changes)** |
| | **2022** | **2023** | **2024** | **2025** |
| COMPONENTS OF EXPENDITURE |  |  |  |  |
| Compensation of employees | 6.6 | -0.6 | -1.0 | 0.4 |
| Intermediate consumption | 6.2 | -0.8 | -1.7 | 0.4 |
| Social benefits | 2.8 | 4.7 | 5.9 | 2.4 |
| of which: Pensions | 3.9 | 8.1 | 7.5 | 2.9 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other social benefits | 0.2 | -4.5 | 1.3 | 0.8 |
| Other current expenditure | 28.8 | -16.0 | -2.5 | -0.8 |
| Total current expenditure net of interest | 6.9 | -0.1 | 2.1 | 1.3 |
| Interest expenditure | 21.1 | 5.6 | -1.5 | 8.4 |
| Total current expenditure | 8.0 | 0.4 | 1.8 | 1.9 |
| of which: Health expenditure | 4.8 | -1.7 | -2.3 | 0.6 |
| Total capital expenditure | -24.5 | 23.3 | -6.0 | 7.3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross fixed capital formation | -3.6 | 34.7 | 9.7 | 8.3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital contributions | 3.1 | 19.2 | -33.2 | 4.8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other transfers | -71.6 | -23.2 | -45.4 | 0.9 |
| Total final expenditure net of interest | 3.3 | 2.0 | 1.3 | 1.9 |
| Total final expenditure | 4.4 | 2.2 | 1.1 | 2.4 |
| COMPONENTS OF REVENUE |  |  |  |  |
| Total tax revenue | 7.7 | 2.8 | 2.2 | 3.6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Direct Taxes | 6.3 | -3.5 | 2.0 | 4.2 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Indirect Taxes | 8.0 | 10.4 | 2.3 | 3.1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital Taxes | 202.4 | -70.2 | 1.0 | 1.0 |
| Social contributions | 7.9 | 5.9 | 2.7 | 3.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Actual contributions | 7.9 | 6.0 | 2.7 | 3.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Imputed contributions | 6.5 | 1.5 | 1.5 | 2.1 |
| Other current income | 14.4 | 6.9 | -5.1 | 1.0 |
| Total current revenue | 8.0 | 4.5 | 1.6 | 3.2 |
| Non-tax capital revenue | 55.1 | 148.4 | -46.1 | -1.7 |
| Total final revenue | 8.7 | 5.6 | 0.4 | 3.1 |

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14 MINISTRY OF ECONOMY AND FINANCE

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&nbsp;&nbsp;&nbsp;&nbsp;**II.** **PUBLIC FINANCE AND MACROECONOMIC POLICY SCENARIO** 

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| | |
|:---|:---|
| **II.1** | **ADDITIONAL MEASURES FOR 2022 AND THE 2023-25 MANOEUVRE** |

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Energy prices have recently decreased, although they remain at historically high levels and risk spiking again during the winter months. Moreover, Italy's gas supply depends mainly on import flows subject to various risks in the current geopolitical situation.

Against this scenario, the Italian government's priority objective is to limit as much as possible the impact of high energy prices on the budgets of households, especially the most vulnerable ones, and to ensure the survival and competitiveness of Italian companies both globally and in the European context, also in light of the substantial measures recently announced by other EU and non-EU countries.

The update of the general government account presented in paragraph I.4 confirms that the net borrowing level for the current year is 5.1 percent of GDP, 0.5 percentage points lower than the 5.6 percent target set in this year's Economic and Financial Document (Section I, Stability Programme).

The Italian government decided to maintain the 2022 deficit target of the Stability Programme and to use the resulting budget margin, amounting to just over nine billion, largely to fund new measures to mitigate the cost of energy, such as the reintroduction of tax credits for companies and the cut in excise duties on fuels until 31 December.

With a specific decree law currently being finalised (the so-called *'Aiuti-quarter'* decree), in addition to the abovementioned measures, the financial effects of the natural gas purchases made in recent months by the Italian Energy Services Manager (*Gestore dei Servizi Energetici*, GSE), amounting to 4 billion, will be covered. This can be done by removing the legal provision requiring that the gas purchased by the GSE be resold by the end of 2022. Given that the recent fall in the domestic price of gas may be temporary, this will allow gas to be resold later on at prices less penalising to public finance instead of immediately crystallising the related losses. The expected proceeds based on forward gas prices will be received and recorded in 2023.

With regard to the 2023-2025 manoeuvre to be included in the next budget law, given the high level of uncertainty in the economic scenario and the need to continue countering high energy prices, the Italian government decided to use the Report attached to this document to request Parliament's authorisation to set a new policy scenario for the general government net borrowing. The new deficit-to-GDP policy levels are set at 4.5 percent for 2023, 3.7 percent for 2024 and 3.0 percent for 2025.

MINISTRY OF ECONOMY AND FINANCE 15

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

Table II.1 compares the new path of net borrowing with that of the updated existing legislation scenario, that estimated at end-September in the previous Update, and with the Stability Programme targets.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **TABLE II.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE II.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE II.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE II.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE II.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE II.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** | **TABLE II.1: PUBLIC FINANCE INDICATORS (% of GDP) (1)** |
| | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| **POLICY SCENARIO** |  |  |  |  |  |  |
| Net borrowing | -9.5 | -7.2 | -5.6 | -4.5 | -3.7 | -3.0 |
| Primary balance | -6.0 | -3.7 | -1.5 | -0.4 | 0.2 | 1.1 |
| Interest expenditure | 3.5 | 3.6 | 4.1 | 4.1 | 3.9 | 4.1 |
| Structural net borrowing (2) | -5.0 | -6.3 | -6.1 | -4.8 | -4.2 | -3.6 |
| Structural change | -3.1 | -1.3 | 0.2 | 1.3 | 0.6 | 0.6 |
| Public debt (gross of subsidies) (3) | 154.9 | 150.3 | 145.7 | 144.6 | 142.3 | 141.2 |
| Public debt (net of subsidies) (3) | 151.5 | 147.1 | 142.7 | 141.8 | 139.6 | 138.6 |
| **EXISTING LEGISLATION SCENARIO** |  |  |  |  |  |  |
| Net borrowing | -9.5 | -7.2 | -5.1 | -3.4 | -3.6 | -3.3 |
| Primary balance | -6.0 | -3.7 | -1.1 | 0.7 | 0.2 | 0.8 |
| Interest expenditure | 3.5 | 3.6 | 4.1 | 4.1 | 3.9 | 4.0 |
| Structural net borrowing (2) | -5.0 | -6.4 | -5.6 | -3.6 | -4.0 | -3.8 |
| Structural change | -3.0 | -1.2 | 1.2 | 2.1 | -0.6 | 0.4 |
| Public debt (gross of subsidies) (3) | 154.9 | 150.3 | 145.2 | 143.3 | 141.4 | 140.2 |
| Public debt (net of subsidies) (3) | 151.5 | 147.1 | 142.2 | 140.5 | 138.7 | 137.6 |
| **MEMO: September Update 2022 (EXISTING LEGISLATION SCENARIO)** | **MEMO: September Update 2022 (EXISTING LEGISLATION SCENARIO)** | **MEMO: September Update 2022 (EXISTING LEGISLATION SCENARIO)** |  |  |  |  |
| Net borrowing | -9.5 | -7.2 | -5.1 | -3.4 | -3.5 | -3.2 |
| Primary balance | -6.0 | -3.7 | -1.1 | 0.5 | 0.2 | 0.7 |
| Interest expenditure | 3.5 | 3.6 | 4.0 | 3.9 | 3.8 | 3.9 |
| Structural net borrowing (2) | -5.0 | -6.4 | -5.5 | -3.6 | -3.9 | -3.7 |
| Variation in structural balance | -3.1 | -1.4 | 0.9 | 1.9 | -0.3 | 0.2 |
| Public debt (gross of subsidies) (3) | 154.9 | 150.3 | 145.4 | 143.2 | 140.9 | 139.3 |
| Public debt (net of subsidies) (3) | 151.4 | 147.1 | 142.5 | 140.4 | 138.2 | 136.7 |
| **MEMO: DEF, Stability Programme 2022 (POLICY SCENARIO)** | **MEMO: DEF, Stability Programme 2022 (POLICY SCENARIO)** | **MEMO: DEF, Stability Programme 2022 (POLICY SCENARIO)** |  |  |  |  |
| Net borrowing | -9.6 | -7.2 | -5.6 | -3.9 | -3.3 | -2.8 |
| Primary balance | -6.1 | -3.7 | -2.1 | -0.8 | -0.3 | 0.2 |
| Interest expenditure | 3.5 | 3.5 | 3.5 | 3.1 | 3.0 | 3.0 |
| Structural net borrowing (2) | -5.0 | -6.1 | -5.9 | -4.5 | -4.0 | -3.6 |
| Variation in structural balance | -3.0 | -1.1 | 0.2 | 1.4 | 0.5 | 0.4 |
| Public debt (gross of subsidies) (3) | 155.3 | 150.8 | 147.0 | 145.2 | 143.4 | 141.4 |
| Public debt (net of subsidies) (3) | 151.8 | 147.6 | 144.0 | 142.3 | 140.7 | 138.8 |
| *Nominal GDP under existing legislation scenario (absolute values x 1,000)* | 1660.6 | 1782.1 | 1903.3 | 1990.2 | 2076.5 | 2151.0 |
| *Nominal GDP under policy scenario (absolute values x 1000)* | 1660.6 | 1782.1 | 1903.3 | 1994.5 | 2088.5 | 2159.0 |
| (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. | (1) Any inaccuracies are due to rounding.<br> (2) Net of one-offs and the cyclical component.<br> (3) Gross or net of Italy's share of loans to EMU Member States, either bilaterally or through the EFSF, and of the contribution to the capital of the ESM. |

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16 MINISTRY OF ECONOMY AND FINANCE

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<u> II. PUBLIC FINANCE AND MACROECONOMIC POLICY SCENARIO </u>  

![](image00038.jpg)

A comparison with the updated existing legislation scenario in this document shows that the new targets result in a fiscal room equal to 1.1 percent of GDP in 2023 and 0.1 percent of GDP in 2024, while in 2025 the net borrowing target is approximately 0.2 percentage points lower (net of rounding) than the baseline estimate.

As shown in Table II.1 and detailed in Chapter III, the new deficit targets are consistent with a gradual improvement in the primary balance (net of interest), which will turn slightly positive in 2024, before reaching a surplus of about one percent of GDP in 2025. Moreover, the structural balance (i.e., cyclically adjusted and net of temporary measures) will improve over the entire three-year period as it gradually approaches the Medium-Term Objective (MTO).

The resources of the net manoeuvre will be used to counter high energy prices in the first months of 2023.

The evolution of energy prices and their impact on businesses and households will be continuously monitored in early 2023. By the time the next Stability Programme is drawn up, it will be assessed whether there is a need for further measures to lower energy prices and support businesses and households, and how such measures should be financed.

In compliance with the requirements of the law on accounting and public finance concerning the information that must be provided in the Update, the net balance to be financed of the State budget in accrual terms may increase by up to 206 billion in 2023, 138.5 billion in 2024 and 116.5 billion in 2025. The corresponding net balance to be financed in cash terms may increase by up to 261 billion in 2023, 180.5 billion in 2024 and 152.5 billion in 2025.

MINISTRY OF ECONOMY AND FINANCE 17

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **TABLE II.2: BUDGET CASH BALANCES UNDER THE POLICY SCENARIO** | **TABLE II.2: BUDGET CASH BALANCES UNDER THE POLICY SCENARIO** | **TABLE II.2: BUDGET CASH BALANCES UNDER THE POLICY SCENARIO** | **TABLE II.2: BUDGET CASH BALANCES UNDER THE POLICY SCENARIO** | **TABLE II.2: BUDGET CASH BALANCES UNDER THE POLICY SCENARIO** | **TABLE II.2: BUDGET CASH BALANCES UNDER THE POLICY SCENARIO** | **TABLE II.2: BUDGET CASH BALANCES UNDER THE POLICY SCENARIO** | **TABLE II.2: BUDGET CASH BALANCES UNDER THE POLICY SCENARIO** | **TABLE II.2: BUDGET CASH BALANCES UNDER THE POLICY SCENARIO** |
|  | **2021** | **2021** | **2022** | **2023** | **2023** | **2024** | **2024** | **2025** |
|  | Level (1) | % of GDP | % of GDP | % of GDP | % of GDP | % of GDP | % of GDP | % of GDP |
| Public sector | -108984 | -6.1 | -4.0 | -4.8 | -4.2 | -4.2 | -3.8 | -3.8 |
| State sector | -106326 | -6.0 | -3.9 | -4.9 | -4.3 | -4.3 | -3.8 | -3.8 |
| (1) Values in EUR millions. |  |  |  |  |  |  |  |  |

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| | |
|:---|:---|
| **II.2** | **MACROECONOMIC POLICY SCENARIO** |

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The 2023 fiscal policy, aimed at ensuring support to households and businesses in order to contain the impact of high inflation on the economic activity, has a positive effect on GDP growth, which can be estimated at 0.3 percentage points of additional growth compared to the existing legislation scenario in 2023 and 0.1 percentage points in 2024. The higher level of GDP in 2024, together with the fading out of the expansionary effects of the outlined manoeuvre, would result in a less pronounced economic activity in 2025.

In particular, fiscal policy measures are aimed at tackling high energy prices and rising utility bills.

In the policy scenario, the real GDP growth rate is 0.6 percent in 2023, rising to 1.9 percent in 2024 and 1.3 percent in 2025.

Compared to the estimate under existing legislation, the higher growth in 2023 is mainly due to household consumption, which, boosted by an increase in nominal disposable income and the reduction in consumer inflation caused by the measures to lower prices, will increase by 1.0 percent in 2023 and 1.6 percent in 2024.

The measures aimed at containing the effects of higher energy prices should help mitigate the growth of consumer inflation in 2023 and consequently of domestic inflation, as measured by the GDP deflator. The discontinuation of these measures would contribute to a subsequent upturn in the price levels projected in the existing legislation scenario with an acceleration of the private consumption deflator in 2024. However, this would take place in a more favourable environment, where the prices of energy raw materials, consistent with futures prices, would decline, making a negative contribution to inflation.

The GDP deflator is projected to grow by 4.1 percent in 2023, before slowing to 2.7 percent in 2024 and 2.0 percent in 2025. The combined effect of higher real growth and the above-described price dynamics contribute to revising the nominal GDP profile upward by 0.2 percentage points in 2023 and 0.4 percentage points in 2024. In 2025, the dampening effect on real growth - equal to two-tenths of a percentage point - is also transmitted to the nominal GDP dynamics.

Gross fixed capital investments would also benefit from the measures taken, contributing positively to higher growth in economic activity and reaching around 22 percent of GDP at the end of the period.

Overall, higher domestic demand will lead to higher imports over the next two years, resulting in a marginal reduction of the current account balance and, on average, a slight decline in the contribution of net exports to growth.

18 MINISTRY OF ECONOMY AND FINANCE

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<u> II. PUBLIC FINANCE AND MACROECONOMIC POLICY SCENARIO </u>  

With regard to the labour market, in the two-year period 2023-2024, the higher GDP growth promotes an increase in labour input and a more pronounced growth in labour income, which help sustain household consumption. Stronger employment growth also leads to a lower unemployment rate, which is one-tenth lower in the three-year period 2023-2025 than in the baseline macroeconomic scenario, reaching 7.4 percent at the end of the period.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **TABLE II.3: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE II.3: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE II.3: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE II.3: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE II.3: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** | **TABLE II.3: SYNTHETIC MACROECONOMIC POLICY SCENARIO (1) (percentage changes, unless otherwise indicated)** |
| | **2021** | **2022** | **2023** | **2024** | **2025** |
| GDP | 6.7 | 3.7 | 0.6 | 1.9 | 1.3 |
| GDP deflator | 0.5 | 3.0 | 4.1 | 2.7 | 2.0 |
| Consumption deflator | 1.6 | 7.0 | 5.5 | 2.6 | 2.0 |
| Nominal GDP | 7.3 | 6.8 | 4.8 | 4.7 | 3.4 |
| Employment (FTEs) (2) | 7.6 | 4.5 | 0.3 | 1.3 | 0.9 |
| Employment (LF) (3) | 0.8 | 2.3 | 0.3 | 1.1 | 0.7 |
| Unemployment rate | 9.5 | 8.1 | 7.9 | 7.6 | 7.4 |
| Current account balance (% of GDP) | 3.1 | -0.5 | -0.2 | 0.0 | 0.7 |
| (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs)<br> (3) Number of employed people according to the Labour Force Survey (LFS). | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs)<br> (3) Number of employed people according to the Labour Force Survey (LFS). | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs)<br> (3) Number of employed people according to the Labour Force Survey (LFS). | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs)<br> (3) Number of employed people according to the Labour Force Survey (LFS). | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs)<br> (3) Number of employed people according to the Labour Force Survey (LFS). | (1) Any inaccuracies are due to rounding.<br> (2) Employment expressed in terms of Full-Time Equivalents (FTEs)<br> (3) Number of employed people according to the Labour Force Survey (LFS). |

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MINISTRY OF ECONOMY AND FINANCE 19

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

20 MINISTRY OF ECONOMY AND FINANCE

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&nbsp;&nbsp;&nbsp;&nbsp;**III.** **STRUCTURAL BALANCES AND DEBT-TO-GDP RATIO** 

**III.1 EXPECTED EVOLUTION OF STRUCTURAL BALANCES AND THE EXPENDITURE RULE**

#### The European context; fiscal surveillance in the coming months in view of a possible revision of governance rules
The European Commission will soon issue a Communication announcing its pro-posal to revise the rules on economic governance<sup>1</sup>. Then, based on the discussions and convergence between the positions of the Member States, the Commission will consider launching the actual legislative process. In any case, the Commission is expected to provide its fiscal policy guidelines in early 2023, in order to allow Mem-ber States to submit their Stability Programmes for the budgetary decisions to be taken for 2024 and the following years. The guidelines will be included in the Coun-try Specific Recommendations in spring 2023.

With regard to the fiscal surveillance process, the next and most immediate step will be the assessment of the Draft Budgetary Plans (DBPs) submitted by Euro-pean governments in October. This step will take place no later than December. The document sent by Italy on 10 October, which only contained information on public finance under the existing legislation scenario, will be supplemented and updated according to the policy scenario provided in this document.

The Commission will take into account the guidance given over the spring and summer months<sup>2</sup>, which also included specific recommendations for Italy. The new Communication and the attached documents, in addition to providing an overall assessment of fiscal policy in the Euro Area, will contain an opinion for each Member State on the DBPs they submitted.

The aim is to provide concrete *ex ante* guidance for the budget of the following year by checking consistency with the medium-term budget plans submitted in the Stability Programmes.

In December, having been given the Commission's opinion, the Eurogroup will adopt a statement on all countries' DBPs. In the statement, the Eurogroup expresses its assessment of the fiscal stance as resulting from the DBPs, including regarding the appropriateness with respect to both the indications given by the Commission and the macroeconomic scenario.

In the current environment marked by the activation of the General Escape Clause (GEC), which allows temporary deviations from the normal adjustment re-quirements of the Stability and Growth Pact (SGP), the Commission has proposed

### ___

<sup>1</sup> The Commission's proposal is expected to be published on 9 November 2022.

<sup>2</sup> See page 76 to page 78 of the Update published on 28 September.

MINISTRY OF ECONOMY AND FINANCE 21

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

qualitative recommendations, without specifying numerical deficit targets. How-ever, countries with high debt (Italy, France, Spain, Greece, Portugal and Belgium) are expected to have quantitative limits, i.e., in 2023, nationally financed primary current expenditure has to remain below potential GDP growth in the medium term, taking into account targeted and temporary support to households and businesses most vulnerable to the increase in energy prices as well as humanitarian assistance to people fleeing Ukraine.

This paragraph integrates the information already provided in the previous Up-date by reporting the performance of the main indicators used for fiscal surveillance under the new macroeconomic and public finance scenario.

#### The development of policy public finance in relation to the Commission recommendation and fiscal rules
Compared to the previous Update, the new forecasts, in addition to substantially confirming the estimates for 2022, primarily signal the political commitment to gradually bring the general government deficit-to-GDP ratio back towards the 3 percent threshold, meeting the target in 2025.

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **TABLE III.1: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE III.1: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE III.1: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE III.1: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE III.1: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE III.1: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE III.1: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** | **TABLE III.1: CYCLICALLY ADJUSTED PUBLIC FINANCE (% of GDP)** |
| | **2019** | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| 1. Growth rate of GDP at constant prices | 0.5 | -9.0 | 6.7 | 3.7 | 0.6 | 1.9 | 1.3 |
| 2. Net borrowing | -1.6 | -9.5 | -7.2 | -5.6 | -4.5 | -3.7 | -3.0 |
| 3. Interest expenditure | 3.4 | 3.5 | 3.6 | 4.1 | 4.1 | 3.9 | 4.1 |
| 4. One-off measures (2) | 0.1 | 0.1 | 0.4 | 0.4 | 0.3 | 0.1 | 0.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Of which: Revenue measures | 0.1 | 0.2 | 0.4 | 0.4 | 0.2 | 0.0 | 0.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Expenditure measures | -0.1 | -0.1 | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 |
| 5. Potential GDP growth rate | 0.0 | -0.2 | 0.1 | 1.1 | 0.8 | 1.1 | 1.1 |
| &nbsp;&nbsp;&nbsp; Factor contribution to potential growth: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Labour | -0.4 | -0.4 | -0.4 | 0.5 | 0.1 | 0.4 | 0.4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capital | 0.0 | -0.1 | 0.1 | 0.3 | 0.4 | 0.4 | 0.5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total factor productivity | 0.4 | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 |
| 6. Output gap | 0.4 | -8.5 | -2.4 | 0.1 | 0.0 | 0.8 | 1.0 |
| 7. Cyclical component of budget balance | 0.2 | -4.6 | -1.3 | 0.1 | 0.0 | 0.4 | 0.6 |
| 8. Cyclically adjusted budget balance | -1.8 | -4.9 | -5.9 | -5.7 | -4.5 | -4.2 | -3.6 |
| 9. Cyclically adjusted primary balance | 1.5 | -1.5 | -2.3 | -1.6 | -0.4 | -0.3 | 0.5 |
| 10. Structural budget balance (3) | -1.9 | -5.0 | -6.3 | -6.1 | -4.8 | -4.2 | -3.6 |
| 11. Structural primary balance (3) | 1.4 | -1.5 | -2.8 | -2.0 | -0.6 | -0.3 | 0.5 |
| 12. Change in structural budget balance | 0.4 | -3.1 | -1.3 | 0.2 | 1.3 | 0.6 | 0.6 |
| 13. Change in structural primary balance | 0.1 | -3.0 | -1.2 | 0.7 | 1.4 | 0.3 | 0.8 |
| (1) Any inaccuracies are due to rounding.<br> (2) The positive sign indicates deficit reducing one-off measures.<br> (3) Cyclically adjusted and net of one-off and other temporary measures. | (1) Any inaccuracies are due to rounding.<br> (2) The positive sign indicates deficit reducing one-off measures.<br> (3) Cyclically adjusted and net of one-off and other temporary measures. | (1) Any inaccuracies are due to rounding.<br> (2) The positive sign indicates deficit reducing one-off measures.<br> (3) Cyclically adjusted and net of one-off and other temporary measures. | (1) Any inaccuracies are due to rounding.<br> (2) The positive sign indicates deficit reducing one-off measures.<br> (3) Cyclically adjusted and net of one-off and other temporary measures. | (1) Any inaccuracies are due to rounding.<br> (2) The positive sign indicates deficit reducing one-off measures.<br> (3) Cyclically adjusted and net of one-off and other temporary measures. | (1) Any inaccuracies are due to rounding.<br> (2) The positive sign indicates deficit reducing one-off measures.<br> (3) Cyclically adjusted and net of one-off and other temporary measures. | (1) Any inaccuracies are due to rounding.<br> (2) The positive sign indicates deficit reducing one-off measures.<br> (3) Cyclically adjusted and net of one-off and other temporary measures. | (1) Any inaccuracies are due to rounding.<br> (2) The positive sign indicates deficit reducing one-off measures.<br> (3) Cyclically adjusted and net of one-off and other temporary measures. |

---

The new estimates place the structural balance in 2025 at levels very close to those projected in the September Update (from -3.7 percent to -3.6 percent). The improvement in terms of balance change over the forecast time horizon now appears to be less pronounced in 2023 and more gradual, but steady over the planning horizon and in line with the speed required to approach the Medium-Term Objective also in 2024-2025.

22 MINISTRY OF ECONOMY AND FINANCE

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<u> III. STRUCTURAL BALANCES AND DEBT-TO-GDP RATIO </u>  

The ratio of interest expenditure to GDP increases further, albeit marginally, compared to the projections made at the end of September. On the other hand, there is a gradual improvement in the primary surplus. The cyclical adjustment continues to be unfavourable, with the exception of the year 2023 in which, due to the strong slowdown in growth, actual GDP grows less than potential GDP. Lastly, there is a slight revision of the amounts of one-off measures for 2022 and 2023.

The table on the so-called significant deviations shows, for information purposes, all figures relating to the assessment of compliance with European fiscal rules.

Assuming full compliance with the structural balance rule from 2023, the performance on the expenditure side of the rule is also positive.

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **TABLE III.2: SIGNIFICANT DEVIATIONS**<br>**Structural balance convergence towards the MTO** | **2019** | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| Net borrowing | -1.6 | -9.5 | -7.2 | -5.6 | -4.5 | -3.7 | -3.0 |
| Medium Term Objective (MTO) | 0.0 | 0.5 | 0.5 | 0.5 | 0.3 | 0.3 | 0.3 |
| Structural balance | -1.9 | -5.0 | -6.3 | -6.1 | -4.8 | -4.2 | -3.6 |
| Annual change in structural balance | 0.4 | -2.9 | -1.3 | 0.2 | 1.3 | 0.6 | 0.6 |
| Required change in structural balance (\*) | 0.4 | -0.2 | 0.5 | 0.6 | 0.6 | 0.6 | 0.6 |
| Deviation of structural balance from required annual change (<0.5 pp) | 0.4 | -2.7 | -1.8 | -0.4 | 0.7 | 0.0 | 0.0 |
| Average change in structural balance (over two years) | 0.1 | -1.3 | -2.1 | -0.6 | 0.8 | 0.9 | 0.6 |
| Average change required | 0.4 | 0.1 | 0.2 | 0.6 | 0.6 | 0.6 | 0.6 |
| Deviation of the structural balance from the required average change (<0.25 pp) | -0.2 | -1.4 | -2.3 | -1.1 | 0.2 | 0.3 | 0.0 |
| **Expenditure rule** | **2019** | **2020** | **2021** | **2022** | **2023** | **2024** | **2025** |
| Growth rate of the reference expenditure aggregate (%) | 1.2 | 9.7 | 5.2 | 6.5 | 0.1 | 1.2 | 1.2 |
| Benchmark modulated on prevailing cyclical conditions (%) (\*\*) | 0.7 | 1.9 | 0.4 | 1.8 | 3.6 | 2.3 | 1.6 |
| Deviation of expenditure aggregate from required annual change (<0,5 p.p.) | -0.4 | -4.1 | -2.4 | -2.2 | 1.6 | 0.5 | 0.2 |
| Deviation of expenditure aggregate from required 2-year average change (<0,25 p.p.) | -0.5 | -2.2 | -3.2 | -2.3 | -0.3 | 1.1 | 0.3 |
| \* For the 2020-2023 period, the activation of the general escape clause of the Stability and Growth Pact is considered. In addition, for 2020 the flexibility granted due to exceptional safeguard and territorial safety measures applies.<br> \*\* The benchmark takes into account the required change in the structural balance. | \* For the 2020-2023 period, the activation of the general escape clause of the Stability and Growth Pact is considered. In addition, for 2020 the flexibility granted due to exceptional safeguard and territorial safety measures applies.<br> \*\* The benchmark takes into account the required change in the structural balance. | \* For the 2020-2023 period, the activation of the general escape clause of the Stability and Growth Pact is considered. In addition, for 2020 the flexibility granted due to exceptional safeguard and territorial safety measures applies.<br> \*\* The benchmark takes into account the required change in the structural balance. | \* For the 2020-2023 period, the activation of the general escape clause of the Stability and Growth Pact is considered. In addition, for 2020 the flexibility granted due to exceptional safeguard and territorial safety measures applies.<br> \*\* The benchmark takes into account the required change in the structural balance. | \* For the 2020-2023 period, the activation of the general escape clause of the Stability and Growth Pact is considered. In addition, for 2020 the flexibility granted due to exceptional safeguard and territorial safety measures applies.<br> \*\* The benchmark takes into account the required change in the structural balance. | \* For the 2020-2023 period, the activation of the general escape clause of the Stability and Growth Pact is considered. In addition, for 2020 the flexibility granted due to exceptional safeguard and territorial safety measures applies.<br> \*\* The benchmark takes into account the required change in the structural balance. | \* For the 2020-2023 period, the activation of the general escape clause of the Stability and Growth Pact is considered. In addition, for 2020 the flexibility granted due to exceptional safeguard and territorial safety measures applies.<br> \*\* The benchmark takes into account the required change in the structural balance. | \* For the 2020-2023 period, the activation of the general escape clause of the Stability and Growth Pact is considered. In addition, for 2020 the flexibility granted due to exceptional safeguard and territorial safety measures applies.<br> \*\* The benchmark takes into account the required change in the structural balance. |

---

Until the end of 2022, the necessity to make emergency and largely extraor-dinary expenditures altered the reading of the underlying trend of public spend-ing. This occurred in the two-year period 2020-2021 due to the crisis caused by the pandemic. Then, in the course of 2022, the need to compensate households and businesses for the entirely unprecedented increases in energy prices gradually took over. The policy measures for 2023, which lead to higher expenditure com-pared to the existing legislation profile of public finance, still largely respond to this logic. However, they do not have a negative impact on the indicators for that year, while their intensity is reduced compared to 2022. It should also be noted that for 2023, part of the increase in expenditure is associated with the adjust-ment of pensions and other social benefits to the rate of inflation. Considering the fact that the expenditure rule significantly restricts the growth of the reference aggregate (the allowed value is indicated by the benchmark variable in Table III.2)<br>

MINISTRY OF ECONOMY AND FINANCE 23

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

so as to determine the alignment of the budget balance towards the Medium-Term Objective, the level of compliance achieved is an excellent result.

Note that the public finance recommendation for Italy for 2023 does not concern compliance with the traditional rules of the preventive arm of the SGP but requires that the indicator used to calculate fiscal stance does not have an expansionary connotation. This essentially requires that the relevant expenditure aggregate, corresponding to the nationally financed current expenditure, should grow less than nominal potential GDP.

The Commission's request corresponds to a slightly modified configuration of the expenditure rule. The fiscal stance calculation differs from the rule mainly for three reasons: it does not include investment spending, which is regarded favourably in this phase characterised by the implementation of the RRP; it does not take into account the need to move towards the Medium-Term Objective, thus being less challenging in terms of fiscal consolidation; it requires that extraordinary and temporary expenditure items related to the need to tackle the pandemic crisis be subtracted from the expenditure aggregate.

This last subdivision of expenditure, which results in the disaggregation of emergency and temporary measures, is related to the objective of identifying a permanent expenditure component that, in order to ensure the sustainability of public finance, should not grow more than the GDP trend. The introduction from 2022 of new extraordinary measures related to energy prices further complicated the calculation of the relevant aggregate.

The Commission readily acknowledged the need for fiscal policy to address the new emergency with targeted and temporary measures and invited the Member States to provide a detailed quantification of such measures. Then, following technical discussions, it became clear that only measures that are both temporary and targeted would be deducted from the expenditure aggregate. These would not include, for example, measures for the temporary reduction of excise duties on fuels, since they are not targeted at a specific group of consumers; on the other hand, means-tested measures would be subtracted from the aggregate.

The need to make this distinction, if confirmed, would be added to the elements that complicate the calculation of the aggregate already highlighted in the Stability Programme and the September Update. These concern the correct identification within the budget of the temporary and emergency component of certain expenditure items and the difficulty of verifying in the final balance the amounts actually disbursed against the figures initially allocated.

The internal estimates under the existing legislation scenario made at the<br> time of the previous Update showed a positive fiscal stance for current<br> expenditure in 2023; the value was therefore favourable<sup>3</sup>. The increase in<br>

### ___

<sup>3</sup> For the sake of clarity, below is what has already been clarified in the September Update. The expenditure aggregate relevant for the assessment of fiscal stance is equal to total general government expenditure net of interest, unemployment benefits, temporary expenditure and emergency expenditure. The fiscal stance is then calculated as the difference between the actual expenditure aggregate and what it should have been based on the potential GDP growth rate and inflation. The higher expenditure is then adjusted for the change in discretionary revenue. If the fiscal stance indicator has a negative sign, the budget impact on the economy is expansionary: the higher expenditure is not financed by the higher discretionary revenue. By subtracting the resources received from

24 MINISTRY OF ECONOMY AND FINANCE

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<u> III. STRUCTURAL BALANCES AND DEBT-TO-GDP RATIO </u>  

expenditure for that year results in a slight weakening of the positive sign. However, the updated estimates indicate - until the end of 2025 - a value still close to 1. Removing, as the Commission intended, the above-mentioned temporary and targeted expenditure from the relevant aggregate would alter the value of the fiscal stance indicator within the three-year period between 2022 and 2024, although it would not change the underlying indication of an appropriate behaviour of current expenditure at the policy level.

---

| | |
|:---|:---|
| **III.2** | **EVOLUTION OF THE DEBT-TO-GDP RATIO** |

---

As mentioned above, the target for the general government net borrowing-to-GDP ratio for 2022 is confirmed at 5.6 percent, the level set in the April Stability Programme. The new policy scenario envisages the nominal deficit to further de-cline to 4.5 percent in 2023, to 3.7 percent of GDP in 2024 and to 3.0 percent in 2025, as a result of the fiscal measures that the Government is preparing to intro-duce with the next public finance manoeuvre for the 2023-2025 period.

A decline in the gross debt-to-GDP ratio in the current year is confirmed by the updated policy scenario. The decline is more pronounced than envisaged in the Sta-bility Programme. The target for the debt-to-GDP ratio is in fact expected to fall from 150.3 percent in 2021 to 145.7 percent in 2022 (147.0 percent in the Stability Programme).

The new policy targets for the debt-to-GDP ratio for the next three years are also on average about 0.6 percentage points lower than those reported in the Sta-bility Programme. This is due to a stronger dynamic of nominal GDP under policy scenario and an improvement in the general government primary balance. These positive factors more than offset the rise in the implicit financing cost of debt re-sulting from higher yields on fixed-income government bonds and higher inflation adjustments for securities indexed to consumer prices.

In 2023 and 2024, the general government gross debt in the policy scenario is expected to stand at 144.6 percent and 142.3 percent of GDP respectively, while in 2025, the final year of the projection, it is expected to stand at 141.2 percent, slightly below the DEF target of 141.4 percent.

Net of Italy's share of loans to EMU Member States, bilateral or through the EFSF, and of the contribution to the capital of the ESM, in 2025 the policy forecast will stand at 138.6 percent.

the European Union, it is possible to calculate the impact deriving from public expenditure financed only with national resources. For a complete description of the expenditure aggregate under analysis and the calculation of fiscal policy stance, see the Focus on 'The fiscal policy stance and measurement proposals' on p. 78 of the Update 2021.

MINISTRY OF ECONOMY AND FINANCE 25

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  <u> UPDATE OF THE ECONOMIC AND FINANCIAL DOCUMENT 2022 </u>

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **TABLE III.3: GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP)** | **TABLE III.3: GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP)** | **TABLE III.3: GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP)** | **TABLE III.3: GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP)** | **TABLE III.3: GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP)** | **TABLE III.3: GENERAL GOVERNMENT DEBT BY SUB-SECTOR (1) (EUR millions and as % of GDP)** |
| | **2021** | **2022** | **2023** | **2024** | **2025** |
| Gross of Euro Area financial support (2) |  |  |  |  |  |
| General government | 2678098 | 2772542 | 2883685 | 2971878 | 3047772 |
| *% of GDP* | 150.3 | 145.7 | 144.6 | 142.3 | 141.2 |
| Central government (3) | 2601834 | 2694153 | 2805436 | 2893839 | 2970097 |
| Local governments (3) | 119437 | 121561 | 121422 | 121211 | 120848 |
| Social security funds (3) | 95 | 95 | 95 | 95 | 95 |
| Net of Euro Area financial support (2) |  |  |  |  |  |
| General government | 2620773 | 2715717 | 2827361 | 2916054 | 2992681 |
| *% of GDP* | 147.1 | 142.7 | 141.8 | 139.6 | 138.26 |
| Central government | 2544509 | 2637329 | 2749112 | 2838015 | 2915007 |
| Local governments | 119437 | 121561 | 121422 | 121211 | 120848 |
| Social security funds (3) | 95 | 95 | 95 | 95 | 95 |
| (1) Note: Any inaccuracies are due to rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, either bilaterally or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt' of 14 October 2022). It is assumed that the MEF's cash holdings will be reduced by approximately 0.2 percent of GDP in 2022 and by ap¬proximately 0.1 percent of GDP in each subsequent year, with the aim of taking back the stock towards the level of end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. | (1) Note: Any inaccuracies are due to rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, either bilaterally or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt' of 14 October 2022). It is assumed that the MEF's cash holdings will be reduced by approximately 0.2 percent of GDP in 2022 and by ap¬proximately 0.1 percent of GDP in each subsequent year, with the aim of taking back the stock towards the level of end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. | (1) Note: Any inaccuracies are due to rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, either bilaterally or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt' of 14 October 2022). It is assumed that the MEF's cash holdings will be reduced by approximately 0.2 percent of GDP in 2022 and by ap¬proximately 0.1 percent of GDP in each subsequent year, with the aim of taking back the stock towards the level of end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. | (1) Note: Any inaccuracies are due to rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, either bilaterally or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt' of 14 October 2022). It is assumed that the MEF's cash holdings will be reduced by approximately 0.2 percent of GDP in 2022 and by ap¬proximately 0.1 percent of GDP in each subsequent year, with the aim of taking back the stock towards the level of end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. | (1) Note: Any inaccuracies are due to rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, either bilaterally or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt' of 14 October 2022). It is assumed that the MEF's cash holdings will be reduced by approximately 0.2 percent of GDP in 2022 and by ap¬proximately 0.1 percent of GDP in each subsequent year, with the aim of taking back the stock towards the level of end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. | (1) Note: Any inaccuracies are due to rounding.<br> (2) Gross or net of Italy's shares of loans to EMU Member States, either bilaterally or through the EFSF, and the contribution to the capital of the ESM. At the end of 2021 the amount of these shares amounted to approximately 57.3 billion, of which 43.0 billion for bilateral loans and through the EFSF and 14.3 billion for the ESM programme (see Bank of Italy, 'Statistical Bulletin Public Finance, Borrowing Requirement and Debt' of 14 October 2022). It is assumed that the MEF's cash holdings will be reduced by approximately 0.2 percent of GDP in 2022 and by ap¬proximately 0.1 percent of GDP in each subsequent year, with the aim of taking back the stock towards the level of end of 2019. In addition, estimates take into account the repurchase of SACE, the deployment of earmarked assets, EIB guarantees and loans under the SURE and NGEU programmes. The interest rate scenario used for the estimates is based on the implicit forecasts derived from the forward rates on Italian government bonds for the period in which this document was compiled.<br> (3) Gross of liabilities vis-à-vis other sub-sectors. |

---

---

| | |
|:---|:---|
| **III.3** | **THE DEBT RULE AND OTHER RELEVANT FACTORS** |

---

The evolution of the debt-to-GDP profile over the planning horizon does not deviate significantly from the existing legislation projections of the September Update. Therefore, it remains confirmed that, *prima facie*, the debt rule does not appear to be met in a strict sense.

In this regard, note that in the spring months, the Commission, when assessing the Stability Programmes and defining the fiscal recommendations, argued that compliance with the rule would entail an excessive fiscal effort compared to the current economic conditions, which are conditioned by the consequences of the COVID-19 pandemic and, ultimately, by Russia's invasion of Ukraine.

Given these circumstances, the Commission did not propose to initiate new excessive deficit procedures. Table III.4 shows the gap compared to the three alternative formulations of the rule (forward-looking benchmark, backward-looking benchmark and cyclically adjusted debt). The table shows, for each configuration of the rule, the minimum fiscal adjustment required to achieve compliance over three years, i.e., the adjustment that should have been achieved in the previous year (t-1) and the adjustment to be achieved in the current year (t) and in the first forecast year (t+1), respectively. It is evident that such a result is not achievable.

26 MINISTRY OF ECONOMY AND FINANCE

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<u> III. STRUCTURAL BALANCES AND DEBT-TO-GDP RATIO </u>  

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **TABLE III.4: COMPLIANCE WITH THE DEBT RULE: FORWARD LOOKING APPROACH AND CYCLICALLY ADJUSTED DEBT** | **TABLE III.4: COMPLIANCE WITH THE DEBT RULE: FORWARD LOOKING APPROACH AND CYCLICALLY ADJUSTED DEBT** | **TABLE III.4: COMPLIANCE WITH THE DEBT RULE: FORWARD LOOKING APPROACH AND CYCLICALLY ADJUSTED DEBT** | **TABLE III.4: COMPLIANCE WITH THE DEBT RULE: FORWARD LOOKING APPROACH AND CYCLICALLY ADJUSTED DEBT** | **TABLE III.4: COMPLIANCE WITH THE DEBT RULE: FORWARD LOOKING APPROACH AND CYCLICALLY ADJUSTED DEBT** | **TABLE III.4: COMPLIANCE WITH THE DEBT RULE: FORWARD LOOKING APPROACH AND CYCLICALLY ADJUSTED DEBT** | **TABLE III.4: COMPLIANCE WITH THE DEBT RULE: FORWARD LOOKING APPROACH AND CYCLICALLY ADJUSTED DEBT** |
|  | **Policy** | **Policy** | **Policy** | **Existing legislation** | **Existing legislation** | **Existing legislation** |
| | **2021** | **2022** | **2023** | **2021** | **2022** | **2023** |
| Debt in year t+ 2 (% of GDP) | 144.6 | 142.3 | 141.2 | 143.3 | 141.4 | 140.2 |
| Gap compared to backward-looking benchmark (% of GDP) | 16.7 | 7.3 | 3.2 | 16.7 | 6.9 | 2.1 |
| Gap compared to forward-looking benchmark (% of GDP) | 3.2 | 11.9 | 12.0 | 2.1 | 11.0 | 11.1 |
| Cyclically adjusted debt gap (% of GDP) | 7.6 | 1.1 | 15.2 | 7.6 | 0.7 | 13.6 |

---

The evolution of public finance and debt sustainability profiles will continue to be monitored by the Commission in the European Semester, also in light of the new autumn forecasts (currently to be published on 11 November). In this phase, non-compliance with the debt rule will, once again, not be the determining factor for the possible launch of procedures. Lastly, the Commission's intention to go beyond the debt rule, at least in its current formulation, is once again underlined.

For the sake of brevity, Chapter III does not contain the usual section on the sensitivity of public finance and the debt profile over the medium term. The sustainability profiles over a time horizon longer than the four-year planning horizon, which extends to 2033, remain essentially unchanged compared with the existing legislation projections made in September. The 10-year projections of public debt made using the same methods adopted for the three scenarios presented in the Update give similar results<sup>4</sup>. Similarly, since the publication of the September Up-date, the risks underlying the forecast have not changed.

<sup>4</sup> See 'Medium-term projections of the Debt-to-GDP ratio', on pages 89 and 90 of the September Update. In the medium-term projection (starting in 2026), the slightly higher level of interest rates, which leads to higher expenditure, is offset by the improved starting level of the structural primary balance relative to 2025.

MINISTRY OF ECONOMY AND FINANCE 27

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The Update of the

ECONOMIC AND FINANCIAL DOCUMENT 2022

is available on-line

at the internet address listed below:

<u>www.mef.gov.it</u> <u>www.dt.tesoro.it/</u> <u>www.rgs.mef.gov.it</u>

ISSN 2240-3280

## Exhibit 99.8

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<br> **Exhibit (8)**<br> ![](image00066.jpg)

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| <br> ![](image00067.jpg)&nbsp;&nbsp;&nbsp;&nbsp; <br>|
| <br> MINISTERO DELL'ECONOMIA E DELLE FINANZE<br>|
|  <br>**PUBLIC DEBT**<br> **REPORT**<br> **2021** |

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INDEX

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| | | | |
|:---|:---|:---|:---|
| INDEX | INDEX | INDEX | I |
| INDEX OF TABLES | INDEX OF TABLES | INDEX OF TABLES | II |
| INDEX OF CHARTS AND GRAPHIC FIGURES | INDEX OF CHARTS AND GRAPHIC FIGURES | INDEX OF CHARTS AND GRAPHIC FIGURES | III |
| FOREWORD | FOREWORD | FOREWORD | VII |
| I. | DEBT MANAGEMENT OBJECTIVES FOR 2021 | DEBT MANAGEMENT OBJECTIVES FOR 2021 | 1 |
| I.1 | I.1 | The objectives and risks of international debt management practices | 1 |
| I.2 | I.2 | 2021 objectives: the institutional framework of reference | 2 |
| I.3 | I.3 | Curbing the cost of debt while paying attention to the cost / risk profile | 6 |
| I.4 | I.4 | Monitoring and managing the cash account to stabilise the balance | 14 |
| II. | THE ITALIAN GOVERNMENT SECURITIES MARKET: PERFORMANCE INTHE INTERNATIONAL CONTEXT | THE ITALIAN GOVERNMENT SECURITIES MARKET: PERFORMANCE INTHE INTERNATIONAL CONTEXT | 17 |
| II.1 | II.1 | Monetary policies and effects on the euro area money market | 17 |
| II.2 | II.2 | Euro area bond markets | 19 |
| II.3 | II.3 | Trends in the italian government securities market | 23 |
| III. | PUBLIC DEBT MANAGEMENT IN 2021 | PUBLIC DEBT MANAGEMENT IN 2021 | 41 |
| III.1 | III.1 | Outstanding general public debt | 41 |
| III.2 | III.2 | Government bonds activities | 42 |
| III.3 | III.3 | Derivatives portfolio management | 65 |
| III.4 | III.4 | Debt management results in relation to objectives | 67 |
| III.5 | III.5 | The Treasury's cash management | 80 |

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MINISTRY OF ECONOMY AND FINANCE I

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  <u> 2021 PUBLIC DEBT REPORT </u>

INDEX OF TABLES

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|:---|:---|:---|
| Table I.1: | Domestic government securities | 3 |
| Table I.2: | Objectives for the end of 2021: percentage composition of the debt portfolio | 4 |
| Table III.1: | Maturities and coverage of the state sector's requirement (eur million) | 43 |
| Table III.2: | Government bonds issued net of exchange operations (eur million) | 43 |
| Table III.3: | Geographical distribution of awards in syndicated placements of nominal btp in 2021 | 49 |
| Table III.4: | Distribution by investor category of awards in syndicated placements of nominal btp in 2021 | 50 |
| Table III.5: | Summary of exchange operations (nominal amounts in eur million) | 64 |
| Table III.6: | Summary of repurchased from the cash account (nominal amounts in eur million) | 65 |
| Table III.7: | Composition of 2019-2021 issues, in absolute (EUR million) and percentage terms (including exchanges)\* | 69 |
| Table III.8: | Average life of the stock of government securities | 71 |
| Table III.9: | Duration and arp trend during the 2019-2021 period, relating to the stock of government securities before derivatives (in years) | 72 |
| Table III.10: | Duration and arp trend during the 2019-2021 period, relating to the stock of government securities after derivatives (in years) | 73 |
| Table III.11: | Derivatives portfolio – years 2020-2021 (eur million) | 74 |
| Table III.12: | Duration and arp trend during the 2020-2021 period, relating to the stock of government securities before derivatives (in years) | 80 |
| Table III.13: | Duration and arp trend during the 2020-2021 period, relating to the stock of government securities after derivatives and european loans (in years) | 80 |
| Table III.14: | Cash account and investments of the Treasury's liquidity at the end of each month - 2021 (eur million) | 84 |

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II MINISTRY OF ECONOMY AND FINANCE

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INDEX<br>

INDEX OF CHARTS AND GRAPHIC FIGURES

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|:---|:---|:---|
| Chart I.1 | Annual maturity profile of medium/long-term securities outstanding as at 31.12.2020 (eur million) | 7 |
| Chart I.2: | Monthly maturity profile of medium/long-term securities outstanding as at 31.12.2020 (eur million) | 8 |
| Chart I.3: | Composition of the alternative issuance portfolios analysed for 2021 (eur million) | 10 |
| Chart II.1: | Performance of the main money market rates, 2020 - 2021 (percentage values) | 18 |
| Chart II.2: | Trend of european government bond yields - 10-year maturity (percentage values) | 20 |
| Figure 1: | Monthly net purchases under the pspp and pepp programmes (eur billion) | 21 |
| Figure 2: | Volume (eur billion) and average life (years) of the stock of italian government securities purchased by the ecb under the pspp programme | 22 |
| Chart II.3: | Market yields on government securities with 2 to 50-year maturities (percentage values) | 23 |
| Chart II.4: | Government securities yield spread, 10-year vs. 2-year (basis points) | 24 |
| Chart II.5: | Government securities yield spread, 30-year vs. 10-year (basis points) | 25 |
| Chart II.6: | Yield spread: btp-bund, oat-bund bonos-bund and oat-bund, 10-year benchmark (basis points) | 25 |
| Chart II.7: | Monthly volumes traded on the mts platform (eur million; single-counted) | 27 |
| Chart II.8: | Quarterly volumes traded on the mts platform, by segment (eur million; single- counted) | 28 |
| Chart II.9: | Quarterly volumes traded on the mts platform, by maturity (eur million; single- counted) | 28 |
| Chart II.10a: | Bid-ask spread (in basis points) for ctzs, ccteus, 3-, 5- and 7-year benchmark btps, as recorded on the mts platform - monthly averages | 29 |
| Chart II.10b: | Bid-ask spread (in basis points) for 10-, 15-, 20-, 30- and 50-year benchmark btps, as recorded on the mts platform - monthly averages | 29 |
| Chart II.10c: | Bid-ask spread (in basis points) for 5- and 10-year benchmark btp€is, as recorded on the mts platform - monthly averages | 30 |
| Chart II.10d: | Daily slope on 10-year benchmark btp (logarithmic scale), as recorded on the mts platform | 31 |
| Chart II.11: | Annual volumes traded on the mts platform in 2020 and 2021, by contract maturity (eur million) | 32 |
| Chart II.12: | Monthly volumes traded on the mts platform in 2021, by contract maturity (eur million) | 32 |
| Chart II.13: | Monthly special repo volumes traded on the mts platform (eur million) | 33 |
| Chart II.14: | Annual volumes traded by specialists on the mts platform (%) | 34 |

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MINISTRY OF ECONOMY AND FINANCE III

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  <u> 2021 PUBLIC DEBT REPORT </u>

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| Chart II.15: | Monthly volumes traded by specialists on platforms other than mts (eur million) | 35 |
| Chart II.16: | Quarterly volumes traded by specialists by type of counterparty - fund managers, banks, pension and insurance funds, hedge funds (eur million) | 36 |
| Chart II.17: | Quarterly volumes traded by specialists according to counterparty residence (eur million) | 37 |
| Chart II.18: | Prices of the btp futura and yield of the 10-year benchmark btp (right-hand scale inverted, in %) | 38 |
| Chart II.19: | Volumes of lots traded and open interest for the 10-year btp futura contract traded on the eurex market | 39 |
| Chart III.1: | 2011-2022 Evolution of the debt-to-gdp ratio | 41 |
| Chart III.2: | Gross compound yields on issuance of 6- and 12-month bots, 2020-2021 (expressed in percentage points) | 46 |
| Chart III.3: | Yield at issuance of 6-month bots and comparison with euribor rate - years 2020-21 (expressed in percentage points) | 46 |
| Chart III.4: | CTZ and BTP short term yields at issuance (expressed in percentage rates) in 2021 | 48 |
| Chart III.5: | Yields at issuance of long-term btps in 2021 (expressed in percentage points) | 51 |
| Chart III.6: | Yields at issuance of btps with 3-10 year maturities in 2021 (in percentage points) | 54 |
| Figure 3: | Breakdown by type of counterparty of orders placed in nominal btp auctions by specialists in government bonds - year 2021 | 55 |
| Figure 4: | Breakdown by geographical area of orders placed in nominal btp auctions by specialists in government bonds - year 2021 | 55 |
| Chart III.7: | Break even inflation (bei) a 10 anni 2020-2021 (espressa in punti base) | 57 |
| Chart III.8: | 10-Year break-even inflation (bei) 2020-2021 (expressed in basis points) | 58 |
| Chart III.9: | Yields on the issue of ccteus in 2020 (expressed in percentage points) | 61 |
| Chart III.10: | Amount repurchased in extraordinary operations - years 2013-2021 (nominal amounts in eur million) | 63 |
| Chart III.11: | Distribution of government bonds repurchased in extraordinary operations carried out in 2021 (nominal amounts in eur million) | 65 |
| Chart III.12: | Composition of the stock of government securities as of 31 december 2020 and 31 december 2021 | 70 |
| Chart III.13: | Evolution of the structure and average life of debt (in years) | 71 |
| Chart III.14: | Maturities by residual life, 2019-2021 | 72 |
| Chart III.15: | Comparison between the prospective trend of the notional amount for the existing derivatives portfolio, as at 31/12/2020 and 31/12/2021, respectively, assuming that all swaptions are exercised (eur million) | 75 |
| Chart III.16: | Comparison between the maturity structure of the existing derivatives portfolio, as at 31/12/2020 and 31/12/2021, respectively, assuming that all swaptions are exercised (eur million) | 76 |
| Chart III.17: | Average cost at issuance of government securities - 2006-2021 (Percentage points) | 76 |
| Chart III.18: | Average cost of the stock of government securities, before and after derivatives - 2005-2021 (Percentage points) | 77 |

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IV MINISTRY OF ECONOMY AND FINANCE

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INDEX<br>

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| Chart III.19: | Average intra-monthly changes in the Treasury's available cash - differences<br> compared with the monthly minimum - 2021 (eur million) | 82 |
| Chart III.20: | Difference between monthly maximum and minimum Treasury's cash account<br> – 2020 and 2021 (eur million) | 83 |
| Chart III.21: | Breakdown of the Treasury liquidity - average values for 2021 (eur million) | 84 |

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MINISTRY OF ECONOMY AND FINANCE V

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MINISTRY OF ECONOMY AND FINANCE VI

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INDICE<br>

FOREWORD

*The eight edition of the 2021 Annual Report on Italian Public Debt Management was slightly modified in its form and content. These changes do not alter the core structure of the Report, but merely make it easier to read. The document is also supplemented by the information available on the <u>Public Debt section of the MEF Department of the Treasury</u> website (<u>www.dt.mef.gov.it/en/debito_pubblico/</u>), which is regularly updated.*

*First of all, the Report was divided into two parts, leaving in-depth studies and statistical data in a separate section. The latter were primarily displayed in chart form, so that the main trends could be more immediately perceived. Please refer to the relevant pages available on the website for the underlying data.*

*With regard to contents, the objective was to focus on the newest and most peculiar aspects of debt management - largely determined by the absolutely exceptional market conditions experienced over the last two years - which also entailed a redefinition of the organisational structure to better meet the institutional objectives of a large issuer such as the Italian one.*

*Hopefully, this Report has become increasingly accessible also to less experienced readers who are rightfully interested in the evolution of Italy's public debt management, a phenomenon that, if only due to its size, directly or indirectly has a significant influence on national economic performance.*

MINISTRY OF ECONOMY AND FINANCE VII

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  <u> 2021 PUBLIC DEBT REPORT </u>

VIII MINISTRY OF ECONOMY AND FINANCE

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I. DEBT MANAGEMENT OBJECTIVES FOR 2021

I.1 THE OBJECTIVES AND RISKS OF INTERNATIONAL DEBT MANAGEMENT PRACTICES

The Italian Treasury's public debt management has always been in line with international best practices and fully complies with the recommendations of the main multilateral financial institutions as well as with the approaches adopted by other Debt Management Offices (DMOs) in advanced countries.

The main types of risk faced by DMOs refer to market risk, which includes interest rate risk and exchange rate risk, refinancing risk, liquidity risk and credit risk, in addition to the operational risk. Many of these risks involve, albeit in different ways, an unexpected increase in the cost of debt that could jeopardise debt sustainability.

International best practices recommend avoiding public debt portfolio structures that are too heavily weighted towards short-term and floating-rate instruments. Such structures may increase a country's economic and financial vulnerability<sup>1</sup>.

In fact, despite reducing interest expenditure in the short term, these structures make it more volatile, while they also increase the market refinancing risk and interest rate risk inherent in the debt portfolio and, consequently, in the government budget<sup>2</sup>. On the other hand, under normal financial market conditions and regardless of the issuer's creditworthiness, interest expenditure is higher for longer-term maturities, although longer maturities offer the benefit of effectively reducing the refinancing risk and interest rate risk.

However, DMOs are required to pursue both objectives: reducing the cost of debt at the same time as curbing market risks. Therefore, in practice, public debt managers must forego maximising both of these objectives and must instead focus on managing their relative trade-off.

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<sup>1</sup> Considerations in this regard can be found in the *<u>Guide to the Debt Management Performance Assessment</u>*<u> </u>(DeMPA) Tool, World Bank 2009

<sup>2</sup> However, it should be noted that this risk assessment approach may only be considered optimal if focusing exclusively on government liabilities (and therefore on debt). Indeed, a different and broader point of view could also include government assets. Under this approach, debt management could thus aim to achieve a liability structure consistent with the risks inherent to assets (following a so-called "ALM"–"Asset Liability Management" approach). This may lead to choices that - in principle - could differ even quite significantly from those made by taking into account the debt composition alone. However, many countries, including Italy, have come across significant hurdles in implementing such an approach, due to both the practical difficulty of calculating the financial risk exposure of the government's substantial assets - especially non-financial assets - and, in many cases, the fact that there is incomplete knowledge of the size and characteristics of said assets. Further information can be found in the World Bank Policy Research Working Paper *<u>How Do Countries Use an Asset and Liability Management Approach? A Survey on Sovereign Balance Sheet Management.</u>*

MINISTRY OF ECONOMY AND FINANCE 1

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  <u> 2021 PUBLIC DEBT REPORT </u>

In other words, out of all the feasible options, they must select the cost-risk combination deemed satisfactory<sup>3</sup> in relation to both portfolio characteristics and overall strategies. This trade-off is therefore not the same for all DMOs, and is therefore handled differently by public debt managers in each country, based on its specific characteristics, starting with its size in relation to the national economic system, its portfolio of instruments, its reference market and the fiscal policies pursued. Italy has taken a particularly prudent approach to this trade-off due to the size of its debt (among the highest in the world in absolute terms); this approach results in an idiosyncratic additional cost that does not allow for opportunistic tactics, but rather pushes for continuity, predictability and long-term strategies.

It goes without saying that the DMO's task of minimising the cost of debt while maintaining an acceptable level of risk cannot be deemed to have been completed upon each issuance and in relation to the market conditions at the time of placement. Indeed, the structure of public debt, consisting of a wide and diversified portfolio of financial instruments with different characteristics and maturities, requires continuous, dynamic management even after issuance, conducted with suitable instruments and in line with market developments.

I.2 2021 OBJECTIVES: THE INSTITUTIONAL FRAMEWORK OF REFERENCE

Public debt is made up of the total liabilities of the general government sector, divided into the subsectors of central government, territorial entities and public social security institutions. More than 80% of public debt is constituted by government securities issued by the Treasury on both the domestic and foreign markets.

As was also the case in previous years<sup>4</sup>, this Report refers to outstanding government securities, which are subject to the special legislation represented by Italy's "Consolidated Law on Public Debt" (TUDP)<sup>5</sup>, whose main characteristics are summarised in Table I.1.

<sup>3</sup> In this regard, the International Monetary Fund and World Bank guidelines note that "Minimizing cost, while ignoring risk, should not be an objective. Operations that appear to lower debt servicing costs often embody significant risks for the government and can limit its capacity to repay lenders. Managing cost and risk therefore involves a trade-off".

<sup>4</sup> All editions of the Annual Public Debt Report can be found at:<br> <u>www.dt.mef.gov.it/en/debito_pubblico/presentazioni_studi_relazioni/</u>

<sup>5</sup> Consolidated Text of Legislative and Regulatory Provisions on Public Debt (Italian Presidential Decree No.<br> 398 of 30 December 2003).

2 MINISTRY OF ECONOMY AND FINANCE

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<u> I. DEBT MANAGEMENT OBJECTIVES FOR 2021 </u>  

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|  TABLE I.1: DOMESTIC GOVERNMENT SECURITIES | TABLE I.1: DOMESTIC GOVERNMENT SECURITIES | TABLE I.1: DOMESTIC GOVERNMENT SECURITIES | TABLE I.1: DOMESTIC GOVERNMENT SECURITIES | TABLE I.1: DOMESTIC GOVERNMENT SECURITIES | TABLE I.1: DOMESTIC GOVERNMENT SECURITIES | TABLE I.1: DOMESTIC GOVERNMENT SECURITIES | TABLE I.1: DOMESTIC GOVERNMENT SECURITIES | TABLE I.1: DOMESTIC GOVERNMENT SECURITIES |
|  | **BOT** | **CTZ** | **CCTeu** | **BTP** | **BTP€i** | **BTP Italia** | **BTP Futura** | **BTP Green** |
|  | Treasury Bills | Zero- Coupon Treasury Bonds | Treasury Credit Certificates | Long-term Treasury Bonds | Long-term Treasury Bonds indexed to European inflation | Long-term Treasury Bonds indexed to Italian inflation | Long-term Treasury<br> Bonds step-up | Long-term Treasury Bonds for financing expenditure with a positive environment al impact. |
| **Maturity** | 3, 6, 12 months and less than 12 months (flexible<br> BOTs) | 24 months | 5, 7 years | *Short Term*, 3, 5,<br> 7, 10, 15, 20, 30 and 50 years | 5, 10, 15 and 30 years | 4, 6, 8 years | 8, 10 and 12 years <sup>a)</sup> | Over 10<br> years |
| **Remuneration** | Issue discount | Issue discount | Half-yearly variable coupons indexed to the 6- month Euribor, possible issue discount | Half-yearly fixed coupons, possible issue discount | Half-yearly coupons indexed to European inflation (HICP index net of tobacco), possible issue discount and revaluation of principal at maturity | Half-yearly coupons indexed to Italian<br> inflation<br> ("FOI" index net of tobacco), half- yearly revaluation of principal and loyalty premium <sup>b)</sup> at maturity | Half-yearly coupons with step-up mechanism with increasing yields and loyalty<br> premium c) indexed to the average growth of Italian GDP during the life of the bond | Half-yearly fixed coupons, possible issue discount |
| **Issuance procedure <sup>d)</sup>** | Competitive, yield- based auction | Marginal auction with discretio nary determin ation of the price and quantity issued | Marginal auction with discretiona ry determinati on of the price and quantity issued | Marginal auction<br> <sup>e)</sup> with discretionary determination of the price and quantity issued | Marginal auction <sup>e)</sup> with discretionary determinati on of the price and quantity issued | Through the MOT (Borsa Italiana), the electronic market dedicated to retail trading | Through the MOT (Borsa Italiana), the electronic market dedicated to retail trading | Placement syndicate (or marginal auction, with discretionary determinatio n of price and quantity issued) |
| **Issuance frequency** | Monthly | Monthly | Monthly | Monthly and based on market conditions for 15- and 30-year BTPs | Monthly | Once/twice a year, based on market conditions | Once/twice a year, based on market conditions | Flexible |
| <sup>a)</sup> Additionally, a BTP Futura bond with a maturity at issuance of 16 years was emitted in 2021.<br> <sup>b)</sup> For individual savers and similar investors who purchase the security at issuance during the first phase of the placement period.<br> <sup>c)</sup> For individual savers and similar investors, to whom the BTP Futura bond is reserved, who purchased the bond during the placement period and held it until maturity.<br> <sup>d)</sup> As of 2020, reopenings of securities destined only to Primary dealers have also been introduced.<br> <sup>e)</sup> The first tranches of new long-term BTPs (over 10 years) or BTP€is may be offered on the market through placement syndicate. | <sup>a)</sup> Additionally, a BTP Futura bond with a maturity at issuance of 16 years was emitted in 2021.<br> <sup>b)</sup> For individual savers and similar investors who purchase the security at issuance during the first phase of the placement period.<br> <sup>c)</sup> For individual savers and similar investors, to whom the BTP Futura bond is reserved, who purchased the bond during the placement period and held it until maturity.<br> <sup>d)</sup> As of 2020, reopenings of securities destined only to Primary dealers have also been introduced.<br> <sup>e)</sup> The first tranches of new long-term BTPs (over 10 years) or BTP€is may be offered on the market through placement syndicate. | <sup>a)</sup> Additionally, a BTP Futura bond with a maturity at issuance of 16 years was emitted in 2021.<br> <sup>b)</sup> For individual savers and similar investors who purchase the security at issuance during the first phase of the placement period.<br> <sup>c)</sup> For individual savers and similar investors, to whom the BTP Futura bond is reserved, who purchased the bond during the placement period and held it until maturity.<br> <sup>d)</sup> As of 2020, reopenings of securities destined only to Primary dealers have also been introduced.<br> <sup>e)</sup> The first tranches of new long-term BTPs (over 10 years) or BTP€is may be offered on the market through placement syndicate. | <sup>a)</sup> Additionally, a BTP Futura bond with a maturity at issuance of 16 years was emitted in 2021.<br> <sup>b)</sup> For individual savers and similar investors who purchase the security at issuance during the first phase of the placement period.<br> <sup>c)</sup> For individual savers and similar investors, to whom the BTP Futura bond is reserved, who purchased the bond during the placement period and held it until maturity.<br> <sup>d)</sup> As of 2020, reopenings of securities destined only to Primary dealers have also been introduced.<br> <sup>e)</sup> The first tranches of new long-term BTPs (over 10 years) or BTP€is may be offered on the market through placement syndicate. | <sup>a)</sup> Additionally, a BTP Futura bond with a maturity at issuance of 16 years was emitted in 2021.<br> <sup>b)</sup> For individual savers and similar investors who purchase the security at issuance during the first phase of the placement period.<br> <sup>c)</sup> For individual savers and similar investors, to whom the BTP Futura bond is reserved, who purchased the bond during the placement period and held it until maturity.<br> <sup>d)</sup> As of 2020, reopenings of securities destined only to Primary dealers have also been introduced.<br> <sup>e)</sup> The first tranches of new long-term BTPs (over 10 years) or BTP€is may be offered on the market through placement syndicate. | <sup>a)</sup> Additionally, a BTP Futura bond with a maturity at issuance of 16 years was emitted in 2021.<br> <sup>b)</sup> For individual savers and similar investors who purchase the security at issuance during the first phase of the placement period.<br> <sup>c)</sup> For individual savers and similar investors, to whom the BTP Futura bond is reserved, who purchased the bond during the placement period and held it until maturity.<br> <sup>d)</sup> As of 2020, reopenings of securities destined only to Primary dealers have also been introduced.<br> <sup>e)</sup> The first tranches of new long-term BTPs (over 10 years) or BTP€is may be offered on the market through placement syndicate. | <sup>a)</sup> Additionally, a BTP Futura bond with a maturity at issuance of 16 years was emitted in 2021.<br> <sup>b)</sup> For individual savers and similar investors who purchase the security at issuance during the first phase of the placement period.<br> <sup>c)</sup> For individual savers and similar investors, to whom the BTP Futura bond is reserved, who purchased the bond during the placement period and held it until maturity.<br> <sup>d)</sup> As of 2020, reopenings of securities destined only to Primary dealers have also been introduced.<br> <sup>e)</sup> The first tranches of new long-term BTPs (over 10 years) or BTP€is may be offered on the market through placement syndicate. | <sup>a)</sup> Additionally, a BTP Futura bond with a maturity at issuance of 16 years was emitted in 2021.<br> <sup>b)</sup> For individual savers and similar investors who purchase the security at issuance during the first phase of the placement period.<br> <sup>c)</sup> For individual savers and similar investors, to whom the BTP Futura bond is reserved, who purchased the bond during the placement period and held it until maturity.<br> <sup>d)</sup> As of 2020, reopenings of securities destined only to Primary dealers have also been introduced.<br> <sup>e)</sup> The first tranches of new long-term BTPs (over 10 years) or BTP€is may be offered on the market through placement syndicate. | <sup>a)</sup> Additionally, a BTP Futura bond with a maturity at issuance of 16 years was emitted in 2021.<br> <sup>b)</sup> For individual savers and similar investors who purchase the security at issuance during the first phase of the placement period.<br> <sup>c)</sup> For individual savers and similar investors, to whom the BTP Futura bond is reserved, who purchased the bond during the placement period and held it until maturity.<br> <sup>d)</sup> As of 2020, reopenings of securities destined only to Primary dealers have also been introduced.<br> <sup>e)</sup> The first tranches of new long-term BTPs (over 10 years) or BTP€is may be offered on the market through placement syndicate. |

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The part of public debt represented by government securities was managed in accordance with: (i) the Italian Ministry of Economy and Finance's general Directive

MINISTRY OF ECONOMY AND FINANCE 3

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for administrative procedures and management for 2021<sup>6</sup>, and (ii) the "Framework Decree" for 2021<sup>7</sup>, which defined the reference objectives for administrative action regarding financial operations for the management of public debt. The provisions contained in these decrees were then converted into the operational "Public debt management guidelines" for 2021<sup>8</sup> (hereinafter, "Guidelines").

The general Directive identified as a strategic objective the effective and efficient management of public debt, focusing on containing its cost and extending or stabilising its average life.

As was the case in previous years, the Framework Decree for 2021, provided guidance for the work of the Public Debt Directorate as well as a number of specific objectives. In particular, Art. 2 states that debt should be "in accordance with the limit established annually by the law approving the State budget", equal to the amount to cover the securities maturing during the year and the Central Government's borrowing requirements, being sure to "...reconcile the need to meet market demand with that of containing the overall borrowing cost in a medium-long term horizon, having considered the need to protect against the refinancing risk and exposure to interest rate fluctuations".

The same article also identified the limits to be respected in terms of the percentage composition of debt at the end of 2021, broken down as follows:

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|:---|:---|:---|:---|
|  TABLE I.2: OBJECTIVES FOR THE END OF 2021: PERCENTAGE COMPOSITION OF THE DEBT PORTFOLIO | TABLE I.2: OBJECTIVES FOR THE END OF 2021: PERCENTAGE COMPOSITION OF THE DEBT PORTFOLIO | TABLE I.2: OBJECTIVES FOR THE END OF 2021: PERCENTAGE COMPOSITION OF THE DEBT PORTFOLIO | TABLE I.2: OBJECTIVES FOR THE END OF 2021: PERCENTAGE COMPOSITION OF THE DEBT PORTFOLIO |
|  **Type of security** | **Min.** | **Max.** | **Differences compared to 2020** |
|  BOT (short-term) | 3% | 8% | -- |
|  BTP (fixed-rate, nominal) | 65% | 78% | -- |
|  CCTeu | 4% | 10% | -- |
|  CTZ | -- | 4% | -- |
|  BTP€i and BTP Italia ("real" securities) | -- | 15% | -- |
|  Securities issued on foreign markets | -- | 5% | -- |
|  Source: Framework Decree for 2021 | Source: Framework Decree for 2021 | Source: Framework Decree for 2021 | Source: Framework Decree for 2021 |

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In order to pursue the objectives of "*curbing the overall debt cost, protecting against market risks and refinancing risks and ensuring the proper functioning of the secondary market for government securities*", Art. 3 authorises the use of public debt management operations<sup>9</sup> also through derivative financial instruments, exchanges or repurchase of government securities.

In order to mitigate the credit risk stemming from derivatives, Art. 4 requires counterparties to have a high level of creditworthiness, according to the rating

<sup>6</sup> For the Italian version of the General Directive for administrative action and management of the Italian Ministry of Economy and Finance –Year 2021, see <u>www.mef.gov.it/ministero/oiv/direttiva_generale.html</u>.

<sup>7</sup> Guidelines for the implementation of financial operations (Framework Decree) for 2021: (<u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/2021_Framework_Decree_-_Directives_for_conducting_financial_transactions_xD_M_30.12.2020x.pdf)</u>.

<sup>8</sup> Guidelines for public debt management for 2021: (www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/presentazioni_studi_relazioni/Guidelines_for_public_debt_management_2021.pdf).

<sup>9</sup> Art. 3 of the "TUDP"(Italian Consolidated Law on Public Debt) authorises the use of operations on a consensual basis that restructure certain features of the existing debt portfolio.

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<u> I. DEBT MANAGEMENT OBJECTIVES FOR 2021 </u>  

given by the main rating agencies, also providing for possible agreements with the counterparties for mutual guarantees (collateralisation)<sup>10</sup>.

Lastly, Art. 6 states that the aim of cash account management<sup>11</sup> must be "*the efficient movement of cash balances, in relation to the government securities issuance, prevailing market conditions and the constraints imposed by monetary policy provisions*". To this end, this year saw the introduction of repurchase agreements (REPOs) on specifically issued tranches of government securities.

Debt management was given the objective of stabilising the structure of the government securities portfolio at the end of 2021, with no deviation from what was planned for 2020. The aim remained, therefore, to consolidate the results achieved in recent years in terms of exposure to interest rate and refinancing risk, taking advantage of a market environment which, albeit still fragile, has improved since the acute phase of the pandemic<sup>12</sup>.

Based on the outstanding securities portfolio at the end of 2020, EUR 222 billion worth of securities were scheduled to mature in 2021 (excluding BOTs), of which EUR 9.3 billion referring to the foreign programme, a slightly higher amount than the approximately EUR 202 billion worth of medium/long-term securities outstanding at the end of 2019, maturing in 2020.

In the 2021 Guidelines, the Central Government cash needs were expected to be around EUR 145 billion, a level slightly below that of 2020, to be covered not only by the national issuance programme, but also by the European resources made available by means of loans from both the SURE programme and the Recovery and Resiliency Facility package under the Next Generation EU programme. It was therefore expected that the total volume of government securities offered to the market in 2021 could be maintained at a lower level than in the previous year.

In particular, in the abovementioned document the Treasury pursued the following objectives:

<br> 1) the meeting of borrowing requirements at costs as aligned as possible with market trends;

<br> 2) the consolidation of the results already achieved in terms of exposure to the main risks, in particular the interest rate risk and refinancing risk;

<br> 3) the gradual improvement in liquidity conditions on the secondary market;

<br> 4) the efficient management of the Treasury's cash, also through a greater diversification of the instruments available.

The Treasury's strategy was therefore set to develop along the following lines:

<br> 1) ensure predictable and regular issues for all the main segments of domestic securities;

<br> 2) adjust the volumes offered to the market in order to give greater weighting to sectors with better liquidity on the secondary market and greater depth of demand;

<sup>10</sup> For more information about these mutual guarantee agreements, please see Chap. III.3 "Derivatives portfolio management".

<sup>11</sup> Regulations regarding the Treasury's cash movements and the selection of the counterparties participating in the relative operations are based on the Italian Ministerial Decree dated 10 January 2022.

<sup>12</sup> The evolution of the average life of the stock of government securities is detailed in the following paragraphs.

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3) use liability management tools (such as exchanges and repurchases), in line with the approach followed in recent years, with a frequency and intensity in line with market trends, with the aim of reducing dislocations on specific securities, improving liquidity on the secondary market, managing the redemption profile for future years and managing the redemption profile of future years, and helping to reduce the average cost of outstanding debt;

<br> 4) diversify the investor base also through foreign currency issues in Global format as well as EMTNs, with particular regard to issues in US dollars; continue the dedicated offering to retail investors, aimed at expanding their direct participation in public debt financing;

<br> 5) put in place all organisational and market interventions necessary to start the issuance of "green" government securities, introduced into domestic law by the Budget Law for 2020 (Italian Law No. 160 of 27 December 2019);

<br> 6) introduce the BTP Short Term, a new nominal bond with a coupon and maturity between 18 and 30 months, replacing CTZs.

I.3 CURBING THE COST OF DEBT WHILE PAYING ATTENTION TO THE COST/RISK PROFILE

The cost-risk trade-off: Italy's specific features

As in previous years, public debt management in Italy focuses on containing two main risks: the interest rate risk, by minimising the impact on interest expenditure<sup>13</sup> caused by fluctuations of the interest rates at which the debt is placed; and the refinancing risk, by distributing the maturities of securities more evenly over time in order to facilitate new issues.

When it comes to these risks, the Treasury's objectives are in line with the practices followed by other DMOs. However, in Italy's case, the management of a particularly high debt makes it necessary to pay greater attention to the credit risk premium requested by investors, based on the perceived sustainability of the debt, which becomes a significant component of the interest rate level at the issuance for Italian government securities.

Another aspect to be considered in the management of the Italian state budget concerns the stability and predictability of interest expenditure, which allows to avoid the need to increase taxation should government-security yields be affected by possible shocks and makes it easier to manage public finance commitments stemming from European requirements, mainly based on deficit control and debt dynamics.

The two aforementioned aspects therefore significantly contribute to guiding Italy's debt management strategy with regard to keeping refinancing and interest rate risks under control.

<sup>13</sup> In order to manage public finances correctly, it is necessary, where possible, to reduce costs and to plan outgoings with as much certainty as possible. This avoids unwanted and unexpected increases in the deficit and/or fiscal pressure, perhaps also significantly and in a short amount of time, as a result of costs or expenses not being duly planned for. Correct management of public finances therefore guarantees a framework of financial stability, which in turn allows for effective debt management.

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<u> I. DEBT MANAGEMENT OBJECTIVES FOR 2021 </u>  

Refinancing risk metrics and management tools

The average life of the stock of government securities is the best-known benchmark metric used to measure refinancing risk: this is calculated as the average of the maturities of all outstanding securities, weighted according to the nominal value<sup>14</sup> of each security. At the end of 2020, the average life of government securities stood at 6.95 years, up from end-2019 level.

Below is the annual distribution of maturities from the end of 2020 (Chart I.1) and, in detail, the monthly distribution up to and including 2023 (Chart I.2).

In 2021, the reshaping of the maturity profile was aimed not only at guaranteeing the effective management of refinancing risk by reducing expected redemptions, especially during the course of the year and in 2022, but also at cutting the average cost paid by the Treasury on the stock of debt, by decreasing the outstanding amount of high-coupon securities. The Treasury also aimed to withdraw from the market shares of the last outstanding CTZs and variable-coupon securities, a market segment that, in recent years, had been particularly exposed to tensions in the financial markets.

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|  CHART I.1: ANNUAL MATURITY PROFILE OF MEDIUM/LONG-TERM SECURITIES OUTSTANDING AS AT 31.12.2020 (EUR MILLION) |
| ![](image00042.jpg) |
|  Source: MEF |

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<sup>14</sup> For "nominal value", the definition adopted in EC Regulation no. 479/2009 of 25 May 2009 is used: "...The nominal value of a liability outstanding at the end of the year is the face value. The nominal value of an index- linked liability corresponds to its face value adjusted by the index-related change in the value of the principal accrued to the end of the year. [...] Liabilities denominated in a foreign currency shall be converted into the national currency on the basis of the representative market exchange rate prevailing on the last working day of each year. Liabilities denominated in a foreign currency and exchanged through contractual agreements to the national currency shall be converted into the national currency at the rate agreed on in those contacts".

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|:---|
|  CHART I.2: MONTHLY MATURITY PROFILE OF MEDIUM/LONG-TERM SECURITIES OUTSTANDING AS AT 31.12.2020 (EUR MILLION) |
| ![](image00050.jpg)<br>|
|  Source: MEF |

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Interest rate risk metrics and the SAPE model and software used by the Italian Treasury

The three main indicators used to quantify the interest rate risk are (i) financial duration, equal to the weighted average payment time for both principal and interest; (ii) the average refixing period, i.e. the average time taken by the debt portfolio to "integrate" market interest rate changes, and, lastly, (iii) Cost-at-Risk, which quantifies the maximum additional cost in terms of interest expenditure in the event of adverse interest rate scenarios, along with the probability of actually having to bear this additional cost, deriving in turn from the probability that these adverse scenarios shall occur<sup>15</sup>. Cost-at-Risk (CaR) analysis is therefore used to identify, with a given probability, an expected cost level that may not be exceeded, as well as all the compositions of the securities issuances whose cost-risk combinations are classed as being efficient, i.e. are such as to become dominant - for a given level of cost or risk - over any other hypothetical composition of the issuance portfolio.

In this way, it is possible to test the characteristics of a series of hypothetical issuance portfolios, estimating both the cost in terms of interest expenditure and the interest rate risk (measured in terms of Cost-at-Risk) for each over a given amount of time in the future, calculated with different possible scenarios as to how the interest and inflation rates will evolve.

From a technical point of view, the tool used for this analysis is an in-house developed model which the Public Debt Directorate has been using for a number of

<sup>15</sup> Please see the focus point on "The main quantitative indicators of interest rate risk" on page 22 of the 2014 Annual Public Debt Report, available at the address already provided in note 8 of this Chapter.

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<u> I. DEBT MANAGEMENT OBJECTIVES FOR 2021 </u>  

years, called "SAPE" (Software di Analisi dei Portafogli di Emissione - Issuance Portfolio Analysis Software)<sup>16</sup>.

The outstanding debt database used by SAPE at the end of 2020 was made up of domestic securities, derivatives and securities in USD. With regard to the latter, the Treasury's policy is to issue any securities in a foreign currency at generally better (or at least equal) cost conditions<sup>17</sup> than those available for equivalent domestic instruments. Therefore, when estimating the refinancing costs of future redemptions for securities in USD, data on domestic securities were used, with no new derivative operations expected to manage the rate risk.

The role of the issuance strategy in managing the interest rate risk-cost trade-off in 2021

For debt management, especially of a large amount, it is essential to identify a cost-risk combination that minimises costs without increasing risk. This may also be interpreted as promoting a medium- and long-term perspective, which not only reduces present costs as much as possible, but also aims at creating the conditions for a lasting and gradual reduction in borrowing costs (which also depend on investors' perception of credit risk).

For this reason, improvements in refinancing and interest rate risk metrics should always be evaluated by also taking into account the higher costs involved with this strategy. In fact, as already mentioned, the market demands higher remuneration for securities with longer maturities. This trade-off must therefore be taken into consideration when planning the issuance portfolio, i.e. estimating the marginal cost required by the market to improve the aforementioned risk metrics.

To do this, the Public Debt Directorate conducted an analysis of the set of hypothetical issuance portfolios for domestic securities already identified when defining the Guidelines in previous years, assessing their actual feasibility and sensitivity to certain market elements.

As a precondition, said portfolios must make it possible to fund:

1) the redemptions of medium- and long-term securities scheduled for 2021 (amounting to approximately EUR 222 billion);

2) outstanding BOTs (amounting to approximately EUR 121 billion), together with the so-called "BOT rollover" during the year, i.e. the BOT issues necessary to cover the redemptions of the BOTs issued in the same year;

<br> 3) Central Government cash requirements, which, at the time, were estimated to be around EUR 145 billion<sup>18</sup>;

<br> 4) as well as ensuring that the Treasury has sufficient liquidity available to cater for all cash needs.

<sup>16</sup> Models and software are constantly being updated. A detailed description of the implications and functioning of the model can be found in the recently published study available in English at the following link: <u>www.dt.mef.gov.it/en/debito_pubblico/Public_Debt_Management_Network/ebook/</u>.

Furthermore, a summary of the development of the model is included in Appendix 3 of the Report.

<sup>17</sup> Including costs to hedge against exchange rate risks.

<sup>18</sup> This figure formed the basis for public finance forecasts included in the 2021 Draft Budgetary Plan.

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The portfolio initially used for the analysis reflected the composition of domestic issues in 2020, characterised in gross terms by around 34% of BOT issuances (almost equally divided between annual and 6-months maturities), 7% of CTZs, around 3% of CCTeus and over 6% of inflation-indexed securities (including BTP€i and BTP Italia). Nominal BTPs therefore represented just under 48% of the total, of which approximately 18% were represented by securities with the shortest durations (3 and 5 years), 18.5% by 7- and 10-year maturities and, lastly, just over 11% relating to the segment with the longest duration.

The following chart shows all the portfolios analysed:

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|:---|
|  CHART I.3: COMPOSITION OF THE ALTERNATIVE ISSUANCE PORTFOLIOS ANALYSED FOR 2021 (EUR MILLION) |
| ![](image00051.jpg)<br>|
|  Source: MEF |

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The results of the analysis confirmed the validity of a strategy in line with that of 2020 and with the portfolio implemented during the same year. Indeed, an analysis of the final 2021 portfolio shows how the Treasury opted for a composition of the issuance generally in line with that of the previous year, albeit with some differences. In particular, the issuance ratio of securities with maturities in the middle of the curve, between 7 and 10 years (equal to 21%), increased, while that of the segment with the longest duration fell to 7%. The share of indexed securities decreased, mainly due to a lack of BTP Italia issuances, while CCTeus grew to over 5%. Lastly, about 3% of the portfolio is represented by issues of the new BTP Green, the first government security connected to the sustainable finance market, launched by the Treasury in 2021.

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<u> I. DEBT MANAGEMENT OBJECTIVES FOR 2021 </u>  

The role of derivative operations in managing the interest rate risk-cost trade-off for 2021

The Treasury has always carefully and constantly monitored the risks underlying its debt portfolio, identifying the main factors to which it is exposed from both a qualitative and a quantitative point of view. Any change occurring to the debt as a result of both new placements and the natural maturity of the securities is not incorporated passively into the portfolio; instead, active risk management is conducted in order to improve the portfolio's risk profile. The Treasury therefore uses liability management tools to actively manage risks, such as interest rate, refinancing and exchange rate risk, alongside new issues and possibly also following them. To this end, like many other sovereign issuers, the Treasury uses derivative financial instruments, as well as exchange and repurchase operations.

In authorising the use of derivatives, the Framework Decree states that they should contribute to achieving the general management objectives of curbing overall borrowing costs, protecting against market risks and refinancing risks, as well as ensuring the proper functioning of the secondary market for government securities.

Derivative operations therefore have a variety of objectives, such as increasing the financial duration of debt, reducing exposure to unexpected and sudden interest rate fluctuations, and improving the cost-risk profile in the medium to long term. Hence, these instruments do not have a funding objective, but rather a risk containment objective. The guidelines in derivative activities remain consistent and in line with those of previous years: changes in the policies for managing liability management instruments may only be necessary due to changes in the composition of debt, the risks underlying the portfolio or the strategic objectives pursued. Despite the pandemic crisis and the resulting increase in the notional amount of securities issued, the composition or riskiness of debt has not been substantially affected.

In line with the 2021 Guidelines, the management of the derivatives portfolio would have taken into account two main aspects: (i) the availability of collateralisation agreements for the execution of new derivative positions and the conclusion of new collateralisation agreements for past operations, consistent with the State' s cash resources (ii) the possibility of restructuring existing positions in the portfolio.

With regard to the first point, the process of entering into<sup>19</sup> bilateral guarantee agreements (the so-called Credit Support Annex - CSA) for the new derivative operations was completed during 2019, with all government bond specialists. Moreover, over time the legal framework had already been supplemented with a system of bilateral guarantees on selected existing contracts, thus also supporting the management of existing positions with a limited number of counterparties, characterised by significant credit exposure to the Treasury.

Although the level of swap rates was rising, albeit still contained on a historical basis, the Treasury would consider both restructuring existing positions and

<sup>19</sup> On this, see the 2018 and 2019 Public Debt Reports.

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executing new derivative operations to both mitigate the exposure to interest rate risk and extend the overall duration of the debt, in line with the past.

In 2021, the management of the derivatives portfolio was thus set to focus on: (i) hedging market risks, such as exchange rate risk, for possible issuances in foreign currency, and interest rate risk; (ii) restructuring and/or concluding operations already in the derivatives portfolio; and (iii) managing collateral, through the collateralisation of additional existing derivative positions (subject to the availability of funds to be allocated to this project).

Measures to achieve debt issuance and management objectives for 2021

In relation to the set objectives, the Italian Treasury's strategy for 2021 was structured as follows, covering the two phases of debt management:

Policies at issuance of domestic and foreign securities

The Guidelines defined the issuance policy for 2021 taking into consideration the above-mentioned objectives in terms of average life, duration and the average refixing period, as well as the results of the cost-risk trade-off analysis.

In line with market conditions and given the lower volumes offered compared to the previous year, issuance choices in 2021 should therefore aim:

<br> 1) to adjust BOT issuances in order to ensure an end-of-period stock which would include the renewal of maturing securities;

<br> 2) to replace CTZ issuances with the BTP Short Term, a new instrument with a fixed coupon and maturity between 18 and 30 months, aligning new securities offered with maturing CTZs;

3) for 3- and 5-year BTPs, to balance the overall amounts offered on the two segments, and to reduce the volumes offered compared to the previous year. Slightly positive net issues were expected on both segments;

4) to keep the gross issuances of 7-year BTPs in line with those of 2020, given the about EUR 32 billion worth of amounts maturing, so as to consolidate the share of 7-year BTPs within the stock of government securities at the end of the year, thereby contributing to extending the average life of the debt. In 2021, the Treasury planned to continue to offer 10-year BTPs through regular monthly auctions, albeit for a slightly lower total amount than in the previous year. Despite the amount expiring (over EUR 47 billion) largely positive net issuances were expected on this segment;

5) for longer-term nominal maturities, to provide liquidity on all available instruments (15, 20, 30 and 50 years) by resorting to both the reopening of outstanding securities and the issuance of new ones, deciding on a case-by-case basis which of the available maturities to offer depending on the conditions on the secondary market. With regard to long-term securities, the plan was to keep overall issuance levels lower to those of the previous year, while still achieving positive net issuance in the various segments, with the exception of 15-year securities, given the considerable amount maturing, at around EUR 25 billion. In the presence of favourable market conditions, it was

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also planned to use a placement syndicate for new securities on the various benchmark maturities in this segment;

<br> 6) to keep the offer of CCTeus, in line with that of 2020, with positive net issuances, given the absence of expiring securities. The Treasury also planned the placement of at least one new benchmark over maturities between 3 and 7 years;

7) to continue to ensure a constant presence for the various maturities of BTP€is, with higher volumes on offer than in the previous year. However, given the significant amount of securities expiring, negative net issuance on the segment was expected. The conditions for launching a new security on the longer-term segment of the real yield curve was also to be examined;

8) to ensure at least one issuance for retail investors, keeping maximum flexibility regarding the most appropriate maturity, given that market conditions are difficult to predict. The Treasury would also have considered the possibility of carrying out exchange or repurchase operations on BTP Italia securities with a particularly high outstanding amount, in order to contribute to the management of the redemption profile for the coming years;

9) to continue issuing in USD on a regular basis, solidifying the Treasury's presence in this sector, as announced following the 2019 multi- tranche global bond issue and in line with what was implemented in the following year. The aim was to continue to build a USD yield curve ever more complete and liquid, significantly increasing the number of institutional investors managing Italy's Public Debt, with particular regard to strategic investors less present in the domestic securities sector, such as Asian insurance companies and pension funds, while ensuring issuance costs in line with those of outstanding securities. In line with previous years, the guidelines provided for the possibility to recourse to the MTN program, in euro/foreign currency, to meet the demand for public or private placements among primary institutional investors, subject to minimum requirements being met<sup>20</sup> regarding the issue format;

<br> 10) to prepare all organisational and market actions for the issuance of a "green" government bond for financing projects with a positive environmental impact.

Post-issuance debt management operations

As already mentioned, the Italian Treasury may also use extraordinary exchange and repurchase operations regarding government securities in order to achieve the aforementioned objectives for the existing debt portfolio.

The 2021 Guidelines called for a policy in line with that adopted in recent years. Extraordinary operations are in fact, by their very nature, highly flexible in terms of methods and timing of execution, and pursue a variety of purposes, such as managing refinancing risk, reshaping the maturity profile, supporting liquidity and ensuring the efficiency of the sovereign bond market, as well as reducing the average cost paid by the Treasury on outstanding securities. As was the case in

<sup>20</sup> Maturity of at least three years, minimum amount of EUR 200 million and a minimum negotiable amount of EUR 500,000.

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recent years, exchange and repurchase operations were also allowed to be carried out through syndication and would have been aimed, inter alia, at facilitating the process of reducing the overall maturity stock in individual years.

I.4 MONITORING AND MANAGING THE CASH ACCOUNT TO STABILISE THE BALANCE

The cash account for Treasury services

The Cash Account is the account held by the Treasury with the Bank of Italy, where its incoming cash flows and payments are recorded. The balance of this account is the sum of the balances of all the accounts held by the Treasury<sup>21</sup> and is characterised by strong volatility, due to both the large number of entities that move funds with the Treasury and to the cyclical presence, usually on a monthly basis, of certain flows that have a significant effect on daily balances. In particular, a strong impact on the payment side - mainly in the first few days of the month - is determined by the disbursement of pensions, while on the collection side, the central days of the month are marked by the collection of tax revenues. Issuances and, to an even greater extent, redemptions of government securities at maturity can also cause significant fluctuations in the Cash Account.

The Treasury, together with the Bank of Italy, manages its liquidity according to forecasts of Treasury flows and related stocks. This approach also meets the needs of the European Central Bank (ECB), which call for monetary policy to be facilitated through an efficient forecast of the liquidity held by public institutions at national central banks in the euro area.

The regulatory context for cash management in 2021

Cash management principles were established in the MEF's general Directive for administrative procedures and management and in the Framework Decree, as well as in the 2021 Public Debt Management Guidelines. In particular, the general guidelines stated that the focus should be on improving the model to process daily cash forecasts for the Cash Account and that the monitoring and management of that Account must be geared towards stabilising the balance. The Framework Decree stated that management of the cash account must aim at efficient cash movements, in line with the government security issuance strategy and the prevailing market conditions, at the same time as complying with the constraints imposed by monetary policy provisions. Lastly, the Public Debt Management Guidelines set the objective of maintaining a constant presence in the money market through bilateral liquidity investment operations with a maturity of more than one day, for the purpose of improving its management and profitability, with a view to reducing counterparty risks.

<sup>21</sup> For further details, please refer to Italian Ministerial Decree No. 51961 of 26 June 2015 concerning the identification of government deposits held with the Bank of Italy, implementing Article 5, paragraph 5, of Italian Presidential Decree No. 398/2003.

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With regard to legislation governing the movement and management of the cash deposited in the Cash Account, reference continues to be made to the Framework Decree, which substantially refers to the Italian Ministerial Decree dated 25 October 2011<sup>22</sup>.

At the same time, the monetary policy interventions of the European Central Bank (ECB) changed the framework under which the Treasury managed the cash deposited in the Cash Account, increasingly penalising the deposits held in the Bank of Italy. As is known, as of 1 October 2019, the procedure to pay interest on government deposits held with national central banks was reformed as a result of new provisions issued by the ECB in April 2019<sup>23</sup>. More precisely, also in the year 2021, liquidity not exceeding the threshold of 0.04% of GDP (equal to EUR 671 million), was subject to the EONIA rate, while liquidity in excess of this threshold was subject to the ECB deposit rate (Deposit Facility) equal to -0.50%, which remained unchanged throughout the year.

Cash management

The cash management service was set up in 2007 and consists of monitoring Treasury balances and flows, in order to carry out daily operations on the money market to ensure an adequate level of liquidity in light of the multiple movements of the Treasury. This activity is closely linked to public debt management and constitutes the link between securities issues and the daily fluctuations of the Cash Account.

The monitoring consists of a continuous exchange of information between the Bank of Italy and the MEF (State General Accounting Department and Department of the Treasury - Public Debt Directorate), with forecast and actual data on all collections and payments involving accounts held with the Treasury and the resulting estimate of the Cash Account balance. The information exchanges are updated repeatedly during each working day, with the aim of estimating the end-of-day balance of the Account. The liquidity forecasts of the MEF and the Bank of Italy also include longer-term scenarios, shared on a weekly basis, with a time horizon consistent with monetary policy requirements.

Money market operations, on the other hand, consist of lending or borrowing surplus liquidity in order to manage possible, temporary cash shortages.

<sup>22</sup> For further details on that Italian Ministerial Decree, please refer to the following link:

<u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/Management-of-the-liquidity-available-on-the-Treasury-Account-25-October-2011.pdf</u>

<sup>23</sup> Remuneration changes include:

1) for government deposits up to a maximum balance equal to either EUR 200 million or 0.04% of GDP, whichever is higher, the EONIA (Euro Overnight Index Average) rate shall continue to be applied until 3 January 2022, which is when the new €STR (€uro short-term rate) shall come into force;

2) the previous ECB guidelines, which came into force in 2014, stated that zero interest was to be paid on any liquidity in excess of the threshold, in the case of a positive or zero deposit facility rate applied by the ECB, or at negative rates in the event of a negative DF rate. The new ECB guidelines state that, should the DF rate be higher than the rate applied to the sums within the threshold, then interest shall be paid on all government deposits at the same rate applied to said sums (i.e. EONIA or €STR).

For more information, please refer to:

ECB Guideline ECB/2019/7 (<u>https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32019O0007</u>)

and ECB Decision ECB/2019/8 (<u>https://eur-lex.europa.eu/legal-content/IT/TXT/?uri=CELEX:32019D0008</u>).

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Given the market scenario of the last few years, which has been characterised by a surplus of liquidity and an increased purchase of government bonds on the market by the ECB, together with the progressive shortage of collateral, the Treasury urged to accelerate the reform process of cash management and to adopt a new operational instrument, the Repo or repurchase agreement<sup>24</sup>.

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|  LEARN MORE <br>| The Repo Market and Treasury's Operations<br> The Repo market is the market where two counterparties agree to enter into an agreement whereby one party lends a repurchase security (specific, in the case of "Special Repo", or generic, in the case of "General Collateral"), for a fixed period of time (the duration of the agreement) in exchange for liquidity. At the end of the operation there is a reverse exchange (liquidity against securities) at a predetermined price (rate). Operators can therefore trade Repos either to meet a need for liquidity (typically in the General Collateral agreement) or for specific securities (in the Special Repo agreement) that they temporarily lack. The Treasury could thus resort to Repo operations as a cash management instrument, to use the surplus cash at more advantageous conditions than those imposed by the ECB on the balances deposited on the Cash Account. Alternatively, the Treasury could use Repo operations to collect cash in order to provide liquidity in case of temporarily limited availability and, at the same time, satisfy the needs of Primary Dealers by facilitating their market making commitments on the secondary market. The Treasury could also intervene on the secondary market in the event of tension caused by scarcity of specific securities, temporally selling Repos in order to mitigate the effect of such scarcity on the performance of Government securities.<br> Therefore, when the Treasury borrows liquidity from the Repo market, it must in return cede to the counterparty one or more securities as a guarantee of the successful outcome of the operation. For this reason, the Treasury had to preliminarily acquire a portfolio of Government securities used in Repo operations. To this end, at the launch of the operation in May 2021, an ad hoc issuance of 15 BTPs, each worth 1,000 million (for a total of 15,000 million), issued exclusively for this specific purpose, was performed. |

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<sup>24</sup> For a more detailed analysis of the instruments used, see Chapter III below.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;II. THE ITALIAN GOVERNMENT SECURITIES MARKET: PERFORMANCE IN THE INTERNATIONAL CONTEXT

II.1 MONETARY POLICIES AND EFFECTS ON THE EURO AREA MONEY MARKET

Monetary policies in the euro area

The year 2021 started under essentially the same conditions as the previous year: the second wave of Covid-19 infections in the autumn of 2020 resulted in a new and further slowdown in global economic activity - which began immediately after the outbreak of the pandemic due to prolonged lockdowns and disruptions in production chains - yet, at the same time, contributed to the implementation of large-scale vaccination campaigns. This positive outcome, together with policies supporting households and economic activity introduced by the governments of the world's main economies, positively affected global growth prospects. The economy, despite the continuing spread of the pandemic and the restrictive measures adopted in Europe and the United States, has in fact begun to show signs of a slow recovery in consumption and investment, mainly due to the first, albeit very partial, re-openings.

With regard to inflation dynamics, some elements of tension, although still very moderate, already emerged, especially in the second half of 2021, due to both the continued presence of supply-chain disruptions - especially in Asian manufacturing areas - and the increase in energy commodity prices as a result of the rebound in production activity.

Given this underlying macroeconomic scenario, the Governing Council of the ECB repeatedly confirmed in 2021 the accommodative stance of its monetary policy as well as the extraordinary measures adopted in spring 2020: the Expanded Asset Purchase Programme (APP) and the Pandemic Emergency Purchase Programme (PEPP). During the course of 2021, however, the ECB repeatedly emphasised its intention to gradually reduce its expansive and accommodative stance, so much so that, in the last quarter of 2021, it announced a cut in the purchases of the APP programme (from EUR 40 billion to EUR 20 billion), planning to end the programme until "shortly before" the rise in key interest rates. The cut in the programme was in any case neither fast nor sharp and such as to prevent the rise in yields observed in international markets from translating into a premature tightening of financial conditions in the euro area, which would not have been justified by the economic outlook at the time. The Council reiterated on several occasions, however, that these extraordinary instruments would be adjusted if necessary, in order to ensure that inflation would continue to approach the 2% target level. In particular, at its July meeting, also as a result of its strategy review, the Council announced a

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symmetrical inflation target of 2% in the medium term<sup>25</sup>. Also, while until July 2021 the intent was to confirm the PEPP in net terms at sustained and constant purchase levels until the end of March 2022, from September 2021 onwards - as the economy continued to improve - the Governing Council began to gradually change the tone and to refer to PEPP purchases being conducted in "moderately lower" volumes than in previous quarters. This trend continued to such an extent that, in December 2021, not only was it confirmed that the PEPP programme would be closed in net terms in March 2022, but it was also announced that the end of the reinvestment period for PEPP-purchased securities would be postponed from the end of 2023 to the end of 2024, so as to ensure a more gradual but certain phase-out of this emergency instrument.

Lastly, the Council left the level of the key interest rates unchanged, keeping the ECB's Deposit Facility (DF) rate at -0.50%, the Main Refinancing Operation (MRO) rate at 0% and the Marginal Lending Facility (MLF) rate at 0.25%.

The euro area money market

The continuation of the pandemic crisis and the confirmation of the decisions taken in the previous year, which led to further injections of liquidity into the financial market, affected the level of the main money market rates such as EURIBOR (Euro Inter Bank Offered Rate) and EONIA (Euro OverNight Index Average). Chart II.1 below compares the main money market rates with the ECB's Deposit Facility and MRO rates over the last two years.

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|  CHART II.1: PERFORMANCE OF THE MAIN MONEY MARKET RATES, 2020-2021 (PERCENTAGE VALUES) |
| ![](image00052.jpg) |
|  Source: Based on Reuters data |

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The chart shows that in the period prior to the outbreak of the pandemic, levels were substantially higher than ECB rates. However, towards the beginning of the second quarter, these levels suddenly and abruptly rose again, due to the

<sup>25</sup> Replacing the inflation rate target sufficiently close but still below 2%.

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II. THE ITALIAN GOVERNMENT SECURITIES MARKET: PERFORMANCE IN THE INTERNATIONAL CONTEXT<br>

generalised fear in the banking system of a possible and imminent liquidity crisis for the reasons described in the 2020 Public Debt Report.

The trend then changed in response to market participants' injection of confidence in monetary policy decisions and in the instruments adopted to mitigate tensions in the financial and banking markets. Indeed, Euribor rate levels gradually and steadily began to fall, so much so that, already by the end of the previous year and for the whole of 2021, they were firmly below the Deposit Facility rate due to the abundant liquidity on the market.

With regard to the Eonia rate, the effects of the spread of Covid-19 were less sudden. The rate levels remained substantially above the Deposit Facility rate, maintaining the average spread fairly constant during the first two quarters of the year 2020<sup>26</sup> and thus in the midst of the pandemic crisis. As the second half of the year began, there was a gradual narrowing of the average spread, mainly due to the effects of the extraordinary instruments adopted by the Council. As in the case of EURIBOR rates, therefore, the EONIA rate also started to get increasingly closer to the ECB deposit rate. The downward trend then continued throughout 2021, so much so that at the end of the year it recorded its all-time low of -0.505%, reaching, for the first time, a level lower than the Deposit Facility rate.

II.2 EURO AREA BOND MARKETS

During 2021, euro area financial markets continued to be affected by the uncertainty surrounding the course of the pandemic, mainly due to the spread of Covid-19 variants, which led to an increase in infections and the reintroduction of restrictive measures at various times during the year.

Financial market conditions, and in particular government bond market conditions, nevertheless remained rather relaxed throughout 2021. The economic recovery as well as the ongoing bond purchase programmes (APP and PEPP) by the Eurosystem played a decisive role in maintaining low levels of volatility, favourable funding conditions and liquidity in the government bond market. Additionally, the uptrend in economic activity, with its positive impact on the government budget, contributed to reducing the volumes being issued on the European bond markets compared to the previous year, although the average levels continued to be higher than those of the pre-Covid years, thus alleviating any tensions.

After the summer, favourable growth prospects and rising inflation - driven mainly by higher energy prices - began to raise fears about a possible withdrawal of monetary stimulus measures, pushing up government bond yields in all European countries. As shown in Chart II.2, by the end of 2021, yields on 10-year maturity bonds of the major European countries generally rose by about 50 basis points compared with the beginning of the year, although they continued to remain at low levels on average.

<sup>26</sup> In the first quarter of 2020, the average spread between the Eonia and Deposit Facility rates amounted to 4.8 basis points. In the second quarter it amounted to 4.4 basis points.

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|  CHART II.2: TREND OF EUROPEAN GOVERNMENT BOND YIELDS - 10-YEAR MATURITY (PERCENTAGE VALUES) |
| ![](image00053.jpg) |
|  Source: Based on Bloomberg data |

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In this framework, the yield curve of Italian government bonds contained the upward trend, also due to the substantial stability of spreads towards other issuers, both core and peripheral. The conclusion of the SURE programme and the launch of the Next Generation EU programme, on the other hand, contributed to consolidate a constructive climate in the financial markets. These factors, together with the stability of the national political framework and the strong growth of the Gross Domestic Product, made it possible to anticipate the decline in the debt-to-GDP ratio, thus positively influencing the ratings expressed by numerous Rating Agencies in recent months.

In the framework outlined above, debt management allowed the average cost at issuance to be reduced, which in 2021 was equal to 0.10% (the lowest level ever), while the average cost of debt - calculated as the ratio between the interest and the general government debt stock - remained stable at a level of about 2.4%.

Market conditions and management decisions have also allowed to maintain the increase in the average life of the debt, which at the end of 2021, in relation to the stock of government securities, was equal to 7.11 years (7.29 years, loans under the SURE and NGEU Programmes included), which is higher than the figure at the end of 2020, equal to 6.95 years. This was thanks to the various issuances on the longer end of the yield curve, completed both through auctions and through the syndicated placements of several new nominal benchmark securities (10, 15, 20 and 50 years, plus the BTP Green maturing in 2045).

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|  FOCUS  | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Details on how the Public Sector Purchase Programme (PSPP) evolved and how the Pandemic Emergency Purchase Programme (PEPP) was implemented during 2021<br> As part of the Asset Purchase Programme (APP), the Public Sector Purchase Programme (PSPP), which began on 9 March 2015, involves net acquisitions of securities issued by central governments and public agencies of euro area countries, as well as those issued by supranational institutions. Suspended in January 2019, the APP Programme was later reactivated on 1 November of the same year in response to the deteriorating macroeconomic environment and the growing distance from the inflation target, with its duration conditional on the ECB achieving its monetary policy objectives.<br> Following the propagation of the COVID-19 pandemic, the Governing Council decided to further strengthen the existing Asset Purchase Programme with an additional temporary endowment of EUR 120 billion<sup>27</sup>, as well as to launch a EUR 750 billion<sup>28</sup> Pandemic Emergency Purchase Programme (PEPP) until the end of the critical phase of the pandemic<sup>29</sup>.<br> During 2020, with the aim of providing a more durable monetary stimulus and counteracting the prolonged impact of the pandemic on the outlook for growth and inflation in the euro area, the PEPP was also further expanded both in terms of its overall envelope, which reached a total of EUR 1,850 billion, and the time horizon of purchases, extended until at least the end of March 2022, with reinvestment of maturing capital until at least the end of 2023. Lastly, in December 2021<sup>30</sup>, given recovering economic growth and an improving inflation outlook, the Council announced its decision to discontinue net purchases under the PEPP at the end of March 2022, extending the reinvestment horizon until the end of 2024. Concurrently, the pace of monthly net purchases under the PPA was also revised to EUR 40 billion in Q2, EUR 30 billion in Q3 and EUR 20 billion from October 2022 onwards, in order to gradually reduce overall purchases.<br> Figure 1 below shows the net monthly purchase trend under the PSPP from the beginning of the programme (March 2015) until December 2021, and under the PEPP from the beginning of the programme (March 2020) until the end of the year. |
|  FOCUS  | FIGURE 1: MONTHLY NET PURCHASES UNDER THE PSPP AND PEPP PROGRAMMES (EUR<br> BILLION) |
|  FOCUS  | ![](image00060.jpg) |
|  FOCUS  | Source: Based on ECB data |

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<sup>27</sup> <u>www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200312~8d3aec3ff2.en.html</u>

<sup>28</sup> <u>www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html</u>

<sup>29</sup> For further details on the features and changes made to the PSPP and PEPP each year, please refer to

the relative focus section in previous years' Public Debt Reports.

<sup>30</sup> <u>www.ecb.europa.eu/press/pr/date/2021/html/ecb.mp211216~1b6d3a1fd8.en.html</u>

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| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As regards the ECB's activity under the PSPP, net purchases in 2021 reached a total of EUR 840.40 billion, compared with EUR 757.166 billion at the end of 2020. Thus, since the start of the programme, net purchases totalled EUR 1,597.565 billion. Total volumes of securities purchased under the PSPP averaged EUR 70 billion per month in 2021, with a peak between April and July and a subsequent decline in the final months of the year. |
| FIGURE 2: VOLUME (EUR BILLION) AND AVERAGE LIFE (YEARS) OF THE STOCK OF ITALIAN GOVERNMENT SECURITIES PURCHASED BY THE ECB UNDER THE PSPP PROGRAMME |
| ![](image00063.jpg)<br>|
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Under the PSPP, as shown in Figure 2, the total volume of Italian Government securities purchased in 2021 was approximately EUR 18.20 billion, down from the EUR 47.40 billion purchased in the previous year. Also, the total volumes of Italian securities purchased by the ECB from the start of the programme to the end of 2021 amounted to EUR 429.415 billion<sup>31</sup>. The average life of the stock of Italian securities held by the ECB as at 31 December 2021 was 7.19 years compared to 7.28 years a year earlier.<br> As regards the PEPP, the total volume of Italian Government securities purchased during the year was approximately EUR 132 billion, slightly higher than the EUR 126 billion purchased in 2020. Overall, at the end of 2021, the stock of Italian securities purchased through the PEPP programme came to just under EUR 260 billion, with an average life of 7.12 years, up from around 6.8 years the previous year. |

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<sup>31</sup> These amounts are expressed in terms of their net equivalent value.

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II.3 TRENDS IN THE ITALIAN GOVERNMENT SECURITIES MARKET

Evolution of the yield curve

As already mentioned, yield dynamics for Italian Government securities were largely influenced by the Covid-19 variants, growth and inflation trends, and the resulting expectations on monetary policy orientations.

Yields on Italian Government securities remained fairly stable in the first part of the year, in line with the ECB's accommodative monetary policy stance, the good performance of vaccination campaigns and the improving outlook for economic growth.

The consolidation of growth prospects and the rise in inflation - which prompted the ECB to gradually reduce its monetary stimulus - led to a general steepening of the yield curve from October onwards.

As shown in Chart II.3, the yield on Italian Government securities at the end of 2021 was higher than at the beginning of the year: while the short- and medium-term sections of the yield curve limited the upward movement (recording an increase of 34, 32 and 42 basis points, respectively, for 2-, 3- and 5-year maturities), the segment with 10-year maturities and above saw an increase above 60 basis points (63, 62 and 60 for 10-, 15- and 30-year maturities, respectively). This trend seemed to reflect a conservative stance on the part of investors who, in uncertain situations resulting - as already noted - from the evolution of the pandemic and economic policy actions, generally increase the risk premium for holding securities with longer maturities.

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|  CHART II.3: MARKET YIELDS ON GOVERNMENT SECURITIES WITH 2 TO 50-YEAR MATURITIES (PERCENTAGE VALUES) |
| ![](image00064.jpg)<br>|
|  Source: Based on Bloomberg data |

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Therefore, given the trend described above, the slope of the Italy's forward yield structure recorded an overall significant increase of about 28 basis points along the 2-10-year section (Chart II.4), passing from approximately 96 basis points at the beginning of 2021 and then closing the year at about 124 basis points. It should be noted that this trend was driven for most of the year by the movement of the 10-year BTP, against a substantial stability of the 2-year BTP.

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|  CHART II.4: GOVERNMENT SECURITIES YIELD SPREAD, 10-YEAR VS. 2-YEAR (BASIS POINTS) |
| ![](image00065.jpg)<br>|
|  Source: Based on Bloomberg data |

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Chart II.5 shows that the slope of the 10- to 30-year section of the yield curve initially increased in the first quarter of 2021, then remained fairly stable for most of the year, and declined moderately from the end of September, only to recover in the last two months of the year. The overall impact of this movement was minimal, as the yield spread between the 30-year and 10-year maturity contracted by less than 6 basis points compared to the beginning of the year. The overall stability of the trend is related to an almost similar movement (both in direction and magnitude) of the 10-year and 30-year maturity section, except for the first part of the year in which the 10-year maturity showed greater resilience than the 30-year one, while in the last four months of the year the 10-year section seemed to be more affected than the longer-term one by the widespread rise in yields.

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|  CHART II.5: GOVERNMENT SECURITIES YIELD SPREAD, 30-YEAR VS. 10-YEAR (BASIS POINTS) |
| ![](image00043.jpg)<br>|
|  Source: Based on Bloomberg data |

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The spread between Italian and German government securities (Chart II.6) showed a rather stable trend for most of 2021, thanks to the fairly similar behaviour of Italian and German ten-year securities. Starting in September 2021, the above-mentioned prospects of a slowdown in the monetary policy stimulus and a renewed attitude towards risk aversion among investors, on the one hand favoured a reduction in the yield rates for German ten-year government securities and, on the other hand, caused an increase in the yield rates for Italian securities, thus widening the spread. All in all, the spread between Italian and German government securities increased by around 24 basis points compared to the beginning of 2021.

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| &nbsp;&nbsp; CHART II.6: YIELD SPREAD: BTP-BUND, OAT-BUND BONOS-BUND AND OAT-BUND, 10-YEAR BENCHMARK (BASIS POINTS) |
| ![](image00044.jpg)<br>|
|  Source: Based on Bloomberg data |

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Secondary market performance

General introduction

The secondary market for Italian government securities was affected by national and international events of a political, economic and financial nature, as Reported above. Also, the evolution of the market during 2021 was of course influenced by the features of the Italian market. The latter include (i) the role of market making; (ii) the Primary Dealership system which, in 2021, besides confirming the presence of 16 Specialists in Italian government securities, saw the arrival of three new Aspiring Specialists and the candidature of a fourth one; (iii) the functioning of the futures market which, over time, has taken on a leading role for effective market making among primary dealers; (iv) the growing contribution of the Repo and strips markets; and (v) the interrelationships with the primary market (regularity and continuity of issues compared with benchmark securities along several points of the curve).

As regards trading on the MTS platform - the reference market for Italian government bonds – in 2021 there was a significant increase in volumes traded, which reached levels well above those recorded in the previous year. On the contrary, there was a slight decrease in the volumes traded on other electronic platforms, especially business-to-customer platforms, thus continuing the downward trend already seen in the previous year. Lastly, the consistent use of operations involving alternative instruments such as futures, which are mainly used by primary dealers to "neutralise" the risks associated with long government bond positions, continued in 2021.

The interdealer wholesale market and the contribution of government bond Specialists

Only dealers and market makers operate on the "MTS Italia" regulated platform (the so-called "interdealer market"), and this is where the Treasury mainly monitors and evaluates the activities of government bond Specialists on the wholesale secondary market. This platform therefore represents a point of reference to analyse how this market segment is developing.

The cash market

The volumes traded on the MTS platform were clearly affected by general market conditions and the perceived credit risk for Italy, benefiting from the increasing liquidity in the market and from signs of recovery in economic growth. In particular, since the beginning of 2021, there has been a substantial increase in volumes traded compared to the same months of 2020, with increases averaging 250% on a monthly basis until May.

Also on a quarterly basis, the greater increase compared with 2020 was recorded in the first two quarters of the year, while it was more contained in the last quarter of the year, mainly due to the significant increase in volumes of last year, especially from the second half of the year. Furthermore, in all four quarters of 2021 except the first one, total volumes traded exceeded EUR 1 trillion in absolute terms.

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|  CHART II.7: MONTHLY VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION; SINGLE-COUNTED) |
| ![](image00045.jpg) |
|  Source: Based on MTS data |

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With regard to the breakdown of volumes traded by segment, the most pronounced changes between 2020 and 2021 concerned nominal BTPs, which recorded trades equal to 51% of total volumes traded compared with 48% in the previous year. The BTP€i segment further declined, representing just 2.1% of total volumes compared to 3.4% in 2020 and followed by the CCTeu segment with 2.9%. The CTZ segment also declined, with a market share of around 5.6%. On the other hand, the share of the BOT segment increased, accounting for more than 38% of total volumes, compared to 36% in 2020. In absolute terms, in line with the trend in total volumes, there was an increase in operations for all segments, which was particularly marked in the nominal BTPs and BOT segments (around 56% for both), but also involved CTZs (around 39%).

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|  CHART II.8: QUARTERLY VOLUMES TRADED ON THE MTS PLATFORM, BY SEGMENT (EUR MILLION; SINGLE-COUNTED) |
| ![](image00046.jpg) |
|  Source: Based on MTS data |

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A general increase in traded volumes was recorded on the various segments of the yield curve, with larger increases in the first two quarters of the year for the reasons already mentioned above.

As for the short-term part of the curve, the segments up to 2 years (which includes BOTs and CTZs, as well as short-term BTPs and CCTeus) saw an average increase in volumes of 120% compared to 2020.

However, the 2-4-year segment saw the strongest increase (almost 170%), followed by the 4-6-year and 8-12-year segments, which grew by an average of 120% compared to the previous year.

As for the long part of the curve, for maturities of over 12 years, volume growth was more contained and mainly observed in the first two quarters of the year, again for the reasons mentioned above.

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|  CHART II.9: QUARTERLY VOLUMES TRADED ON THE MTS PLATFORM, BY MATURITY (EUR MILLION; SINGLE-COUNTED) |
| ![](image00047.jpg) |
|  Source: Based on MTS data |

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Secondary market liquidity is also assessed using the bid-ask spread indicator, i.e. the difference between the purchase price (bid) and sale price (ask) for each security on the market. The lower the bid-ask spread, the greater the liquidity of the security.

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The charts below show the trends recorded by this indicator for all segments and for all the benchmark points along the yield curve: after the peaks reached in the early months of the pandemic, there was a gradual return to normal liquidity levels, as shown by the compression of bid-ask spreads on all points of the curve, also favoured by the ECB's accommodative monetary policy.

As shown by Charts II.10A, 10B and 10C, this trend continued during the first months of 2021, with bid-ask spreads even lower than pre-Covid levels, only to increase in the last two months of the year, characterised by higher volatility and uncertainty in financial markets.

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|  CHART II.10A: BID-ASK SPREAD (IN BASIS POINTS) FOR CTZS, CCTEUS, 3-, 5- AND 7-YEAR BENCHMARK BTPS, AS RECORDED ON THE MTS PLATFORM - MONTHLY AVERAGES |
| ![](image00048.jpg) |
|  Source: Based on MTS data |

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|  CHART II.10B: BID-ASK SPREAD (IN BASIS POINTS) FOR 10-, 15-, 20-, 30- AND 50-YEAR BENCHMARK BTPS, AS RECORDED ON THE MTS PLATFORM - MONTHLY AVERAGES |
| ![](image00049.jpg) |
|  Source: Based on MTS data |

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It should be noted that the inflation-linked bond segment, despite having maintained for most of the year lower bid-ask spread levels than those recorded at the beginning of 2020, saw the largest increase in bid-ask spread levels starting in September 2021. The lower level of liquidity in the European inflation-linked BTP segment compared with Italy's other government securities is explained by the fact that these securities not only involve an intrinsically higher credit risk than nominal securities, but they were also more affected by the uncertainty surrounding future inflation trends and the evolution of the ECB's monetary policy which characterised the second half of the year.

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|  CHART II.10C: BID-ASK SPREAD (IN BASIS POINTS) FOR 5- AND 10-YEAR BENCHMARK BTP€IS, AS RECORDED ON THE MTS PLATFORM - MONTHLY AVERAGES |
| ![](image17.jpg) |
|  Source: Based on MTS data |

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Liquidity in the secondary market can also be measured by less common but more sophisticated indicators, which take into account not only the size of the bid-ask spread, but also the price changes stemming from major operations or analysis of the depth of pricing on both sides of the "order book" for each security<sup>32</sup>.

One such indicator is the "slope", which measures the ratio between the absolute difference between the best and the worst price of a given security at a given moment and the difference between the total volume of all prices in the order book for the security in question and the volume of the best price<sup>33</sup>.

When shown in a chart, this ratio generates a straight line for each side of the order book (bid and ask), highlighting buy and sell price trends depending on the quantity demanded or supplied by market makers. Therefore, this indicator measures the marginal price increase/decrease that the dealer will demand in order

<sup>32</sup> The order book collects all trading orders for a given security that are present on the market at a certain moment in time, and divides them into buy and sell orders, arranged in descending and ascending order, respectively.

<sup>33</sup> This measure is conceptually very similar to the "price impact", although the slope calculated based on buy or sell orders, while the price impact is based on both proposed prices and trading activities. In fact, the price impact measures the relationship that exists between a buy or sell order and the corresponding change in listing price. However, literature on this subject confirms that calculating this metric is rather complex, as it not only requires an extremely large amount of intraday data, but also includes subjective assessments, including: the threshold beyond which the impact of trading on pricing is to be assess; defining the time lag during which the price change due to trading must occur; etc.

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to trade an additional unit compared with the quantity quoted at the best price. This means that, the higher the indicator (the steeper the slope of the line), the lower the level of liquidity for the security in question. In order to get the most comprehensive picture possible and to calculate the slope for a given security on a given day of trading, the slope is calculated across many moments on the same day, and then the average is calculated and the daily slope figure created.

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|  CHART II.10D: DAILY SLOPE ON 10-YEAR BENCHMARK BTP (LOGARITHMIC SCALE), AS RECORDED ON THE MTS PLATFORM |
| ![](image18.jpg) |
|  Source: Based on MTS data |

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This indicator reveals that liquidity deteriorated less extensively than in 2020, and that this phenomenon was more pronounced in the first few months of the year. It also shows that despite the widening of the bid-ask spread in the final part of 2021, the slope remained rather stable and at lower levels on average than in 2020. Therefore, although the greater volatility and uncertainty experienced in the final months of the year may have led operators to prudently widen bid-ask spread levels, this does not seem to have affected the depth and composition of the books.

The Repo market

The government securities Repo market plays a major role in supporting orderly trading on the cash market. In fact, an efficient Repo market allows operators (especially market makers) to ensure a continuous market presence in terms of bid and ask for all securities, even if they do not hold certain securities in their own portfolios. Furthermore, with the General Collateral contract, where the collateral security is not designated in advance, investors can trade liquidity, without counterparty risk in the case of a central counterparty contract, on a deep and liquid market.

In 2021, the Repo market showed no significant change in volumes compared to 2020. However, the trend to shift activity from the General Collateral contract (approx. 40% reduction compared to 2020) to the Special Repo contract, continued, as in previous years. This trend is due to two complementary factors: on the one hand, the abundance of liquidity in the financial system reduces the need for

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funding and lending on the collateralised money market, and on the other, the ECB's purchase programmes under the APP/PEPP programmes contributed to reducing the effective float of outstanding government securities, resulting in securities on the Repo market becoming increasingly scarce (or special in technical jargon).

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|  CHART II.11: ANNUAL VOLUMES TRADED ON THE MTS PLATFORM IN 2020 AND 2021, BY CONTRACT MATURITY (EUR MILLION) |
| ![](image19.jpg) |
|  Source: Based on MTS data |

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|  CHART II.12: MONTHLY VOLUMES TRADED ON THE MTS PLATFORM IN 2021, BY CONTRACT MATURITY (EUR MILLION) |
| ![](image20.jpg) |
|  Source: Based on MTS data |

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Cases of "specialness"<sup>34</sup>, however, remained contained and limited to situations occurring during the quarterly technical maturities and when the financial markets were under greater stress due to the propagation of the pandemic, thanks also to the securities lending mechanism<sup>35</sup> introduced as part of the Public Sector Purchase Programme (PSPP), through which the Central Bank temporarily provides

<sup>34</sup> Specialness is when the repo yield for a given security falls below the "general collateral" rate.

<sup>35</sup> For further information on securities lending, please refer to the following link on the ECB website <u>www.ecb.europa.eu/mopo/implement/omt/lending/html/index.en.html</u>

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II. THE ITALIAN GOVERNMENT SECURITIES MARKET: PERFORMANCE IN THE INTERNATIONAL CONTEXT<br>

securities for which dealers hold temporary short positions. Overall, Repo market trading was therefore substantially carried out in an orderly manner, despite some moments of particularly acute stress.

The cases of specialness - as mentioned in a separate section of this Report - were also curbed by the Repo operations initiated by the Treasury during 2021.

In line with previous years, also in 2021 a significant share of the activity on the Repo market was undertaken by so-called fast money (i.e. more speculative) traders, who at the same time are very active on the BTP futures market.

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| | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) | CHART II.13: MONTHLY SPECIAL REPO VOLUMES TRADED ON THE MTS PLATFORM (EUR MILLION) |
| ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) | ![](image21.jpg) |
|  | **Jan-21** | **Feb-21** | **Mar-21** | **Apr-21** | **May-21** | **Jun-21** | **Jul-21** | **Aug-21** | **Sep-21** | **Oct-21** | **Nov-21** | **Dec-21** |
|  **■ S.R. - Italy** | &nbsp;&nbsp;&nbsp; 1073 | 1138 | 1371 | 1144 | 1258 | 1223 | 1204 | 1199 | 1325 | 1323 | 1440 | 1188 |
|  **■ S.R. - Foreign** | &nbsp;&nbsp;&nbsp; 2605 | 2747 | 2985 | 2493 | 2753 | 2861 | 2961 | 2792 | 3026 | 2760 | 3052 | 2422 |
|  Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data | Source: Based on MTS data |

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Activities of government bond Specialists on the platform used to appraise them

The MTS trading platform has been selected to evaluate specialist dealers<sup>36</sup>, with the latter playing a dominant role in terms of traded volumes; in fact, in 2021, they represented more than 94% of total trades. Just over 5%, on the other hand, was traded mainly by the other market makers ("non-Specialists")<sup>37</sup>, while a residual amount of around than 0.4% was traded by price takers (i.e., not market makers).

<sup>36</sup> It should be remembered that this is an interdealer platform, meaning trades are made between intermediaries and not with end investors.

<sup>37</sup> Pursuant to Art. 1, paragraph 5-quater, of the TUF (Italian Consolidated Law on Financial Intermediation), "Market Makers" are defined as entities that are willing to trade on their own behalf, in and/or outside of trading venues, on an ongoing basis, by buying and selling financial instruments as a direct counterparty, at the prices that they set themselves. In order to apply to be included in the "List of Specialist Operators" pursuant to Art. 23, paragraph 1, of Italian Ministerial Decree No. 216 of 2009, an entity must be classed as a Market Maker.

MINISTRY OF ECONOMY AND FINANCE 33

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|:---|
|  CHART II.14: ANNUAL VOLUMES TRADED BY SPECIALISTS ON THE MTS PLATFORM (%) |
| ![](image22.jpg)<br>|
|  Source: Based on MTS data |

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Government bond Specialists' trading with end investors

Traded volumes

Specialists (Primary Dealers) play an extremely important role, not only by ensuring liquidity on the interdealer market, but also by distributing the securities purchased on the primary market to end investors. This is why it becomes of crucial importance for the DMO to analyse traded volumes and purchases/sales broken down by investor type and geographic area, in order to better understand who end investors are and what they are looking for in a given market context. This monitoring is carried out using the information collected via the EMAR<sup>38</sup>, a highly standardised Reporting model shared at EU level, which is filled in by the Specialists themselves; the latter use this Report to systematically record all the activities<sup>39</sup> they perform with any counterparty, including their end customers.

<sup>38</sup> *European Market Activity Report*. This report replaced the previous "HRF" - *"Harmonized Reporting Format"*, but only in terms of its name as its content remained substantially the same.

<sup>39</sup> This report also includes operations completed both on trading platforms and on a bilateral basis, both electronically and vocally. Since 2014, this report has included all the information on individual trades completed by Specialists (trade-by-trade report), providing indication, for each trade, of the security, the quantity, the country in which the counterparty is based, the type of counterparty and the platform or trading method used. From 1 January 2020, this report also began to include trades on Italian government securities issued under foreign legislation (MTN). Also starting from 1 January 2020, the report's format was enhanced with information on the settlement date, allowing for analysis on certain types of operations carried out by Specialists (for example, trades with the non-standard settlement of two working days, such as simultaneous trades or trades with a settlement of over seven days, also known as forward operations).

34 MINISTRY OF ECONOMY AND FINANCE

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II. THE ITALIAN GOVERNMENT SECURITIES MARKET: PERFORMANCE IN THE INTERNATIONAL CONTEXT<br>

In 2021, volumes traded outside the MTS - on other electronic platforms and elsewhere - were in line with the previous year's levels.

In fact, the approximately 6% decline in trade recorded in the first quarter was fully offset by the volume growth that occurred in both the second and last quarters (Chart II.15). This stability should be framed in a context where, as illustrated, activity on the MTS has increased significantly, registering a marked increase in traded volumes.

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|:---|
|  CHART II.15: MONTHLY VOLUMES TRADED BY SPECIALISTS ON PLATFORMS OTHER THAN MTS (EUR MILLION) |
| ![](image23.jpg)<br>|
|  Source: Based on EMAR data |

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Trades broken down by type of counterparty

As mentioned above, thanks to the information gathered through the EMARs it is possible to monitor liquidity on the various trading platforms, as well as trends on individual sectors, by geographic area and investor type.

With regard to the evolution of demand by type of investor, the charts below show the trend of absolute volumes and net amounts (purchases minus sales) traded with Specialists belonging to the main categories of investors - banks, investment funds, pension funds, insurance companies and hedge funds.

Chart II.16 shows that in 2021, investment funds and banks still represent the main investors in government securities, in terms of both absolute volumes and net purchase flows. Investment funds traded volumes of 37% of the total, down from 43% in the previous year, with a preponderant contribution to total net purchases.

As for the banking sector, volumes traded by this type of investor were up to 43%, contributing to total net purchases in line with the previous year.

MINISTRY OF ECONOMY AND FINANCE 35

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  <u> 2021 PUBLIC DEBT REPORT </u>

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|:---|
|  CHART II.16: QUARTERLY VOLUMES TRADED BY SPECIALISTS BY TYPE OF COUNTERPARTY - FUND MANAGERS, BANKS, PENSION AND INSURANCE FUNDS, HEDGE FUNDS (EUR MILLION) |
| ![](image24.jpg) |
|  Source: Based on EMAR data |

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36 MINISTRY OF ECONOMY AND FINANCE

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II. THE ITALIAN GOVERNMENT SECURITIES MARKET: PERFORMANCE IN THE INTERNATIONAL CONTEXT<br>

The share of volumes traded by Pension Funds and Insurances in 2021 was modest, about 2% of total trades and down slightly from the 3% recorded in the previous year, while in terms of net purchases the total amount was also 2%.

In addition, the share of hedge funds in total trading strengthened (up to 18% from 16% in 2020), although in terms of net purchases the overall share was substantially negative.

Trades broken down by counterparties' geographical areas

The evolution of demand by geographic area, broken down between Italian and foreign investors, showed a reversal in 2021 compared to previous years: volumes traded by Italian counterparties increased by 6.7% while the share of total trades stood at 26%, returning to an upward trend after several years of contraction. However, the contribution of Italian investors in terms of net purchases has stalled, coming in at just over EUR 72 billion, after the exceptional level of EUR 115 billion reached in the previous year.

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|:---|
|  CHART II.17: QUARTERLY VOLUMES TRADED BY SPECIALISTS ACCORDING TO COUNTERPARTY RESIDENCE (EUR MILLION) |
| ![](image25.jpg) |
|  Source: Based on EMAR data |

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MINISTRY OF ECONOMY AND FINANCE 37

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  <u> 2021 PUBLIC DEBT REPORT </u>

Foreign end investors represented the main share of total trades completed in 2021, despite a reduction of about one percentage point compared to 2020. Finally, there was a notable decline in net foreign purchases, which, after a 45% drop in the previous year, marked a further contraction of about 62% to around EUR 41 billion in total.

Evolution of the BTP Futura Market

The evolution of future<sup>40</sup> contract prices on ten-year Italian government securities (by far more liquid compared with contracts on three-year and five-year maturities) was perfectly in line with the performance of the ten-year benchmark BTPs (Chart II.18). However, there were some discrepancies that coincided with phases of greater market volatility, particularly in the second half of the year, and the change of the benchmark BTP.

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|:---|
|  CHART II.18: PRICES OF THE BTP FUTURA AND YIELD OF THE 10-YEAR BENCHMARK BTP (RIGHT-HAND SCALE INVERTED, IN %) |
| ![](image26.jpg) |
|  Source: Based on Bloomberg data |

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In 2021, the volumes traded for the 10-year future contract increased marginally by around 16%, giving continuity to the upward trend began in 2020, when volumes rose by about six percentage points. However, a significant decrease was recorded in open interest<sup>41</sup> levels, of around 13 percentage points (Chart II.19), in line with the previous year.

<sup>40</sup> BTP Futura contracts are traded on the Eurex platform.

<sup>41</sup> Open interest represents the number of outstanding futures contracts that are traded on the market. It can therefore be defined as the sum of all long or short positions opened on 10- year BTPs via a future contract in a certain moment in time. Steep increases normally indicate a large number of operators tending to move in the same direction.

38 MINISTRY OF ECONOMY AND FINANCE

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II. THE ITALIAN GOVERNMENT SECURITIES MARKET: PERFORMANCE IN THE INTERNATIONAL CONTEXT<br>

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|:---|
|  CHART II.19: VOLUMES OF LOTS TRADED AND OPEN INTEREST FOR THE 10-YEAR BTP FUTURA CONTRACT TRADED ON THE EUREX MARKET |
| ![](image27.jpg) |
|  Source: Based on Bloomberg data |

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Given the increase in the traded volumes of securities, it can be assumed that part of the hedging activity, normally carried out via futures contracts, took place directly on the spot market for securities.

MINISTRY OF ECONOMY AND FINANCE 39

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MINISTRY OF ECONOMY AND FINANCE 40

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;III. PUBLIC DEBT MANAGEMENT IN 2021

III.1 OUTSTANDING GENERAL PUBLIC DEBT

The absolute level of public debt<sup>42</sup> as of 31 December 2021 stood at nearly EUR 2,678 billion, an increase of about 105 billion compared with the end of 2020.

The same aggregate as a ratio to GDP was 150.8% in 2021, down about four percentage points from the figure measured at the end of 2020, but about 17% higher than in 2019 and 2018; the peak in 2020 had been driven by the simultaneous increase in absolute value of debt and a, relatively, more pronounced decrease in the denominator.

The debt-to-GDP ratio has evolved over the past 10 years as follows:

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| |
|:---|
|  CHART III.1: 2011-2022 EVOLUTION OF THE DEBT-TO-GDP RATIO |
| ![](image28.jpg) |
|  Source: based on ISTAT and Bank of Italy data |

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With regard to financial instruments of which it is composed, as at 31 December 2021, debt represented by negotiable bonds of both the central government and local authorities amounted to 83.5% of total consolidated debt, in line with the same percentage measured at the end of the previous year, while both the share contracted in the form of loans and that represented by currency and deposits was just over 8%. Included in the stock of loans are liabilities related to EU programs, including the nine tranches disbursed, between 2020 and 2021 totalling EUR 27.4 billion, under the SURE (Support to mitigate Unemployment Risks in an Emergency)

<sup>42</sup> Public debt or general government debt is officially calculated by the Bank of Italy ("<u>Public Finance: requirements and debt</u>") based on sectoral and methodological criteria defined in Council of European Communities Regulation No. 549 of 2013, or the European System of National and Regional Accounts (ESA 2010).

MINISTRY OF ECONOMY AND FINANCE 41

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  <u> 2021 PUBLIC DEBT REPORT </u>

program and the approximately EUR 15.9 billion from the Next Generation EU facility.

Negotiable debt basically coincides with the amount of government bonds, the management of which is discussed in more detail in the following sections.

III.2 GOVERNMENT BONDS ACTIVITIES

Maturities and redemptions of government bonds

In 2021, EUR 389,452 million came due, which is approximately EUR 13.5 billion more than the EUR 376,007 million of the previous year. Taking into account the repurchases made as part of the repurchase and exchange operations carried out during the year, the total volume of redemptions reached EUR 398,395 million, just below 2020 levels.

In the short-term segment, redemptions of BOTs totalled 166,933 million in 2021, which compares with 174,461 million matured in the previous year.

In the medium to long term, maturities amounted to EUR 222,519 million, which was about 10.4% higher than the EUR 201,546 million matured in 2020. If the volumes subject to repurchase and exchange operations are also taken into account, a total of EUR 231,461 million is reached, which is in line with the EUR 232,169 million recorded in 2020. However, as usual, a lower value amounting to EUR 225,041 million was recorded in the State budget, which does not include the amount from the Government Bond Sinking Fund used to redeem maturing bonds; it amounted to EUR 6,420 million in 2021, for the purpose of redeeming maturing bonds.

Net issues and requirement coverage

In 2021, the requirement of the State Sector was EUR 106,378 million, which is EUR 52.7 billion lower than in 2020. The trend in the balance followed the marked increase in total tax revenues due, primarily, to the gradual recovery of economic activity; among the incoming sums were the tax and social security payments that had been extended in the last quarter of 2020 and the inflow of a share of EU contributions from the Recovery Fund.

The requirement was covered by the balance between net issues of bonds recorded in the State budget<sup>43</sup> and other Treasury movements (positive 28,142 million), which provided total coverage of 110,879 million. The increase in Treasury liquidity over the balance recorded at the end of 2020 was 4,501 million, compared with the similar change of 9,543 million between 2020 and 2019. It should be noted that the EUR 27.014 billion-which is the total revenue from the SURE and NGEU

<sup>43</sup> Net issues are calculated through the difference between issues and redemptions, respectively, valued as follows: issues are valued at net proceeds, with the exception of BOTs which are valued at face value (price 100) because the difference from 100 is advanced by the State Treasury; redemptions are valued at face value, with the exception of bonds repurchased in exchange which are calculated at net proceeds, as are CTZs because the interest component is already contained in the State Sector requirement.

42 MINISTRY OF ECONOMY AND FINANCE

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

programs in 2021-contributed to covering the requirements of the State Sector by fostering a similar reduction in net issuance of domestic government bonds.

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| | |
|:---|:---|
|  TABLE III.1: ISSUES\*, MATURITIES AND COVERAGE OF THE STATE SECTOR'S REQUIREMENT<br> (EUR MILLION) | TABLE III.1: ISSUES\*, MATURITIES AND COVERAGE OF THE STATE SECTOR'S REQUIREMENT<br> (EUR MILLION) |
|  | **2021** |
|  Nominal emissions | 477295 |
|  Nominal redemptions | 398394 |
|  Issues net of income (a) | 476418 |
|  Redemptions net of income (b) | 393681 |
|  **Net issues (c) = (a) – (b)** | **82737** |
|  **Other forms of coverage held in the State Treasury (f) = - (d) + (e) – (c)** | **28142** |
|  **Total coverage (c) + (f)** | **110879** |
|  **Change in Treasury Cash Account 31-12-2021 vs 31-12-2020 (e)** | **4501** |
|  **Cash balance of the State Sector (d)** | **-106378** |
|  \* *Calculated for the whole year using the settlement date criteria and not by auction date.* | \* *Calculated for the whole year using the settlement date criteria and not by auction date.* |
|  Source: MEF | Source: MEF |

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In 2021, requirement formation was concentrated in the first half of the year, according to its normal pattern, while in the previous year it had been steadily increasing between March and December. Due to the continuing epidemiological emergency from Covid-19, the recourse to the market has thus remained at abundant levels, albeit lower than in 2020.

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|:---|:---|:---|:---|:---|:---|:---|
|  TABLE III.2: GOVERNMENT BONDS ISSUED NET OF EXCHANGE OPERATIONS (EUR MILLION) | TABLE III.2: GOVERNMENT BONDS ISSUED NET OF EXCHANGE OPERATIONS (EUR MILLION) | TABLE III.2: GOVERNMENT BONDS ISSUED NET OF EXCHANGE OPERATIONS (EUR MILLION) | TABLE III.2: GOVERNMENT BONDS ISSUED NET OF EXCHANGE OPERATIONS (EUR MILLION) | TABLE III.2: GOVERNMENT BONDS ISSUED NET OF EXCHANGE OPERATIONS (EUR MILLION) | TABLE III.2: GOVERNMENT BONDS ISSUED NET OF EXCHANGE OPERATIONS (EUR MILLION) | TABLE III.2: GOVERNMENT BONDS ISSUED NET OF EXCHANGE OPERATIONS (EUR MILLION) |
|  | **Total** | **I Quarter** | **II Quarter** | **III Quarter** | **IV Quarter** | **Total** |
|  | **2020** | **2021** | **2021** | **2021** | **2021** | **2021** |
|  **Short-term totals (BOTs)** | **181815** | **46043** | **41652** | **42722** | **28726** | **159141** |
|  **Medium-long term totals** | **353864** | **92034** | **107255** | **61233** | **52878** | **313399** |
|  Of which: |  |  |  |  |  |  |
| CTZ | 37949 | 5951 | 0 | 0 | 0 | 5951 |
| BTP | 241624 | 76497 | 89330 | 49809 | 41950 | 257587 |
| BTP€i | 12451 | 6586 | 4341 | 2150 | 2013 | 15089 |
| BTP ITALIA | 22298 | 0 | 0 | 0 | 0 | 0 |
| BTP FUTURA | 11844 | 0 | 5477 | 0 | 3268 | 8745 |
| CCTeu | 16444 | 3000 | 5207 | 9274 | 4763 | 22244 |
| Foreign Bonds | 11255 | 0 | 2899 | 0 | 884 | 3784 |
|  **Total** | **535679** | **138077** | **148906** | **103955** | **81603** | **472541** |
|  Source: MEF | Source: MEF | Source: MEF | Source: MEF | Source: MEF | Source: MEF | Source: MEF |

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As a result, as can be seen in Table III.2, the time profile of the issuance activity has been parallel to that of demand, with a slight slowdown only in the last quarter of 2021. The total volume of government bonds was, for the above reasons, more than 60 billion less than that placed in 2020.

Innovations and adjustment of issuance strategy

Despite the sharp reduction in requirements in the year under review compared to 2020, as mentioned earlier, the volumes being issued continued to average higher levels than in the pre-Covid period. As a result, to meet these financing needs, the

MINISTRY OF ECONOMY AND FINANCE 43

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  <u> 2021 PUBLIC DEBT REPORT </u>

Treasury has resorted to the instruments already used since 2020 following the outbreak of the pandemic crisis.

First, albeit to a lesser extent than in the previous year, the quantities offered in auctions on the various instruments and maturities were kept at high levels, taking into account changing market conditions and calibrating volumes in such a way as to reserve more weight for sectors with better liquidity in the secondary market.

Second, with regard to additional placements, even for a good part of 2021 the Treasury made use of the option to waive the limits of the quotas reserved to Specialists (30% for the first tranches and 15% for subsequent tranches, increasable by 5% for bonds with a residual life of more than 10 years), being able to increase them at its discretion at each auction and regardless of the residual life of the bonds.

Compared to the pre-Covid period, there is also evidence of greater use of the syndicated placement mode for the launch of new benchmarks, including on maturities outside those traditionally reserved for this type of issue and on instruments habitually placed by auction. In fact, in addition to the launch of two new benchmarks on the 10-year maturity, a new CCTeu was also placed in syndicate.

The Treasury also continued to make use of the flexibility in offering off-the-run bonds through the use of the Tap facility reserved to Government Bonds Specialists, introduced in 2020. Through this instrument, issues of one or more off-the-run bonds were made through a dedicated electronic platform of the regulated wholesale market for government bonds.

In order to increase the involvement of individual investors, the BTP Futura, the government bond dedicated to the retail market first launched in 2020, was also offered in 2021. In the two issues of the year, a mechanism was also introduced to disburse the loyalty reward<sup>44</sup> in more instalments.

Finally, with reference to the mechanism of operation of the government bond market, during 2021 the Treasury made changes to the qualitative indicator of primary market participation (Auction Aggressivity Index, AAI) used for the evaluation of Government Bond Specialists. This indicator captures the degree of aggressiveness of each Specialist's auction participation strategy, i.e., the combined effect of the deviation of prices submitted at a level above the market one (overbidding) coupled with requested quantities above a threshold quota set by the Treasury (overdemanding). In particular, since April, the AAI indicator has also been applied to government bonds that are no longer being issued(off-the-run), which were previously excluded from this assessment, in the same way as for on-the-run bonds. With regard to the qualitative assessment of BOT auctions, however, the indicator (BOT Auction Aggressivity Index, BAAI) has been modified in order to penalise auction participants who enter bids that are more misaligned from the weighted average yield of the auction itself.

Worth mentioning is the activity in the U.S. bond market, where the Republic of Italy continued to maintain a stable and solid presence in 2021, with two

<sup>44</sup> For further details, please refer to the following section about the instrument.

44 MINISTRY OF ECONOMY AND FINANCE

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

syndicated issues, in continuity with what was announced when it returned to the Global market in 2019.

Domestic bonds

BOT

Gross issues of BOTs in 2021 amounted to EUR 159,141 million, down nearly EUR 23 billion from the previous year, partly due to shorter maturities (166,933 million versus 174,461 million in 2020) but mainly as a result of a negative net issuance value of about EUR 8 billion.

The latter value was due to a reduction in supply needs from the values found in 2020, when, following regulatory measures aimed at supporting the production and social sectors affected by the spread of Covid-19, they had held above-average values.

The decline in BOT issuance can be attributed to a reduction in the amounts in issuance of annual and semi-annual bonds relative to the amounts maturing and the non-recourse to the issuance of maturities of less than 6 months, such as quarterly and so-called flexible BOTs (i.e., with non-standard maturities). Unlike the previous year, in fact, no temporary cash needs emerged during 2021 that made it appropriate to use these types of securities.

During 2021, therefore, the Treasury returned to issuing only BOTs on the traditional six-month and one-year maturities. At the end of the year, the stock of outstanding BOTs amounted to EUR 113,491 million divided into about EUR 83,294 million for annual BOTs and about EUR 30,197 million for semi-annual BOTs, respectively. The total stock in 2021 was about 7.8 billion less than in the year 2020 and, in relation to the stock of all securities, was lower than in previous years: 5.07%, compared with 5.64% in 2020 and 5.68 in 2019.

As for the evolution of auction yields (Chart III.2), the year was characterised by a stable or slightly downward trend, with rates always in the negative area and basically in line with Euribor levels.

By the end of 2021, yields had fallen, reaching record lows: November saw the lowest for the six-month BOT (-0.563%) and the lowest for the one-year BOT (¬0.533%).

Overall, BOT yields in 2021 averaged lower returns than in the previous year.

MINISTRY OF ECONOMY AND FINANCE 45

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|  CHART III.2: GROSS COMPOUND YIELDS ON ISSUANCE OF 6- AND 12-MONTH BOTS, 2020-2021 (EXPRESSED IN PERCENTAGE POINTS) |
| ![](image29.jpg) |
|  Source: MEF |

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The average allotment yield of the BOT segment for 2021 stood at -0.489%, down more than 30 basis points from that achieved in the previous year (-0.185%). Specifically, the average return on the six-month and annual bills was -0.508% and -0.47%, respectively.

The next chart (Chart III.3) compares yields at issuance of the six-month BOT with Euribor rates of the same duration. This chart shows that the decline in rates recorded in BOT auctions during 2021 was not specific to Italy but affected the entire interbank system. As can be seen, moreover, during the first months of the year BOT rates were above Euribor, and then proceeded aligned and steadily below Euribor starting in September. These levels are a clear sign of both the abundance of liquidity in the system and the perceived relative lower riskiness of Italian government bonds.

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|:---|
|  CHART III.3: YIELDS AT ISSUANCE OF 6-MONTH BOTS AND COMPARISON WITH EUROBOR RATE – YEARS 2020-2021 (EXPRESSED IN PERCENTAGE POINTS) |
| ![](image30.jpg) |
|  Source: MEF, Bloomberg |

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46 MINISTRY OF ECONOMY AND FINANCE

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

In terms of Primary Dealers (or Government Bond Specialists' participation to the auction, the average bid-to-cover ratios for the year were 1.40 for the six-month BOT and 1.38 for the annual BOT, down from those in 2020, which were 1.74 and 1.70, respectively. This trend is also related to the change in the evaluation parameters of Government Bond Specialists that affected the way they participated in the BOT segment auctions starting in April 2021, as mentioned above.

In fact, during 2020, coinciding with a sharp decline in short-term yields related to the particular economic situation, a significant mismatch had emerged between the auction yields in BOT auctions and the yield levels traded on the reference secondary market (so-called overbidding). To prevent this phenomenon from generating distorting phenomena and lower participation of end investors in the auction, the Treasury has therefore made a change in the evaluation criteria that aim to better discourage overbidding behaviour and improve communication to Specialists, who can correct their strategy more immediately.

In conclusion, overall, the BOT segment has maintained satisfactory levels of efficiency both in the secondary market, in terms of liquidity and depth, and in the primary market, in terms of allotment yields in the various monthly auctions and coverage ratios.

The composition of demand at auctions, based on data collected through the Government Bond Specialists according to the harmonised model defined at European level (EMAR<sup>45</sup>), was also characterised in 2021 by a clear predominance of foreign investors, averaging 84% of total demand. During the year, foreign demand was always very high and never fell below 67%, reflecting the great confidence and interest of foreign investors in these Italian government debt instruments.

In terms of investor type, with respect to last year, the most stable component was demand from banks (41%), followed by investment funds (35%).

BTP

Consistent with what was announced in the Guidelines and in light of financing needs to cope with the evolution of the Covid-19 pandemic while containing the related financial risks, in 2021 BTPs gross issuance (net of placements in exchange operations) reached EUR 257,587 million, being 15,963 million higher than in the previous year and thus bucking the trend with respect to BOTs (whose decline in issuances was described above).

In the exchange operations, moreover, 2,500 million BTPs were issued against repurchases (in the same exchanges and buy-backs) of about 10,343 million, with the weight of nominal BTPs in total government bond circulation increasing to 73%, up from 71.7% in 2020. This increase is partly to be attributed to the introduction of a new category of BTPs, the BTPs Short Term, which gradually took the place of CTZs, whose weight on the circulating stock consequently dropped to 1.3% against 2.5% in the previous year. In fact, during 2021, in order to take into account the special characteristics of demand and to broaden the investor base, CTZ issues were replaced by the BTP Short Term, a new instrument with a fixed coupon and maturity

<sup>45</sup> See ***supra***, Ch. II, pp. 36-37.

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between 18 and 30 months, which compared to traditional CTZs presented a yield and cost at issuance more aligned with the curve of the Multi-Year Treasury Bonds.

Issuances on the CTZ segment took place in the month-end auctions in January and February alone, in which the CTZ maturing 28 September 2022 was reopened for a total amount of 5.95 billion, including 450 million placed in the reopening. Thus, against a maturity volume of approximately 31,171 million (which takes into account two maturing bonds with a total volume of 28,186 million, plus 2,985 million redeemed through exchanges and repurchases<sup>46</sup>), issues on the CTZ segment were largely negative.

Issuance activity on the new BTP Short Term segment began with the launch of the first benchmark with maturity 29 September 2022 in the auction at the end of March, offered for EUR 4,000 million and with a coverage ratio of 1.42. At the end of June, with the latest tranche issued, the bond reached an outstanding amount of 15.095 billion. The second line, with a maturity date of 30 January 2024, was offered at the end of July for an amount of 3.75 billion, arriving at the end of the year with a working capital of about EUR 15.284 billion.

Coverage ratios have been fairly regular, ranging from a low of 1.37 recorded in the April and July auctions to a high of 1.65 in October, with an average of 1.49.

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| |
|:---|
|  CHART III.4: CZT AND BTP SHORT TERM YIELDS AT ISSUANCE (EXPRESSED IN PERCENTAGE RATES) IN 2021 |
| ![](image31.jpg) |
|  Source: MEF |

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Yields at issuance of BTPs Short Term have been fairly stable and consistently in negative territory (Chart III.4), ranging from a low of -0.39% recorded in the first auction in March to a high of -0.23% in October. On average, BTPs Short Term showed less volatile yields at issuance than CTZs, as well as more aligned with the BTP curve.

<sup>4</sup><sup>6</sup> See *infra*, Extraordinary operations, pp. 66-68.

48 MINISTRY OF ECONOMY AND FINANCE

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

On the other maturities of the BTP segment, issuance activity was also particularly intense and saw the opening of several new lines, often through syndicated placements that encountered exceptionally high demand<sup>47</sup>.

Placements carried out through the constitution of a syndicate of banks (in which all Government Securities Specialists participate, from which the Treasury selects the group of lead managers for the individual operation) offer the advantage of having more detailed and accurate information about the final demand, as well as allowing a selection of allocations that promotes good future performance of the bond in the secondary market. As there were as many as seven syndicated issues of nominal BTPs in the year under review, it is particularly interesting to compare their distribution both in terms of geography (Table III.3) and investor type (Table III.4).

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| TABLE III.3: GEOGRAPHICAL DISTRIBUTION OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.3: GEOGRAPHICAL DISTRIBUTION OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.3: GEOGRAPHICAL DISTRIBUTION OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.3: GEOGRAPHICAL DISTRIBUTION OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.3: GEOGRAPHICAL DISTRIBUTION OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.3: GEOGRAPHICAL DISTRIBUTION OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.3: GEOGRAPHICAL DISTRIBUTION OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.3: GEOGRAPHICAL DISTRIBUTION OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 |
|  | BTP 01/03/2037<br>(€ 10 bln) | BTP 01/08/2031<br>(€ 10 bln) | BTP Green 30/04/2045<br>(€ 8.5 bln) | BTP 01/03/2072<br>(€ 5 bln) | Tap BTP 15/03/2028<br>(€ 7 bln) | BTP 01/12/2031<br>(€ 10 bln) | Tap BTP Green 30/04/2045<br>(€ 5 bln) |
| Italy | 26.3% | 35.5% | 26.3% | 12.0% | 26.0% | 14.6% | 30.0% |
| United Kingdom | 29.1% | 23.3% | 22.1% | 23.8% | 29.9% | 43.1% | 19.0% |
| Ger/Aus/Switzerland | 14.4% | 12.3% | 19.9% | 29.9% | 12.7% | 11.3% | 15.0% |
| Iberia | 4.5% | 6.8% | 7.3% | 7.0% | 1.8% | 8.6% | 10.0% |
| Scandinavia | 7.0% | 6.4% | 5.1% | 3.3% | 5.3% | 6.7% | 7.0% |
| France | 8.7% | 3.7% | 10.1% | 6.2% | 2.2% | 6.8% | 9.0% |
| Benelux | 1.4% | 1.3% | 2.1% | 0.8% | 0.9% | - | - |
| Other Europeans countries | 2.6% | 4.9% | 1.2% | 6.0% | 6.4% | 3.5% | 8.0% |
| North America | 4.0% | 3.0% | 1.9% | 3.7% | 12.1% | 2.3% | 0.5% |
| Asia | 0.5% | 0.2% | 0.5% | 5.9% | 1.9% | 3.1% | 0.0% |
| Rest of the world | 1.5% | 2.6% | 3.5% | 1.4% | 0.8% | 0.0% | 1.5% |
| Source: syndicated placements | Source: syndicated placements | Source: syndicated placements | Source: syndicated placements | Source: syndicated placements | Source: syndicated placements | Source: syndicated placements | Source: syndicated placements |

---

The geographical distribution of demand shows a greater presence of Italian investors in the February syndicated issues on the 10-year maturity and at the BTP Green reopening in October. Always significant was the share allocated to UK investors, with the highest percentage recorded in the June 10-year benchmark issue. On the other hand, the presence of investors in the Germanic area appears to be constant during 2021, with an average allocation quota of about 16.5%. It is also interesting to note the increased interest from non-European investors, with particular reference to North Americans in the April reopening of the seven-year bond and Asian investors in the syndicated issue of the new 50-year benchmark.

<sup>47</sup> For details and more information on the syndicated issues that took place during the year, please refer to the releases posted on the Department of the Treasury's website under Public Debt <u>(www.dt.mef.gov.it/en/debito_pubblico/)</u><u>.</u>

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| TABLE III.4: DISTRIBUTION BY INVESTOR CATEGORY OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.4: DISTRIBUTION BY INVESTOR CATEGORY OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.4: DISTRIBUTION BY INVESTOR CATEGORY OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.4: DISTRIBUTION BY INVESTOR CATEGORY OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.4: DISTRIBUTION BY INVESTOR CATEGORY OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.4: DISTRIBUTION BY INVESTOR CATEGORY OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.4: DISTRIBUTION BY INVESTOR CATEGORY OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 | TABLE III.4: DISTRIBUTION BY INVESTOR CATEGORY OF AWARDS IN SYNDICATED PLACEMENTS OF NOMINAL BTP IN 2021 |
|  | BTP 01/03/2037<br>(€ 10 bln) | BTP 01/08/2031<br>(€ 10 bln) | BTP Green 30/04/2045<br>(€ 8.5 bln) | BTP 01/03/2072<br>(€ 5 bln) | Tap BTP 15/03/2028<br>(€ 7 bln) | BTP 01/12/2031<br>(€ 10 bln) | Tap BTP Green 30/04/2045<br>(€ 5 bln) |
| Investment funds | 57.8% | 40.5% | 53.1% | 35.6% | 50.9% | 60.6% | 45.0% |
| Banks | 26.3% | 43.1% | 18.5% | 20.2% | 36.3% 2 | 2.3% | 34.0% |
| Pension Funds and Insurance companies | 4.4% | 6.3% | 14.3% | 32.1% | 3.6% | 5.8% | 12.0% |
| Central banks and government institutions | 3.5% | 4.1% | 10.0% | 6.2% | 3.6% | 5.4% | 6.0% |
| Hedge Fund | 7.4% | 6.0% | 3.6% | 5.9% | 5.6% | 5.9% | 2.0% |
| Non-financial entities | 0.6% | - | 0.5% | - |  |  | 1.0% |
| Source: syndicated placements | Source: syndicated placements | Source: syndicated placements | Source: syndicated placements | Source: syndicated placements | Source: syndicated placements | Source: syndicated placements | Source: syndicated placements |

---

The breakdown by investor type reveals the significant presence of investors with a stable, long-term investment profile, particularly insurance companies, pension funds, central banks and government institutions, whose weight was greatest in placements on longer maturities. This development is likely due to the general environment of extremely low rates, which has prompted these individuals to increase their share of investments in long-term instruments in order to obtain a higher return.

The large number of syndicated issues of the longer-term BTPs, as well as the size of the amounts placed there, have undoubtedly contributed to the increase in the weight of the ultra-long segment in total issues, which, moreover, has been fed by regular auctions.

In particular, the 15-year maturity, after January's syndicated issuance of a new benchmark in the amount of 10 billion, was offered at auction twice: in April in the amount of 2,000 million, with full subscription of the reopening of 400 million reserved to Government Bond Specialists; in July, with an offer of 1,750 million fully subscribed, as well as the additional amount of 350 million. Note that the April auction was held despite the dual tranche issue, which saw the reopening of the seven-year bond and the launch of the new 50-year BTP through syndication, taking advantage of the very robust demand at that time. At the end of the year, the BTP 1 March 2037 reached a circulating amount of EUR 14.5 billion, including amounts allocated in additional placements.

In the 20-year segment, the on-the-run BTP with maturity 1 March 2041 was offered in the mid-February and June auctions. Again, the amounts placed amounted to 2,000 billion and EUR 1,750 billion, respectively, bringing the circulating amount to 14.5 billion at the end of the year (including the reopening for Specialists).

With regard to the 30-year maturity, in the absence of new lines, the benchmark with maturity 1 September 2051, was auctioned several times in January, May, September and October. The issuance amounts ranged from a minimum of 1,500 million offered in October to a maximum of 2,000 million in January, and only in the two auctions in the second half of the year were the amounts offered in the reopening reserved to Specialists placed in full. At the end

50 MINISTRY OF ECONOMY AND FINANCE

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

of 2021, therefore, the 30-year BTP reached a circulating amount of EUR 15.72 billion.

Of note is the Treasury's return to the ultra-long end of the BTP curve, with the issuance of a new 50-year benchmark maturing 1 March 2072. The bond was offered in April in the amount of 5 billion through a syndicated issue in combination with the reopening of the 7-year BTP on the run, as part of a dual tranche placement, registering the lowest yield at issuance ever, at 2.18%.

The evolution of yields on issues in the ultra-long segment (Chart III.5) was affected by the dynamics that characterised all maturities of Italian government bonds, with substantial stability in the first and third quarters of the year, with a rise in the second quarter and in the last months of 2021, characterised by a return of inflation and greater volatility in the markets. This upward phase has therefore led to closing the latest issues on the various maturities with rates above those of early 2021, with the most pronounced rise observable on the 20-year bond.

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| |
|:---|
|  CHART III.5: YIELDS AT ISSUANCE OF LONG-TERM BTPS IN 2021 (EXPRESSED IN PERCENTAGE POINTS) |
| ![](image32.jpg) |
|  Source: MEF |

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BTPs with maturities of up to 10 years were issued, as usual, in regular auctions at the beginning of the month (5- and 10-year) - and in the middle of the month (3-and 7-year).

The two shorter-dated bonds (3- and 5-year) were issued in similar proportions, with a slight prevalence of the 3-year BTP (EUR 41.37 million) over the 5-year (EUR 40.4 million), in line with what was initially expected. Consistently with the expectations outlined in the Guidelines, moreover, in absolute terms gross emissions were lower than in 2020. In any case, net issues were largely positive on both maturities.

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Both the 3-year and 5-year segments saw the conclusion of the issuance cycle of the previous benchmarks: respectively, the 15 January 2024 BTP, which closed in February with a final circulating volume of just under 16.85 billion; and the 1 February 2026 BTP, which reached a volume of about 18.55 billion.

Three new lines were then opened on the three-year maturity and two on the five-year maturity.

The first three-year BTP, maturing on 15 April 2024, was opened in mid-March and repeated through June, when it reached a final size of about 18.29 billion. In July, the new 15 August 2024 BTP was launched and subsequently offered through November, reaching a circulating amount of about 13.82 billion before the issuance of the new benchmark. The latter, with a maturity date of 15 December 2024, was issued in the last auction in December, ending the year with a circulating amount of 3.5 billion.

With reference to the 5-year BTP, after its launch at the end of February, the bond with maturity 1 April 2026, was reissued until the auctions at the end of June, when it reached a circulating amount of just under 19.80 billion. The new benchmark with a maturity of 1 August 2026 was first placed in late July and then offered continuously through November (considering the cancellation of the December auction), ending 2021 with a circulating amount of 14.35 billion.

An analysis of the auction coverage ratios of the two bonds shows a fairly aligned average (1.44 for the 3-year BTP versus 1.45 for the 5-year BTP), although on the 3-year maturity there is less variability: the difference between the maximum and minimum, in fact, was 0.45 compared to 0.55 for the 5-year. For both securities, however, the correlation between bid amount and bid-to-cover ratio was quite weak<sup>48</sup>.

The setting of coupons of the new bonds obviously benefited from the particularly favourable market conditions throughout the year, which allowed the new benchmarks to be placed on both maturities with coupon rates of zero at all times. All three-year BTPs, moreover, were placed at a price above par, registering a negative yield at issuance in each 2021 auction. Five-year bonds, on the other hand, were offered throughout the year with yields at issuance always close to zero, ranging from a negative minimum of 0.01% in the auction at the end of August to a maximum of 0.28% at the end of October, in both cases recorded by the BTP maturing 1 August 2026 (Chart III.6).

In the middle section of the yield curve, between 7 and 10 years, issuances were in line with those of the previous year, as projected in the Guidelines, albeit registering an increase in the volumes placed on the 7-year segment against a slight decrease in those on the 10-year.

As for the 7-year maturity, the new BTP with a maturity of March 2028 and annual coupon rate of 0.25% was launched at the beginning of the year and offered at auction regularly until the last issuance in April which took place through a syndicated reopening of 7 billion to reach a circulating amount of 19.60 billion. The May auction then saw the unveiling of the new bond with a maturity date of 15 July

**<sup>48</sup> A detailed analysis of the results of all issues for the year can be found in the file "Treasury Issues in 2021" on the public debt website: <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/emissioni_del_tesoro/emissioni</u><u> </u> <u>_tesoro/Treasury-Issue-in-2021.pdf</u>**

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2028 and an annual coupon of 0.50%. This bond was offered regularly in auctions every month (except August) through October, reaching a circulating amount of just under 15.80 billion. The third new line on the seven-year maturity was opened in November (BTP February 2029, coupon 0.45%) and closed on 2021 with an outstanding amount of EUR 3.75 billion. The coverage ratio at auction on 7-year BTPs averaged 1.48, with a low of 1.35 recorded in May and a high of 1.65 in October.

Given the significance of the 10-year maturity for the market, the issuance of BTPs with this maturity was the most significant overall, perfectly in line with the intentions announced in the Guidelines.

The previous benchmark with a maturity of April 2031 was offered in the January auction and then reopened through a telematic exchange in mid-March and two issues at auction in April and June (as an off-the-run bond after the launch of the 1 August 2031 BTP), reaching a circulating amount of just under 22.43 billion. The new bond, with maturity August 2031 and a nominal rate of 0.60%, was launched in February through syndication for an amount of 10 billion and then offered regularly until the auction at the end of May, touching a circulating amount of 20.30 billion. In June, the new 1 December 2031 BTP with a coupon rate of 0.95% was unveiled, also through syndication in the amount of 10 billion. The bond then ended its issuance cycle at the end of September with a circulating amount of 18.75 billion, while in the last months of the year the new BTP 1 June 2032 (coupon rate of 0.95%) was offered at auction, ending 2021 with a circulating amount of 6 billion.

Finally, coverage ratios were on average constant, fluctuating between a minimum of 1.32 in the late May auction and a maximum of 1.73 in the late September auction.

Chart III.6 shows the auction yields of all BTPs with maturities up to 10 years, which show a clear parallelism between the trends of all bonds, although a marked mismatch in the yield at issuance of the 7-year BTP in the May auction, where it reached a yield very close to the 10-year bond placed the previous month, can be seen.

Starting in June, moreover, it is possible to see a general decline in yields across all maturities to levels in line with those at the beginning of the year, and then a phase of increase that affected the last months of 2021. Noteworthy is the yield of just below zero on the 5-year BTP in the auction that rules in early September, which was the lowest since the minimum of 0.01% touched in the auction at the end of November 2020.

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|:---|
|  CHART III.6: YIELDS AT ISSUANCE OF BTPS WITH 3-10 YEAR MATURITIES IN 2021 (IN PERCENTAGE POINTS) |
| ![](image33.jpg) |
|  Source: MEF |

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| | |
|:---|:---|
|  FOCUS | Characteristics of auction demand for nominal BTPs: analysis by investor class and geographical area<br> Among the data provided by Specialists in Government bonds in the context of communications according to the harmonised scheme adopted by the ESDM (European Sovereign Debt Markets) Subcommittee, the Treasury selects the flows observed from the day after the announcement of an auction until the day prior to the settlement of the auction itself. This data is particularly significant for nominal BTPs and is a good proxy for the demand at auction by end-investors.<br> Normally, on the days mentioned, all these flows involve buying. However, if the market environment is particularly mixed, a prevalence of selling may emerge for certain categories of investors or in certain geographical areas. In this case, the data contained in these Specialist communications reveals a less accurate indicator of demand at auction. Therefore in cases where, in a given month, the flows of a particular category of investors or geographic area are zero or negative, the contribution in that month is considered zero for the purposes of the graphical representation of the composition of demand at auction (Figures 3 and 4).<br> Regarding the breakdown by type of investor, Figure 3 shows how, in contrast to what happened in the previous year, the participation of banking institutions decreased in 2021, with a share in the total of just over 20% compared to 24% in 2020. On the other hand, after last year's decline, hedge fund participation returns to growth, while investment fund participation remains essentially stable. The participation of investors with a long-term horizon, i.e., insurance companies and pension funds, is also increasing, although the share in the total remains quite negligible. The participation of official institutions and central banks declined sharply, after increasing the previous year. In this regard, it should be mentioned that the latter category does not include purchases made by the Eurosystem central banks, which are not included in the Specialists' Reports under this harmonised Reporting framework. |

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| FIGURE 3: BREAKDOWN BY TYPE OF COUNTERPARTY OF ORDERS PLACED IN NOMINAL BTP AUCTIONS BY SPECIALISTS IN GOVERNMENT BONDS – YEAR 2021 |
| ![](image34.jpg) |
| Looking at flows by geographic region, Figure 4 shows that the largest share of demand in the auctions comes from U.S. investors, up substantially in 2021 from the previous year, at least until September. This is followed by domestic investors, albeit with a declining share compared to 2020. The participation of European investors, who represent the third most significant component of demand, also declined, both in terms of demand from the eurozone and from other European regions (among which the United Kingdom is usually the largest component). Finally, demand from the rest of the world remains fairly stable compared to 2020. |
| FIGURE 4: BREAKDOWN BY GEOGRAPHICAL AREA OF ORDERS PLACED IN NOMINAL BTP AUCTIONS BY SPECIALISTS IN GOVERNMENT BONDS – YEAR 2021 |
| ![](image35.jpg) |

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BTP€i

In the year under review, the total volume of issues of BTPs indexed to European inflation<sup>49</sup> amounted to 15,089 million, higher than the volume issued in the previous year (amounting to 12,451 million).

In contrast to 2020, when there were no maturing securities in the segment, a 10-year BTP€i in the amount of approximately EUR 19 million came due during 2021. Therefore, despite the discrete increase in the segment's issues, the net result at the end of the year was still negative.

The performance of the inflation-indexed bond segment of all European sovereign issuers during 2021 was largely influenced by the macroeconomic environment, characterised in the first half of the year by low inflation expectations in reaction to the pandemic crisis, and then affected in the second half of the year by uncertainty about inflation trends and the attitude of central banks.

In this context, however, during 2021 the Italian Treasury confirmed its presence in the indexed bond segment through the issuance in February of a new benchmark with a 30-year maturity. This is the third 30-year benchmark issued by the Treasury on this segment: the first and second issues were in 2004 and 2009, respectively. The placement, which took place in a dual tranche together with a new 10-year BTP, was met with wide acceptance among investors, enabling EUR 4 billion to be raised. The amount issued is to be considered significant when compared to those that are placed on average on this segment, especially in light of the maturity (2051), which at the time of placement represented the longest maturity not only with respect to the Italian real yield curve but also with respect to all eurozone European inflation-indexed sovereign bonds.

The launch of the new 30-year BTP and subsequent auction reopening in April and June allowed for a more balanced issuance policy to be conducted on the various points of the real curve, unlike in 2020 when volumes were mainly concentrated on the five- and 10-year maturities, contributing to the lengthening of the average life of the debt.

Taking into account market conditions and demand, as well as the already high outstanding amount of the bond being issued (the September 2032 BTP€i), the Treasury did not consider it appropriate to issue on the 15-year maturity.

Auction amounts have always been fairly low, with bidding never exceeding EUR 1,250 million, except for the auction in April, when both the 5-year and 30-year BTP€i were issued, for a total bid of EUR 1,750 million.

Auction coverage ratios in this segment were quite high, ranging between a minimum of 1.30 in June on the 30-year BTP€i and a maximum of 1.65 on the 5-year bond in February, with the indicator's variability lower than in 2020.

In fact, demand for European inflation-indexed bonds at auction was fairly constant throughout the year, with a greater presence in the first half of 2021 and a slight decline in the second half of the year when, moreover, there were no issues in August and December. Participation in auctions saw a significant increase in the share of domestic investors (21% compared to 15% in 2020) and a decline in the presence of U.S. investors (37% compared to 45% in the previous year). In contrast, the European presence remains stable at 38%.

<sup>49</sup> More specifically to the HICP, the Harmonized Index of Consumer Prices for the Eurozone.

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

Regarding the type of investors, in line with previous years, the most significant component was that of hedge funds, although with a significantly declining share compared to 2020 (37% compared to 43% in the previous year). Investment funds were also significant (36%), followed by banks with a share of 11%. Demand from pension funds, central banks and other public institutions was negligible.

Unlike in 2020, where real bond yields showed a similar trend to that observed on nominal bonds, during 2021 the trend in real yields was largely influenced by inflation expectations.

Expected inflation, which together with the real rate determines the total return on issuance of indexed instruments (Chart III.7, relating to the 10-year Break Even Inflation<sup>50</sup>) has shown an upward trend throughout 2021. In particular, having already started at the beginning of the year at levels higher than those averaged during 2020, it experienced a phase of rapid and continuous growth until May. After a phase of substantial stability persisted until August, expected inflation continued its upward trend until the end of the year, ending 2021 at more than 165 basis points: such a high value has not occurred since 2013.

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|:---|
|  CHART III.7: 10-YEAR BREAK-EVEN INFLATION (BEI) 2020-2021 (EXPRESSED IN BASIS POINTS) |
| <br> ![](image00068.jpg) |
|  Source: Bloomberg |

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As anticipated, the performance of real yields at issuance of inflation-indexed bonds (Chart III.8) was closely linked to that of inflation expectations: as inflation expectations gradually increased, the yields at issuance of all maturities on the real curve saw a gradual decline, closing at well below their levels at the beginning of the year. An exception to this was the months from May to August where, against a stable inflation expectation, the yield on indexed BTPs was affected by the market environment that led to an upward movement in nominal bond yields. Thus, it can be seen that during the year the yields at issuance of all maturities moved into

<sup>50</sup> The BEI (Break Even Inflation) is the measure of the inflation rate (on a European or Italian scale) that must be assumed to allow the yield at maturity of an indexed *bond* to equal that of a fixed coupon bond (e.g., a nominal BTP) with a similar residual life. This is to place the investor in a situation of indifference with respect to the type of bond to be subscribed. High BEIs generate bonds with low (real) coupons.

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negative territory, with the exception of the 30-year maturity, which fell into negative territory only in the October auction.

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| |
|:---|
|  CHART III.8: REAL YIELDS AT ISSUANCE OF BTP€I IN 2021 (IN PERCENTAGE POINTS) |
| ![](image37.jpg) |
|  Source: MEF |

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BTP Green

Last March 2021, the Italian state entered the green bond market for the first time by launching the 2045 BTP Green, dedicated to financing government expenditures with positive environmental impact, of which two tranches were issued with a total nominal value of 13,500 million.

The first issuance, maturing on 30 April 2045, was well received by the market, reaching a record number of applications in the inaugural sovereign Green Bond issues in Europe with participation of about 530 investors, more than half of them ESG, for a total demand of more than EUR 80 billion against an issued amount of EUR 8.5 billion.

In view of the excellent response received from the investor base and to provide adequate support for the bond's liquidity in the secondary market, the reopening via syndicate of the first BTP Green in the amount of EUR 5 billion took place on 20 October with the participation of about 350 investors against a total demand of more than EUR 55 billion. The interest of ESG investors in the Italian green stock was also reconfirmed in this context, having subscribed to nearly half of the placement.

BTP Italia

Unlike the previous year, in which two BTPs Italia with a significant amount of EUR 22.4 billion matured, 2021 was characterised by an absence of maturities on this segment. The Treasury, taking into account the absence of maturing volumes,

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after a careful assessment of market conditions, deemed it appropriate not to issue a new BTP Italia during 2021. Therefore, the year ended with negative net emissions.

BTP Futura

First introduced in 2020, the BTP Futura was reintroduced in the year under review through two issues in April and November, with total inflows of more than 8.7 billion that helped finance measures launched by the government to support the country's economic growth.

In both 2021 issues, for the government bond reserved exclusively for the retail market, the innovative coupon structure based on the "step-up" mechanism was confirmed, with nominal semi-annual coupons calculated on the basis of a series of predetermined rates that grow over time, with guaranteed minimum yields. In addition, the Treasury has introduced a significant change with respect to the payment of the loyalty premium, again linked to the growth of the national economy during the life of the security, which will be paid at two different times: an intermediate premium at the end of an initial life of the bond, for investor holding the BTP Futura since issuance; and a final premium to investors who continue to hold the security seamlessly from issuance to maturity.

In the past year, the two issues in April and November of the BTP Futura were well received by the market, finding the product popular with a wide range of individual investors.

In detail, the first BTP Futura placed in 2021 presented a longer maturity than previous issues, which was 16 years (27 April 2037). The placement took place from 19 to 23 April and raised about EUR 5.5 billion from retail investors, against more than 132 thousand contracts signed, with an average denomination of more than EUR 41,000. Participation by "pure" retail investors amounted to 57%, while the remaining share was underwritten by private banking.

The second issue, on the other hand, took place from 8-12 November, raising more than EUR 3.2 billion, for more than 91,000 contracts concluded during the five-day placement, with an average denomination of just under EUR 36,000. The bond, with a maturity of 12 years, was largely subscribed by "pure" retail investors, with the highest participation to date on the instrument (67%), while the private banking component was allocated about one-third of the issued amount.

CCTeu

During the year under review, gross issues of CCTeus totalled about 24,499 million (including 2,255 million issued through exchange), with significant growth in volumes on offer compared to 2020 (amounting to about 16,444 million). Therefore, in the absence of maturing bonds on the segment and considering redemptions of EUR 1,407 million through exchange and repurchase operations<sup>51</sup>, net issues of CCTeus in 2021 were largely positive.

<sup>51</sup> See ***infra***, Extraordinary operations, pp. 66-68.

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The floating-rate segment benefited from particularly robust demand during the year, despite the absence of maturing securities and thus the incentive to renew portfolio positions.

This allowed the Treasury to increase volumes in issuance and launch a new benchmark 7-year long CCTeu in late June through a syndicated placement, something that had not happened on this security since 2010, when the instrument was first launched. The new CCTeu, with a maturity date of 15 April 2029 and a spread over the six-month Euribor set at 0.65%, was launched in the amount of EUR 6 billion against demand of about 12.2 billion. The bond was subsequently offered again regularly in auctions at the end of the month and was offered as part of an exchange operation in December, ending 2021 with a working capital of about EUR 14.3 billion.

During the year, the CCTeu introduced at the end of November 2020, maturing on 15 April 2026, was also offered at auction in amounts ranging from EUR 1,250 to EUR 2,000 million, reaching a circulating amount of just under 11.5 billion at the end of 2021. In the auction at the end of February alone, the off-the-run bond maturing on 15 December 2023, was also reopened in the amount of 1.250 million.

The composition of demand has been quite variable, both in terms of geography and type of investors. Regarding the first aspect, the domestic component was the most significant (averaging 50%), with purchases by Italian operators being particularly significant in July and November, while they were significantly lower in the first months of the year. The European component averaged 40%, while the component from other geographical areas was around 10%, with purchases concentrated in the first half of the year.

In terms of investor type, despite some fluctuations throughout the year, banks were the most consistently present category, with ratios of more than 65%, up from 59% in the previous year. There was a marked decrease in the participation of investment funds (13.5% from 34% in 2020), while the presence of hedge funds was sporadic and insignificant, with their ratio declining to 7% from 8% in the previous year. Central bank (non-Eurozone) participation, although only episodic, was up from 2020, as was the presence of private entities (corporate and retail), whose share was just under 6%.

Yields at issuance averaged close to zero, with significantly less variability than observed in the previous year. The highest yield of 0.17% was recorded in the syndicated issue at the end of June, while the lowest of -0.21% was reached in the auction at the end of September, settled at the beginning of October, on the bond with maturity 15 April 2026 (Chart III.9).

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| |
|:---|
|  CHART III.9: YIELDS ON THE ISSUE OF CCTEUS IN 2020 (EXPRESSED IN IN PERCENTAGE POINTS) |
| ![](image38.jpg) |
|  Source: MEF |

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The average coverage ratio at auction for CCTeus was 1.65, with a minimum of 1.46 recorded on the bond with maturity 15 April 2029 in the late August auction, where the highest amount of EUR 2,000 million was offered. By contrast, the highest ratio (1.92) was reached in the auction of late April on the CCTeu 15 April 2026, corresponding to the lowest amount offered during the year, at 1.250 million.

Foreign bonds

Global Bonds in Dollars

During 2021, the Treasury, despite the fact that the market environment continued to be characterised by the pandemic crisis and the emergence of inflation risk in the second half of the year, maintained and consolidated its presence in the international scenario through currency issuance operations.

The activity was carried out through the global bond channel, providing continuity and ensuring the stability of the Italian Treasury's presence in the U.S. bond market through two syndicated issues, a dual tranche and a subsequent reopening of a bond issued during the year.

In the first part of the year, the Treasury issued via syndicated placement two new dollar bonds (dual tranches), maturing on 6 May 2024 and 6 May 2051, respectively. In November, as a result of sustained demand from international investors and favourable market conditions, the Treasury reopened via syndication the previously issued 30-year 2051 bond, meeting a broad market demand, but with an overwhelming focus of Asian insurance and pension funds, giving depth to a market segment characterised by many buy-and-hold investors and thus retaining holders of Italy's foreign-currency-denominated creditworthiness.

Issues were very well received by the market, with sustained demand from multiple investors in Asia, America, and the Euro Area, who preferred to invest in Italy while at the same time being able to more easily access the offerings in dollars

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rather than euros, or chose to diversify their investment portfolios in terms of currency as well.

Investors who participated in the syndicates have generally differentiated risk-return profiles depending on the maturity of the bonds purchased.

Thus the U.S. dollar curve was enriched with two new points, in the extreme and opposite segments. The bond maturing 6 May 2024, has a current balance of $2 billion, against orders of about $4.8 billion. The bond has a coupon of 1.25% and a gross yield at issuance of 0.986%.

In the first bond issue maturing 6 May 2051, $1.5 billion was issued, with total demand for more than $6.2 billion. The bond has a coupon rate of 3.875% and a gross yield at issuance of 3.938.

Certainly, the combination of the 30-year maturity, coupled with the yield and the issuer's name, have made this bond popular with investors, particularly Asian pension funds and insurance companies, who not only secured a large share of the bond at issuance but also expressed interest in the bond in later stages after issuance.

These investors are, from a strategic point of view, an excellent means for the Treasury to broaden its target market, and therefore consideration has been given to returning to this segment at a later date to meet additional market demand. This, coupled with favourable economic conditions, allowed the Treasury to reopen the 30-year dollar bond via syndicated placement: this was the Republic's first reopening in the dollar market.

Thus, in November, the bond maturing 6 May 2051, was reopened for $1 billion against demand of $2.2 billion, bringing the total bond outstanding to $2.5 billion.

The yield at reopening was set at 3.6%, more than thirty basis points lower than that of the first tranche, in an environment of lower rates than the initial issue but still of great interest to a large group of buyers.

As is usually the case, a cross currency swap hedge was implemented against the issue, which neutralised the exposure to foreign exchange risk (see Section III.3).

Since its return to the dollar market in 2019, the Treasury has made it one of its strategic goals to foster liquidity of its bonds in the secondary market and to ensure good trading volumes. Given the nature of investors, who keep bonds in their portfolios for strategic purposes, and also as a result of the increase with new benchmarks of the maturities on the curve, the quantities offered in the secondary market by Specialists tend to thin out quickly as time goes by: therefore, the Treasury remains active in assessing market demand and meeting the needs of its investors, while at the same time ensuring greater liquidity in different segments of the curve.

This is the case with the reopening of the bond with maturity 2051, which is widely appreciated especially by Asian investors with long-term time horizons: since its first issuance in April 2021, trades have been large and significant, and in order to meet demand and ensure adequate circulating funds for market needs, the Treasury reopened the bond via syndication.

In 2021 on the entire dollar securities segment, flows, both purchased and sold, increased overall by 25% compared to the previous year, and this was considering only the units traded with Government Bonds Specialists. It is presumable, therefore, that the total volumes were even higher.

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EMTN Program Bonds

During 2021, the Treasury did not increase the plafond of private placements under the EMTN format, as requests received were not deemed to meet debt management needs or were met through public-format issuances, thus avoiding to interfere with outstanding bonds.

Extraordinary operations

As indicated in the relevant Guidelines, 2021 also saw the Treasury make use of extraordinary exchange and repurchase operations aimed at achieving multiple objectives, such as managing refinancing risk, reshaping the maturity profile, and supporting liquidity and efficiency in the government bond market. As is well known, such operations do not follow a predetermined schedule and are extremely flexible instruments, both in terms of execution and timing.

As the chart below shows, the Treasury in 2021 repurchased a volume of just under EUR 15 billion, resorting to five extraordinary operations. Comparison with previous years shows that operations have returned more in line with the years prior to 2020 (when a significant portion of these operations became necessary to compensate for the very high pace of issuance activity in the first eight months of the year, which was then no longer consistent with the trend in requirements in recent months), with the sole exception of 2017.

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|  CHART III.10: AMOUNT REPURCHASED IN EXTRAORDINARY OPERATIONS – YEARS 2013-2021 (NOMINAL AMOUNTS IN EUR MILLION) |
| ![](image39.jpg) |
|  Source: MEF |

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Specifically, in the first half of the year, the Treasury carried out one exchange operation and one repurchase operation for the purpose of reducing very close maturities and mitigating peak redemptions. The exchange was concluded on 17 March through the electronic trading platform and involved the purchase of four

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bonds, all maturing during 2021. The Treasury on this occasion issued a bond with a 10-year maturity (2031), contributing to the extension of the average life of the debt at a rate well below those of the repurchased bonds.

Given the large resources available, on 5 May a repurchase was made in the Bank of Italy of some above par bonds maturing during the year. This operation brought forward and rescheduled maturities and produced savings for the state coffers in terms of lower coupon interest.

Subsequently, the Treasury focused its repurchase activity by going easing repayments in the years immediately ahead. On 16 June, a bilateral repurchase of bonds maturing in the 2022-2023 two-year period was carried out, using the conspicuous cash balances on hand in the Cash Account. On this occasion, the Treasury repurchased two bonds with prices well above par.

Extraordinary operations resumed toward the end of 2021 when the year's funding activity was practically over. On 4 November, an additional repurchase operation was carried out, through which the Treasury purchased six bonds maturing between 2022 and 2025. The operation focused mainly on the Cheapest to Deliver repurchase of the futures contract, which was in a tense phase at the time.

Finally, an exchange by auction at the Bank of Italy was completed on 9 December. Through this operation, the Treasury issued one CCTeu with maturity in 2029 while repurchasing four bonds, including two CCTeus and two CTZs with maturity in 2022, thus reducing the amount of bonds maturing in the following year and at the same time carrying out pre-funding activities for the following years.

See Tables III.5 and III.6 below for a summary of the exchange and repurchase operations:

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|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  TABLE III.5: SUMMARY OF EXCHANGE OPERATIONS (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.5: SUMMARY OF EXCHANGE OPERATIONS (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.5: SUMMARY OF EXCHANGE OPERATIONS (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.5: SUMMARY OF EXCHANGE OPERATIONS (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.5: SUMMARY OF EXCHANGE OPERATIONS (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.5: SUMMARY OF EXCHANGE OPERATIONS (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.5: SUMMARY OF EXCHANGE OPERATIONS (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.5: SUMMARY OF EXCHANGE OPERATIONS (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.5: SUMMARY OF EXCHANGE OPERATIONS (NOMINAL AMOUNTS IN EUR MILLION) |
| **Operation<br> date** | **Settlement<br> date** | Issued bonds | Issued bonds | **Amount issued** | Purchased bonds | Purchased bonds | **Amount purchased** | **Operation<br> typology** |
| **Operation<br> date** | **Settlement<br> date** | **Typology** | **Maturity year** | **Amount issued** | **Type** | **Maturity year** | **Amount purchased** | **Operation<br> typology** |
| 17/03/2021 | 19/03/2021 | BTP | 2031 | 2500 | BTPs,<br> BTP€i and CTZs | 2021 | 2508 | Telematic<br> exchange |
| 09/12/2021 | 13/12/2021 | CCTeu | 2029 | 2255 | CTZ and CCTeu | 2022 | 2250 | Exchange at the Bank of Italy |
|  | **Year total** | **Year total** |  | **4755** |  |  | **4758** |  |
|  Source MEF | Source MEF |  |  |  |  |  |  |  |

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|:---|:---|:---|:---|:---|:---|
|  TABLE III.6: SUMMARY OF REPURCHASED FROM THE CASH ACCOUNT (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.6: SUMMARY OF REPURCHASED FROM THE CASH ACCOUNT (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.6: SUMMARY OF REPURCHASED FROM THE CASH ACCOUNT (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.6: SUMMARY OF REPURCHASED FROM THE CASH ACCOUNT (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.6: SUMMARY OF REPURCHASED FROM THE CASH ACCOUNT (NOMINAL AMOUNTS IN EUR MILLION) | TABLE III.6: SUMMARY OF REPURCHASED FROM THE CASH ACCOUNT (NOMINAL AMOUNTS IN EUR MILLION) |
| **Operation<br> date** | **Settlement date** | **Purchased bonds** | **Purchased bonds** | **Amount purchased** | **Operation typology** |
| **Operation<br> date** | **Settlement date** | **Typology** | **Maturity year** | **Amount purchased** | **Operation typology** |
| 05/05/2021 | 07/05/2021 | BTP and CTZ | 2021 | 4725 | Competitive auction at the Bank of Italy |
| 16/06/2021 | 18/06/2021 | BTP | 2022-2023 | 490 | Bilateral repurchase |
| 04/11/2021 | 08/11/2021 | BTP and CCTeu | 2022-2023<br> 2024-2025 | 5000 | Competitive auction at the Bank of Italy |
| **Year total** | **Year total** | **Year total** |  | **10215** |  |
|  Source MEF |  |  |  |  |  |

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Finally, Chart III.11 shows the effects that the extraordinary operations executed in the year 2021 had on the reduction of the amount to be reimbursed in future years.

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|:---|
|  CHART III.11: DISTRIBUTION OF GOVERNMENT BONDS REPURCHASED IN EXTRAORDINARY OPERATIONS CARRIED OUT IN 2021 (NOMINAL AMOUNTS IN EUR MILLION) |
| ![](image40.jpg) |
| Year of original maturity of repurchased Government bonds |
|  Source: MEF |

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III.3 DERIVATIVES PORTFOLIO MANAGEMENT

The management activity

In 2021, the Treasury entered into cross currency swap contracts (subject to a bilateral system of guarantees regulated by Credit Support Annex) to fully hedge the foreign exchange risk associated with U.S. dollar debt operations made during the year. The banking counterparties were selected from among the Government Bonds Specialists to pursue the dual objective of containing execution costs while ensuring competitiveness and full operation on the large notional amounts involved, without adverse repercussions in the markets.

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These derivative operations were executed at the time of issue and they provide for an initial and final exchange of notional amounts, as public accounting provides for receipts and payments exclusively in euros. Through the hedging derivative, the dollar bond is synthetically transformed into a euro bond; through the initial exchange, the net proceeds of the dollar bond are converted into euros, and then accrue to the government budget; while at maturity, through the final exchange, the euros will be converted back into dollars to repay the holders of the bonds.

The syndicated bonds issued were hedged by as many cross currency swaps executed in different tranches in order to avoid any adverse impact on the fixed rate due to a temporary supply-demand imbalance and minimising the cost of hedging.

The dollar receivable rates perfectly replicate the coupon payments of the bonds, so they provide a perfect hedge and lock in a certain euro yield at issuance in the synthetic portfolio of bonds and swaps, which will therefore not be subject to future exchange rate fluctuations.

In detail, the cross currency swap covering the three-year bond has settlement on 6 May 2021 and maturity on 6 May 2024, and has a notional amount of $2 billion with a fixed receiving rate of 0.875%, while payments in euros are paid at a virtually zero rate on a notional amount of about EUR 1.6 billion.

The cross currency swaps entered into to fully hedge the new 30-year bond, issued during the first syndication, have settlement 6 May 2021 and maturity 6 May, 2051 and have a dollar notional amount of 1.5 billion and a fixed receiving rate of 3.875%, while paying on a euro notional amount of about 1.2 billion a fixed rate of 2%.

Finally, the cross currency swap entered into against the reopening of the 30-year bond, maturing on 6 May 2051, has a fixed receiving rate of 3.875% calculated on a notional amount of EUR 1 billion, compared with a fixed euro rate of less than 1.85% with a notional amount of about EUR 900 million.

In addition to the contracts just described, the Treasury in 2021 was also operating on interest rate swap contracts.

The financial environment in 2021 was characterised by market rates rising slightly from the previous year, but with still historically low levels across all segments of the swap curve. Treasury has therefore structured a liability management policy aimed at seizing market opportunities to achieve a synthetic lengthening of portfolio duration through new interest rate swaps, also with a view to containing the average rate to pay, which is lower than the rate prevailing on the stock of the corresponding segment concerned.

Thanks to favourable market conditions, new EUR 2 billion 30-year swaps were implemented with a banking counterparty, in which the Treasury pays an average annual fixed rate of just over 20 basis points and receives on the same notional amount the 6-month Euribor floating rate. These operations take the form of macro-hedge of the debt portfolio, that is, to protect against a rise in interest rates on a portion of domestic floating-rate bonds (CCTeu), without necessarily creating a point hedge between bond and derivative.

With reference to the restructuring of operations in the derivatives portfolio and in accordance with what has happened in past years, Treasury has been engaged

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in its usual activity aimed at screening the opportunities available during the year in order to reduce their financial burdens and/or impact on debt.

During the year, the derivatives portfolio with a banking counterparty, consisting of uncollateralised positions that no longer met Treasury's hedging needs, was closed. This resulted in a net simplification of the derivatives portfolio, a reduction in notional amount and, to some extent, also in interest expense, as well as a reduction in the counterparty risk to which the Treasury was exposed. The unwind of the positions brought proceeds to the state budget of about EUR 450 million, and at the same time, a cross currency swap was brought back to the market to partially hedge the exchange rate risk attached to a dollar bond maturing in September 2023.

During 2021 then, especially in the second half of the year, market risks unexpected by traders surfaced, such as the risk associated with significantly higher than expected levels of inflation.

In managing its existing debt portfolio, the Treasury is exposed to inflation risk on all those instruments offered to the market whose coupons and redemption are linked to Consumer Price Indexes (CPIs). In addition to a specific issuance policy, in very sporadic and limited cases the Treasury has also considered managing the risk arising from this type of exposure through derivatives. To this end, a path was undertaken to restructure a contract with a counterparty in order to transform an instrument already in the portfolio, with a positive mark-to-market for the Treasury, into a point hedge of an inflation-indexed bond.

III.4 DEBT MANAGEMENT RESULTS IN RELATION TO OBJECTIVES

Final composition of the year's gross issues

The performance of issuance activity during 2021 was mainly affected by two factors: the improvement of funding needs in the face of the recovery of economic activity and, in the second half of the year, the increased uncertainty about the evolution of inflation and monetary policy. Overall, there was a decline in the total volume placed on the market by about 13% compared to 2020.

Table III.7 shows details on the composition of issuances for the past three years in absolute value and percentage, including amounts from exchanges.

The distribution of issues between short- and medium- to long-term remained largely unchanged, thus confirming the decline in the portion of debt placed in BOTs recorded between 2019 and 2020 in favour of issues on the medium- to long-term segments.

On the domestic debt segment, the weight of the CTZ on total issuance plummeted from 6.89% in 2020 to 1.25% in 2021, with placements of the 24-month bond having been discontinued since March, in place of those in favour of the more recently created BTP Short-Term segment; in particular, the latter accounted for 6.36% of total issues. The relative share of 3- and 5-year BTPs remained almost stable at about 17% of total issues. In absolute terms, the Treasury was able to reduce the total volume placed on the three-year and five-year maturities by about

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14 billion compared to 2020, the year during which these segments had also been affected by the exceptional growth in financing needs.

Gross issues of the 7-year BTP grew by about EUR 7 billion during 2021, consolidating the sector's relevance within the Italian yield curve, while issues of 10-year BTPs fell by more than 5 billion in absolute terms, although the share of this maturity in total debt issued rose slightly (12.18% in 2021 versus 11.50% in 2020). The two maturities together thus accounted for 21.27% of the total, significantly higher than the 18.11% for 2020.

As predicted in the Guidelines at the beginning of the year, the supply of longer nominal BTPs was significantly lower both in absolute terms, at about EUR 29 billion, and in relative terms (6.65% versus 10.96%), in line with the decline in demand. This difference was only partially filled by BTP Green issues of EUR 13,500 million, bringing the share of debt placed on the longer-term segments to 9.47% of the total.

As for inflation-indexed bonds, total issues of BTP€is and BTPs Italia were halved in both absolute (15,089 million in 2021 versus 34,749 million in 2020) and relative terms (3.16% versus 6.31%), as no placements of BTPs Italia took place last year. BTP€i issuances alone, on the other hand, increased by about EUR 2.6 billion, with the relative weight standing at 3.16% of the issued debt compared to the previous 2.26%, in order to compensate for the significant volume of bonds maturing during the year.

The relatively new BTP Futura segment stood at 1.83% of gross issuance, down slightly from 2.15% in 2020.

In 2021, the Treasury made significant use of the CCTeu, whose issuances increased by about EUR 8 billion despite the consideration that-according to the Guidelines-the Treasury did not intend to deviate too much from the issuance policy followed the year before. Therefore, the weight of the variable rate segment increased from 2.99% in 2020 to 5.13% in 2021. However, as discussed below, this had no impact on the overall interest rate risk exposure mainly due to the concomitant rebalancing between BOT issues and those of medium- to long-term fixed-rate bonds.

Finally, foreign bonds accounted for 0.79% of gross issues, down significantly from 2.04% in 2020. However, in continuity with debt management from 2019 onward, the presence of foreign market issuance in absolute terms has continued to increase. In particular, as a result of the issuance of the dual-tranche 3- and 30-year Global Bonds and the reopening of the latter, total working capital increased to $20 billion.

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|:---|:---|:---|:---|:---|:---|:---|
| TABLE III.7: COMPOSITION OF 2019-2021 ISSUES, IN ABSOLUTE (EUR MILLION) AND PERCENTAGE TERMS (INCLUDING EXCHANGES)\* | TABLE III.7: COMPOSITION OF 2019-2021 ISSUES, IN ABSOLUTE (EUR MILLION) AND PERCENTAGE TERMS (INCLUDING EXCHANGES)\* | TABLE III.7: COMPOSITION OF 2019-2021 ISSUES, IN ABSOLUTE (EUR MILLION) AND PERCENTAGE TERMS (INCLUDING EXCHANGES)\* | TABLE III.7: COMPOSITION OF 2019-2021 ISSUES, IN ABSOLUTE (EUR MILLION) AND PERCENTAGE TERMS (INCLUDING EXCHANGES)\* | TABLE III.7: COMPOSITION OF 2019-2021 ISSUES, IN ABSOLUTE (EUR MILLION) AND PERCENTAGE TERMS (INCLUDING EXCHANGES)\* | TABLE III.7: COMPOSITION OF 2019-2021 ISSUES, IN ABSOLUTE (EUR MILLION) AND PERCENTAGE TERMS (INCLUDING EXCHANGES)\* | TABLE III.7: COMPOSITION OF 2019-2021 ISSUES, IN ABSOLUTE (EUR MILLION) AND PERCENTAGE TERMS (INCLUDING EXCHANGES)\* |
|  | **Issuances**<br> **2019** | **% of total** | **Issuances**<br> **2020** | **% of total** | **Issuances**<br> **2021** | **% of total** |
| Flexible BOT | 0 | 0% | 0 | 0% | 0 | 0% |
| 3-month BOT | 0 | 0% | 6500 | 1.18% | 0 | 0% |
| 6-month BOT | 86882 | 20.98% | 82192 | 14.93% | 75847 | 15.89% |
| 12-month BOT | 73957 | 17.86% | 93123 | 16.91% | 83294 | 17.45% |
| *CP + other short term liabilities\*\** | 0 | 0% | 0 | 0% | 654 | 0.14% |
| **Total short-term securities** | **160839** | **38.83%** | **181815** | **33.02%** | **159795** | **33.48%** |
| CTZ | 31156 | 7.52% | 37949 | 6.89% | 5951 | 1.25% |
| CCTeu | 14771 | 3.57% | 16444 | 2.99% | 24499 | 5.13% |
| BTP Short Term | 0 | 0% | 0 | 0% | 30379 | 6.36% |
| 3-year BTP | 32430 | 7.83% | 47817 | 8.68% | 41367 | 8.67% |
| 5-year BTP | 33686 | 8.13% | 48759 | 8.85% | 40951 | 8.58% |
| 7-year BTP | 29552 | 7.13% | 36369 | 6.60% | 43379 | 9.09% |
| 10-year BTP | 43224 | 10.44% | 63353 | 11.50% | 58136 | 12.18% |
| 15-year BTP | 13600 | 3.28% | 18996 | 3.45% | 14500 | 3.04% |
| 20-year BTP | 8470 | 2.04% | 17505 | 3.18% | 4500 | 0.94% |
| 30-year BTP | 15480 | 3.74% | 23835 | 4.33% | 7720 | 1.62% |
| 50-year BTP | 3000 | 0.72% | 0 | 0% | 5000 | 1.05% |
| BTP Green | 0 | 0% | 0 | 0% | 13500 | 2.83% |
| 5-year BTP€i | 2149 | 0.52% | 6038 | 1.10% | 3450 | 0.72% |
| 10-year BTP€i | 7369 | 1.78% | 4972 | 0.90% | 4836 | 1.01% |
| 15-year BTP€i | 2334 | 0.56% | 600 | 0.11% | 0 | 0.00% |
| 30-year BTP€i | 2018 | 0.49% | 841 | 0.15% | 6803 | 1.43% |
| BTPs Italia | 6750 | 1.63% | 22298 | 4.05% | 0 | 0.00% |
| BTPs Futura | - | - | 11844 | 2.15% | 8745 | 1.83% |
| Foreign | 7371 | 1.78% | 11255 | 2.04% | 3784 | 0.79% |
| **Total medium-long term securities** | **253361** | **61.17%** | **368873** | **66.98%** | **317500** | **66.52%** |
| **TOTAL** | **414200** |  | **550688** |  | **477295** |  |
| \* Off-the-run bonds were placed in the closest residual life category<br> \*\* Other short-term liabilities include BTP tranches maturing by 2022. | \* Off-the-run bonds were placed in the closest residual life category<br> \*\* Other short-term liabilities include BTP tranches maturing by 2022. | \* Off-the-run bonds were placed in the closest residual life category<br> \*\* Other short-term liabilities include BTP tranches maturing by 2022. | \* Off-the-run bonds were placed in the closest residual life category<br> \*\* Other short-term liabilities include BTP tranches maturing by 2022. | \* Off-the-run bonds were placed in the closest residual life category<br> \*\* Other short-term liabilities include BTP tranches maturing by 2022. | \* Off-the-run bonds were placed in the closest residual life category<br> \*\* Other short-term liabilities include BTP tranches maturing by 2022. | \* Off-the-run bonds were placed in the closest residual life category<br> \*\* Other short-term liabilities include BTP tranches maturing by 2022. |
| Source: MEF | Source: MEF | Source: MEF | Source: MEF | Source: MEF | Source: MEF | Source: MEF |

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In 2021, the volume of off-the-run bonds issued in exchange operations was about three times lower than the amount in 2020 (4,755 million versus 15,009) thus on the similar values as in 2019 both in absolute terms and as a weight on total gross issues.

Composition of the stock of securities at the end of the year

Over the 12-month period, changes in the composition of debt were modest in size (Chart III.12).

In detail, there has been a slight downsizing of the inflation-indexed segment and in particular of the BTP€i, whose share of total debt fell from 7.60% in 2020 to 7.41% at the end of 2021, while the size of the BTP Italia stood at 3.46% from 3.58% in 2020. In contrast to this contraction, the share of debt placed through medium-or long-term nominal instruments, both fixed-rate (73.03% in 2021 versus 71.74% in 2020) and variable-rate (6.69% versus 5.89%), increased.

MINISTRY OF ECONOMY AND FINANCE 69

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| |
|:---|
|  CHART III.12: COMPOSITION OF THE STOCK OF GOVERNMENT SECURITIES AS OF 31 DECEMBER 2020 AND 31 DECEMBER 2021 |
| ![](image00069.jpg) |
|  Source: MEF |

---

The percentage represented by BTP Futura also increased, rising to 0.92% of debt from the previous 0.55%.

On shorter maturities, the weight of BOTs accounted for 5.07% of the total debt stock versus a share of 5.64% in 2020, while that of CTZs (1.31% versus 2.53%) was affected by the policy of transitioning from the 24-month instrument to the new BTP Short Term.

Finally, the foreign segment also decreased from 2.46% of debt in 2020 to 2.09% at the end of 2021.

70 MINISTRY OF ECONOMY AND FINANCE

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

Exposure to refinancing and interest rate risks

As a result, the average life of debt increased from 6.95 years in 2020 to 7.11<sup>52</sup> years in 2021 (Chart III.13), due to issuance activity that shifted much of the nominal bond volumes to the 10-year and higher maturity segments. Containment of market rate hikes, aided by central bank purchases and initiatives decided by the European Union to support the recovery of European countries' economies, has thus made it possible for the issuer to make management choices aimed at extending the average life of debt.

As usual, extraordinary debt management operations were oriented in this direction, whereby both the stock of bonds with shorter residual lives was downsized and the supply of longer-term bonds was strengthened through also "Tap" reopening of off-the-run securities.

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| |
|:---|
|  CHART III.13: EVOLUTION OF THE STRUCTURE AND AVERAGE LIFE OF DEBT (IN YEARS) |
| ![](image00070.jpg) |
|  Source: MEF |

---

Recent trends in average residual life are shown in Table III.8. Average residual life is only an indicator of the refinancing risk, while analysing the inherent risk in a debt portfolio also requires other aspects to be taken into consideration; it is therefore useful to adopt other types of synthetic indicators of the stock's exposure to market risks, such as the duration and ARP (Average Refixing Period), Reported in Table III.9.

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| | | | |
|:---|:---|:---|:---|
|  TABLE III.8: AVERAGE LIFE OF THE STOCK OF GOVERNMENT SECURITIES | TABLE III.8: AVERAGE LIFE OF THE STOCK OF GOVERNMENT SECURITIES | TABLE III.8: AVERAGE LIFE OF THE STOCK OF GOVERNMENT SECURITIES | TABLE III.8: AVERAGE LIFE OF THE STOCK OF GOVERNMENT SECURITIES |
|  | **31/12/2019** | **31/12/2020** | **31/12/2021** |
| &nbsp;&nbsp; Domestic securities | 6.74 | 6.85 | 7.00 |
| &nbsp;&nbsp; Foreign securities | 12.48 | 10.82 | 12.61 |
| &nbsp;&nbsp; *Stock* of government securities | 6.87 | 6.95 | 7.11 |
| &nbsp;&nbsp; Source: MEF |  |  | |

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<sup>52</sup> The average residual life at the end of the year stood at 7.29 years if loans under the SURE and Next Generation EU Programs are also considered.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  TABLE III.9: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES (IN YEARS) | TABLE III.9: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES (IN YEARS) | TABLE III.9: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES (IN YEARS) | TABLE III.9: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES (IN YEARS) | TABLE III.9: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES (IN YEARS) | TABLE III.9: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES (IN YEARS) | TABLE III.9: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES (IN YEARS) |
|  |  | **Duration** |  |  | **ARP** |  |
|  | **31/12/2019** | **31/12/2020** | **31/12/2021** | **31/12/2019** | **31/12/2020** | **31/12/2021** |
|  Domestic securities before derivatives | 5.70 | 6.22 | 6.07 | 5.78 | 6.00 | 6.14 |
|  Foreign securities before derivatives | 8.42 | 8.09 | 8.56 | 7.56 | 6.58 | 8.13 |
|  Stock of government securities before derivatives | 5.76 | 6.26 | 6.13 | 5.82 | 6.02 | 6.19 |
|  Source: MEF |  |  |  |  |  |  |

---

In particular, it is noted that the ARP, which expresses the average time in which the stock of debt comes to incorporate changes in rates, has also continued to show an upward trend in both sectors, foreign and domestic. The approximately two-month increase in the ARP of the domestic issuance segment is due to a different articulation of the medium-term segment compared to last year, with a greater weight of the stretch between the 5- and 10-year maturities. The foreign issue segment showed a rather strong increase in 2021, after a slight decline in 2020. On the one hand, the maturities that occurred during 2021 - quite significant compared to the external debt aggregate - and, on the other hand, the issuance activity concentrated on two maturities - one short term (3 years) and the other on the longer stretch of the curve (30 years) - resulted in the increase of about 1.5 years of the segment ARP. With regard to duration, which is weighted with the current values of flows and thus also affected by the changing level of market rates, on domestic bonds the trend has been downward due to the rise in the yield curve of Italian government bonds at the end of 2021 by an average of about 50 basis points compared to the previous year. In the case of foreign countries, on the other hand, the duration is higher than at the end of 2020 because the significant increase in the average time to refixing (due to the changed composition of the segment described above) has more than offset the effect of the rise in Italian government rates.

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| |
|:---|
|  CHART III.14: MATURITIES BY RESIDUAL LIFE, 2019-2021 |
| <br> ![](image43.jpg) |
|  NB: the stock of inflation-linked securities takes into account the revaluation of the capital matured at the end of each year and foreign currency securities are valued after the exchange swaps |
|  Source: MEF |

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72 MINISTRY OF ECONOMY AND FINANCE

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

As illustrated by Table III.10 below, the lengthening effect exerted by derivatives portfolio is confirmed in 2021: in fact, the overall duration of debt increases from the pre-swap level of 6.13 years to post-swap 6.54 years, an increase of about five months, similar to previous years.

Consistently, the derivatives portfolio also helped lengthen the ARP of the debt: at the end of 2021, the total post-swap ARP stood at 6.57 years, almost five months higher than the corresponding pre-swap value of 6.19 years.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  TABLE III.10: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) | TABLE III.10: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) | TABLE III.10: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) | TABLE III.10: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) | TABLE III.10: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) | TABLE III.10: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) | TABLE III.10: DURATION AND ARP TREND DURING THE 2019-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) |
|  |  | **Duration** |  |  | **ARP** |  |
|  | **31/12/2019** | **31/12/2020** | **31/12/2021** | **31/12/2019** | **31/12/2020** | **31/12/2021** |
|  Domestic securities after derivatives | 6.17 | 6.64 | 6.49 | 6.19 | 6.40 | 6.53 |
|  Foreign securities after derivatives | 8.62 | 8.30 | 8.59 | 7.90 | 6.96 | 8.34 |
|  Stock of government securities after derivatives | 6.22 | 6.68 | 6.54 | 6.22 | 6.41 | 6.57 |
|  Source: MEF |  |  |  |  |  |  |

---

Market value trend of the derivatives portfolio

Table III.11 below shows the notional and market values of the segments into which the portfolio of derivative instruments can be divided<sup>53</sup>. Regarding debt derivatives, Cross Currency Swaps (CCSs) refer to issues denominated in foreign currencies, while hedging Interest Rate Swaps (IRSs) refer to issues denominated in euros. In addition, the "IRS duration" category includes all positions attributable to the strategy of protecting against rising interest rates. The "IRS ex-ISPA" segment includes all derivatives contracts associated with the liabilities of the company Infrastrutture S.p.A., subject to the takeover by the Treasury in accordance with the Italian Finance Law for 2007.

Finally, values for asset derivatives and the overall portfolio are shown.

<sup>53</sup> For all segments of the derivatives portfolio mentioned in this section, a detailed description can be found in Annex 4 contained in the Appendix to this Report.

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| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  TABLE III.11: DERIVATIVES PORTFOLIO – YEARS 2020-2021 (EUR MILLION) | TABLE III.11: DERIVATIVES PORTFOLIO – YEARS 2020-2021 (EUR MILLION) | TABLE III.11: DERIVATIVES PORTFOLIO – YEARS 2020-2021 (EUR MILLION) | TABLE III.11: DERIVATIVES PORTFOLIO – YEARS 2020-2021 (EUR MILLION) | TABLE III.11: DERIVATIVES PORTFOLIO – YEARS 2020-2021 (EUR MILLION) | TABLE III.11: DERIVATIVES PORTFOLIO – YEARS 2020-2021 (EUR MILLION) | TABLE III.11: DERIVATIVES PORTFOLIO – YEARS 2020-2021 (EUR MILLION) | TABLE III.11: DERIVATIVES PORTFOLIO – YEARS 2020-2021 (EUR MILLION) | TABLE III.11: DERIVATIVES PORTFOLIO – YEARS 2020-2021 (EUR MILLION) | TABLE III.11: DERIVATIVES PORTFOLIO – YEARS 2020-2021 (EUR MILLION) |
| **Debt derivatives** |  |  |  |  |  |  |  |  |  |
|  | **31/12/2020** | **31/12/2020** | **31/12/2020** | **31/12/2020** | **31/12/2020** | **31/12/2021** | **31/12/2021** | **31/12/2021** | **31/12/2021** |
| **Instrument** | **Notional amount** | **Notional amount** | **%** | **MTM** | **in %** | **Notional amount** | **%** | **MTM** | **%** |
| ex-ISPA IRS | 3250 | 3250 | 3.24% | -1867 | 4.89% | 1867 | 1.80% | -791 | 2.85% |
| CCS (Cross-Currency Swap) | 13174 | 13174 | 13.13% | -354 | 0.93% | 17626 | 17.01% | 451 | -1.63% |
| Hedging IRS (Interest Rate Swap) | 3477 | 3477 | 3.47% | 1278 | -3.34% | 2670 | 2.58% | 1149 | -4.14% |
| Duration IRS (Interest Rate Swap) | 80398 | 80398 | 80.16% | -37267 | 97.53% | 81468 | 78.61% | -28550 | 102.92% |
| **Total debt derivatives** | **100299** | **100299** | 100.00% | **-38210** | 100.00% | **103631** | 100.00% | **-27741** | 100.00% |
| **Outstanding government securities** | **Outstanding government securities** | **2149584** | **2149584** | **2149584** | **2149584** | **2263303** | **2263303** | **2263303** | **2263303** |
| **Debt derivatives/government securities** | **Debt derivatives/government securities** | **4.67%** | **4.67%** | **4.67%** | **4.67%** | **4.63%** | **4.63%** | **4.63%** | **4.63%** |

---

#### Derivatives on assets (Italian financial law for 2005)

---

| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **Instrument** | **Notional amount** | **Notional amount** |  | **MTM** |  | **Notional amount** | **Notional amount** |  | **MTM** |  |
| IRS (Interest Rate Swap) | 451 | 451 |  | -35 |  | 228 | 228 |  | -13 |  |
| **Total derivatives portfolio** |  |  |  |  |  |  |  |  |  |  |
| **Instrument** | **Notional amount** | **Notional amount** | **%** | **MTM** | **%** | **Notional amount** | **Notional amount** | **%** | **MTM** | **%** |
| Debt derivatives | 100299 | 100299 | 99.55% | -38210 | 99.91% | 103631 | 103631 | 99.78% | -27741 | 99.95% |
| Derivatives on assets | 451 | 451 | 0.45% | -35 | 0.09% | 228 | 228 | 0.22% | -13 | 0.05% |
| **Total derivatives** | **100750** | **100750** | 100% | -38246 | 100% | **103859** | **103859** | 100% | -27754 | 100% |
| <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". | <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". | <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". | <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". | <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". | <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". | <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". | <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". | <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". | <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". | <br> N.B.: The MTM Reported in this table does not include the figures published by the Bank of Italy in the "Financial Accounts Series". |
| <br> **Mutual guarantee agreements on derivative financial instruments (\*)** | <br> **Mutual guarantee agreements on derivative financial instruments (\*)** | <br> **Mutual guarantee agreements on derivative financial instruments (\*)** | <br> **Mutual guarantee agreements on derivative financial instruments (\*)** | <br> **Mutual guarantee agreements on derivative financial instruments (\*)** | <br> **Mutual guarantee agreements on derivative financial instruments (\*)** | <br> **Mutual guarantee agreements on derivative financial instruments (\*)** | <br> **Mutual guarantee agreements on derivative financial instruments (\*)** | <br> **Mutual guarantee agreements on derivative financial instruments (\*)** | <br> **Mutual guarantee agreements on derivative financial instruments (\*)** | <br> **Mutual guarantee agreements on derivative financial instruments (\*)** |
| The amounts indicated refer to the net amount of the guarantee posted at the end of each year | The amounts indicated refer to the net amount of the guarantee posted at the end of each year | The amounts indicated refer to the net amount of the guarantee posted at the end of each year | The amounts indicated refer to the net amount of the guarantee posted at the end of each year | The amounts indicated refer to the net amount of the guarantee posted at the end of each year | The amounts indicated refer to the net amount of the guarantee posted at the end of each year | The amounts indicated refer to the net amount of the guarantee posted at the end of each year | The amounts indicated refer to the net amount of the guarantee posted at the end of each year | The amounts indicated refer to the net amount of the guarantee posted at the end of each year | The amounts indicated refer to the net amount of the guarantee posted at the end of each year | The amounts indicated refer to the net amount of the guarantee posted at the end of each year |
| Cash margin | Cash margin | ***4313*** | ***4313*** | ***4313*** | ***4313*** | ***4313*** | ***4214*** | ***4214*** | ***4214*** | ***4214*** |
| &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> | &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> | &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> | &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> | &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> | &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> | &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> | &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> | &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> | &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> | &nbsp;&nbsp;&nbsp;&nbsp; (\*) Bilateral guarantee provision pursuant to Italian Ministerial Decree No. 103382 of 20 December 2017. Please refer to the "Laws and Regulations on Government Debt - Rules on derivative transactions" section at<br> <u>www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/normativa_spalla_destra/D.M._2 0.12.2017_-_Bilateral_collateral_with_reference_to_derivates.pdf</u> |

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While the notional value of the derivatives portfolio was essentially stable compared to the previous year, with a slight increase of about EUR 3 billion, the mark-to-market showed a marked improvement, being negative for EUR 27.75 billion as of 31 December 2021 compared to EUR 38.25 billion as of 31 December 2020. The component of the portfolio referring to loans receivable, under the Italian Financial Law for 2005, is increasingly small (see Table III.11). As a result, the values mentioned are essentially equivalent to those for debt derivatives alone, on which the notional increase was recorded: the market value was negative for EUR 27.74 billion at the end of 2021, compared with EUR 38.21 billion at the end of 2020. The improvement is basically attributable to the increase in swap rates in the over 5-year stretch, averaging 50 basis points.

In detail, for CCSs, the total notional amount of the foreign currency portfolio at the end of 2021 is increased by about EUR 4.5 billion compared to the previous year-end, from just under 13.2 billion to 17.6 billion at the end of 2021. In fact, during the year, as already extensively described, two bonds denominated in U.S. dollars were issued under the Global Bond program for a total amount equivalent to

74 MINISTRY OF ECONOMY AND FINANCE

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

approximately EUR 3.8 billion. In addition, the notional amount increased due to the early settlement of a CCS with a sinking plan and the simultaneous execution of a new CCS fully aligned with market conditions. Four IRS ex ISPAs have been repaid early, so as of 31 December 2021, the notional amount of the segment is approximately EUR 1.4 billion lower than at the end of 2020. With regard to IRSs hedging euro-denominated issues, the notional reduction of EUR 807 million is attributable to the natural maturity of one IRS and the early termination of three operations partially offset by the entry of a new point hedge operation (referring to a BTP€i with a 30-year maturity). Regarding macro-hedging IRSs for the risk of rising interest rates, as of the end of 2021, the notional amount is increased by about 1 billion. This amount is the net result of several components: new swaps were executed on the 30-year maturity for a total notional amount of EUR 2 billion, and an outstanding position was restructured, transforming it into the aforementioned point hedge; in addition, the last payment related to the instalment generated by a previous restructuring was made.

Finally, the collateralisation of the derivatives portfolio with reference to new operations continued during 2021. Specifically, two contracts were activated to enable new CCSs entered into to cover currency issuances to be subject to bilateral guarantee; in addition, new IRS and CCS operations were added to a contract already active since 2019.

At the end of 2021, the total net amount of guarantee paid to counterparties was EUR 4,214 million.

With respect to derivatives referring to debt, thus excluding the positions undertaken on loans granted, pursuant to the Italian Finance Law for 2005, the following two charts show the evolution of the notional amount year by year, as of 31 December 2020 and 31 December 2021, respectively, until the last maturity of the portfolio (2062), assuming the swaption is still exercised.

In the ten-year period after 2022, the maturities in notional amounts are equally distributed. In the 2035-2036 two-year period, a considerable notional amount will expire, as it will in 2045. Following the strategy adopted in 2021, the expiration of 2051 was added, including both IRSs and CCSs. Subsequently, only one position related to an issue under the EMTN programme will remain, with a notional amount of EUR 250 million to expire in 2062.

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| |
|:---|
|  CHART III.15: COMPARISON BETWEEN THE PROSPECTIVE TREND OF THE NOTIONAL AMOUNT FOR THE EXISTING DERIVATIVES PORTFOLIO, AS AT 31/12/2020 AND 31/12/2021, RESPECTIVELY, ASSUMING THAT ALL SWAPTIONS ARE EXERCISED (EUR MILLION) |
| ![](image00071.jpg) |
|  Source: MEF |

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MINISTRY OF ECONOMY AND FINANCE 75

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  <u> 2021 PUBLIC DEBT REPORT </u>

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| |
|:---|
|  CHART III.16: COMPARISON BETWEEN THE MATURITY STRUCTURE OF THE EXISTING DERIVATIVES PORTFOLIO, AS AT 31/12/2020 AND 31/12/2021, RESPECTIVELY, ASSUMING THAT ALL SWAPTIONS ARE EXERCISED (EUR MILLION) |
| ![](image45.jpg) |
|  Source: MEF |

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Debt cost

In the year under review, the weighted average rate at issuance stood at 0.10% (the lowest level ever), confirming the downward trend over the past three years, while in 2020 the average cost was 0.59%. As mentioned earlier, this was achieved while ensuring the increase in the average life of the debt.

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| |
|:---|
|  CHART III.17: AVERAGE COST AT ISSUANCE OF GOVERNMENT SECURITIES - 2006-2021 (PERCENTAGE POINTS) |
| ![](image00072.jpg) |
|  Source: MEF |

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

On a cash basis, the average cost of debt, calculated as the ratio of cash interest<sup>54</sup> paid on government bonds in year t on the stock of government bonds in year t-1, was 2.28% in 2021, which compares with 2.57% in 2020. The continuation of the historically low market rate environment has, therefore, favoured a decline in the average cost of debt, at -0.29%, which is more pronounced than in 2020.

Including also all derivative operations, the total value of the 2021 cash cost comes to 2.35%, compared to 2.67% in 2020, a reduction, therefore, of 0.32%. In line with this, the impact of the derivatives portfolio also decreased: 0.07%, compared with 0.10% in the previous year<sup>55</sup>.

Lastly, it should be noted that the public finance forecasts included in policy documents, as well as in the state budget, take into account the effect of derivatives with simulation hypotheses that are completely in line with the rest of the estimates. Similarly, all final figures also include the effects of the amounts collected or paid out as a result of derivatives operations.

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| |
|:---|
|  CHART III.18: AVERAGE COST OF THE STOCK OF GOVERNMENT SECURITIES, BEFORE AND AFTER DERIVATIVES - 2005-2021 (PERCENTAGE POINTS) |
| ![](image00073.jpg) |
|  Source: MEF |

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<sup>54</sup> It is not possible to calculate a similar ratio for expenditure on an accrual basis (ESA 2010), as the latter, by definition, excludes flows from derivatives operations.

<sup>55</sup> Please note that the difference in costs between the debt portfolio before derivatives and that after derivatives represents the marginal cost borne by the Treasury to obtain a longer duration (therefore greater hedging of the risk of rising interest rates) compared to the duration resulting from issuing bonds only.

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**The impact on debt management resulting from participation in the SURE and NGEU programs**<br> In the wake of the spread of the Covid-19 pandemic, European institutions have deployed a variety of instruments to cope with the severe health, economic and social consequences, as well as to provide support to national governments engaged in implementing measures to contain the contagions and mitigate the effects of the crisis on productive activities.<br> Among the main lines of action proposed, the European Commission has planned two programs to support the economies of member states (SURE and Next Generation EU), to which is added the reinforcement of the European Union's 2021-2027 multi-year budget with resources earmarked for financing aid to states.<br> The SURE (Support to Mitigate Unemployment Risks in an Emergency) program is a temporary financial support instrument aimed at mitigating the risks of unemployment in the emergency situation related to the halt or slowdown of production activities. Approved by the European Council in May 2020, this instrument was created to provide financial assistance totalling EUR 100 billion in the form of loans granted on favourable terms by the EU to member states affected by the pandemic crisis, to cope with sudden increases in public spending and to preserve employment. Specifically, SURE loans help covering the costs directly related to the establishment or extension of national working time reduction schemes and other similar measures for self-employed workers introduced in response to the pandemic. These loans are backed by a system of voluntary guarantees from member states, whose contribution to the total guarantee amount corresponds to their respective share of the total gross national income of the European Union, based on the EU 2020 budget.<br> The second program introduced is Next Generation EU (NGEU), a temporary financing instrument aimed at supporting the economic recovery of EU countries, with total resources of EUR 806.9 billion to be used over the 2021-2026 period. The centrepiece of NGEU is the Recovery and Resilience Facility (RRF), under which some 723.8 billion in resources in the form of loans and grants are included to support reforms and investments made by member states with the aim of mitigating the economic and social impact of the pandemic, strengthening economies, and fostering green and digital transition. The NGEU program also includes other programs, such as ReactEU, aimed at assistance, recovery and resilience for the cohesion of Europe's territories (50.6 billion in grants), Rural development (8.1 billion in grants) and the Just transition fund (10.9 billion in grants), in addition to the already existing InvestEU program, strengthened to boost the economies of member states and support private investment (6.1 billion in grants). Furthermore, to facilitate interventions to counter the onset of future health crises and to improve mechanisms for managing them, the RescEU and Horizon Europe programs were introduced, which includes enhanced programs for research, innovation and external action.<br> To finance the Next Generation EU program, the European Commission plans to borrow on behalf of the European Union from financial markets at more favourable rates than many member states by redistributing the amounts. The collection of the approximately planned 800 billion (equivalent to 5% of EU GDP) will be implemented at best market conditions until 2026 through a diversified financing strategy.<br> During 2020, under the SURE program, Italy received loans totalling EUR 16.5 billion, disbursed in several tranches.<br> The first and second tranches, with durations of 10 and 20 years respectively, were disbursed in October 2020, totalling EUR 10 billion.<br> The fourth and fifth tranches, on the other hand, with durations of 5 and 30 years respectively, were disbursed in November 2020 for a total amount of EUR 6.5 billion.<br> The rates applied to these loans were 0.0% for the first and third tranches, while 0.1% and 0.3% for the second and fourth tranches, respectively.<br>

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

Also under the SURE program, loans of about EUR 11 billion were disbursed to Italy during 2021. In fact, at the end of 2021, the total loans raised by Italy through this program stood at about EUR 27.5 billion.<br> Disbursement also occurred in several tranches during 2021.<br> The fifth tranche, with a term of 7 years, was disbursed in February 2021, amounting to about EUR 4.5 billion.<br> The sixth, seventh and eighth tranches, with durations of 15, 5 and 25 years respectively, were disbursed in March, totalling about 5.7 billion.<br> Finally, the ninth and final tranche of 2021, with a 26-year term, was transferred in May, totalling EUR 750 million.<br> Also for loans disbursed during 2021, the rates charged were 0.0% for those with shorter terms (fifth and seventh tranches), while 0.2%, 0.45% and 0.75% for the sixth, eighth and ninth tranches, respectively.<br> During 2021, in addition to loans from the SURE program, following the approval in July 2021 of the National Recovery and Resilience Plan by the EU Council, Italy received the first tranche of NGEU loans with a 30-year maturity on 13 August, amounting to approximately EUR 15.94 billion.<br> The loan, with a term of 30 years, unlike SURE loans will not be repaid in a lump sum at maturity but on an annual basis, with a 10-year pre-repayment. The interest rate applied, determined based on the cost allocation methodology described in the European Commission's Implementing Decision (EU) 2021/1095 of 2 July 2021, was 0.14%.<br> Thus, loans that have so far been disbursed to Italy under the two programs exceed EUR 43 billion.<br> As for the share of European loans in the stock of outstanding securities, this amounted to 1.20% at the end of 2021, composed of 0.70% of loans under the NGEU program and 1.20% of loans under the SURE program. This share is up from 0.76% in 2020, consisting as mentioned above only of the SURE component.<br> Although the share represented by European loans is quite small compared to the total stock of Italian public debt, the high duration of loans granted to our country has nevertheless allowed the average life of the debt to be extended. In fact, at the end of 2020, relatively to the stock of government bonds, the average life was 6.95 years. If loans under the SURE Program are also considered, the average life of Italian debt rises to 7.02 years. The impact of European loans on the average life was even greater in 2021: at the end of 2021, relatively to the stock of government bonds, the average life was 7.11 years; if loans under the SURE and NGEU Programs are also taken into account, the average life rises to 7.29 years.<br> On the other hand, with regard to the impact of the SURE and NGEU programs on the average cost of debt, it should be noted that although the weighted average term of these loans is rather high (amounting to about 20 years), the particularly favourable terms on which these loans were granted still allowed for a reduction in the average cost of debt financing.<br> In fact, during 2020, the average cost at issuance was 0.59%. If loans under the SURE Program are also taken into account, the average cost at issuance has dropped as low as 0.57%. During 2021, the average cost at issuance was 0.11%, but if loans under the SURE and NGEU Programs are also taken into account, the average cost at issuance fell as low as 0.10%.<br> Finally, Tables III.12 and III.13 show the impact of these loans in terms of market risk exposure expressed by duration and ARP (Average Refixing Period).<br>

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|:---|:---|:---|:---|:---|
| TABLE III.12: DURATION AND ARP TREND DURING THE 2020-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) | TABLE III.12: DURATION AND ARP TREND DURING THE 2020-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) | TABLE III.12: DURATION AND ARP TREND DURING THE 2020-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) | TABLE III.12: DURATION AND ARP TREND DURING THE 2020-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) | TABLE III.12: DURATION AND ARP TREND DURING THE 2020-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES BEFORE DERIVATIVES (IN YEARS) |
|  | **Duration** | **Duration** | **ARP** | **ARP** |
|  | **31/12/2020** | **31/12/2021** | **31/12/2020** | **31/12/2021** |
| Domestic securities before derivatives | 6.22 | 6.07 | 6.00 | 6.14 |
| Foreign securities before derivatives | 8.09 | 8.56 | 6.58 | 8.13 |
| SURE | 14.25 | 12.32 | 15.71 | 13.77 |
| NGEU | - | 19.44 | - | 20.20 |
| **Stock of government securities before derivatives** | 6.31 | 6.24 | 6.09 | 6.38 |
| Source: MEF | Source: MEF | Source: MEF | Source: MEF | Source: MEF |
| TABLE III.13: DURATION AND ARP TREND DURING THE 2020-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES AND EUROPEAN LOANS (IN YEARS) | TABLE III.13: DURATION AND ARP TREND DURING THE 2020-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES AND EUROPEAN LOANS (IN YEARS) | TABLE III.13: DURATION AND ARP TREND DURING THE 2020-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES AND EUROPEAN LOANS (IN YEARS) | TABLE III.13: DURATION AND ARP TREND DURING THE 2020-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES AND EUROPEAN LOANS (IN YEARS) | TABLE III.13: DURATION AND ARP TREND DURING THE 2020-2021 PERIOD, RELATING TO THE STOCK OF GOVERNMENT SECURITIES AFTER DERIVATIVES AND EUROPEAN LOANS (IN YEARS) |
|  | **Duration** | **Duration** | **ARP** | **ARP** |
|  | **31/12/2020** | **31/12/2021** | **31/12/2020** | **31/12/2021** |
| Domestic securities before derivatives | 6.64 | 6.49 | 6.40 | 6.53 |
| Foreign securities before derivatives | 8.30 | 8.59 | 6.96 | 8.34 |
| SURE | 14.25 | 12.32 | 15.71 | 13.77 |
| NGEU | - | 19.44 | - | 20.20 |
| **Stock of government securities before derivatives** | 6.73 | 6.65 | 6.48 | 6.75 |
| Source: MEF | Source: MEF | Source: MEF | Source: MEF | Source: MEF |

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III.5 THE TREASURY'S CASH MANAGEMENT

During 2021, as described in Section II.1, the ECB adopted the same expansionary monetary policies as in recent years, strengthened as a result of the pandemic, which, while benefiting the government bond market in terms of lower yields and increased demand, also led to a tightening of the critical issues – already seen in previous years - in cash management. In fact, in an environment characterised by minimal demand for liquidity and negative returns, the Treasury has found itself having to manage cash and cash equivalents by trying to minimise the costs arising from the strong penalty applied to the stocks held at the Bank of Italy, through operations to deploy the available resources at rates, albeit very negative, higher than the rate applied to government stocks deposited with the ECB (Deposit Facility) which throughout 2021 was -0.50%.

The Treasury normally uses "OPTES" operations for part of its cash management actions, involving active management of the Treasury's cash account. Thanks to the Bank of Italy and the MEF exchanging information on cash flows,

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

OPTES operations aim to improve account balance forecasts, making it easier to manage debt and monetary policy operations. As provided by law, funding and lending are carried out by selected counterparts through daily auctions and bilateral trading (OPTES operations), run directly by the Treasury or by the Bank of Italy on behalf of the MEF.

As the below analysis shows, 2021 was characterised by marginal use of OPTES operations, due to the excess liquidity in the system and, consistently, to the strong contraction in demand from market participants. Following the interruption of auctions, introduced from the second half of 2019, operations were exclusively carried out through bilateral negotiations. At the same time, money market activity was intensified, thanks to the introduction of a new liquidity management tool: Repo operations.

Monitoring the Cash account and daily and monthly cash balance trends

As previously outlined, the monitoring activity is carried out by information being continuously exchanged between the State General Accounting Department, the Department of the Treasury and the Bank of Italy. The information shared refers to all incoming and outgoing operations carried out on the State Treasury's accounts, with data being exchanged with regard to both estimates and final balances.

The main purpose of sharing this information is to forecast the end-of-day balance, estimated on the basis of continuous updates provided by the Bank of Italy (six times a day) which are then validated by the MEF. These institutions also share longer-term forecast scenarios covering a period of between 30 and 60 days, with weekly updates being provided.

This latter exchange of information is particularly important for monetary policy purposes, as the Treasury sends its estimates regarding use of cash and government deposit balances for the period in question to the Bank of Italy, which in turn sends them to the ECB. The difficulties involved with this forecasting process stem from the large number of operators and the substantial cash flows running through the account. The average daily difference between the expected balance and the actual balance of the cash account is used as an indicator of the ability to make forecasts. In 2021, this indicator stood at around 0.64%<sup>56</sup>, down compared to 2020, whose value was 1.6%, confirming a satisfactory level of accuracy with regard to cash forecasts, despite the difficult context.

Notwithstanding the good forecasting ability in the short and medium term, the fluctuations recorded on the account are quite relevant, as shown in Chart III.19, Reporting levels and cyclicality like those recorded in previous years.

<sup>56</sup> This value is calculated as the average of the percentage variations (in absolute terms) between the estimated balance of the Cash Account at 6 p.m. on day *t-1* and the actual balance recorded at 9 a.m. on day *t*. This percentage therefore measures the average forecasting error made each day.

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| |
|:---|
|  CHART III.19: AVERAGE INTRA-MONTHLY CHANGES IN THE TREASURY'S AVAILABLE CASH – DIFFERENCES COMPARED WITH THE MONTHLY MINIMUM - 2021 (EUR MILLION) |
| ![](image00074.jpg) |
|  Source: MEF |

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As the above chart shows, balances are close to the minimum in the first part of the month and decrease to reach the lowest level towards the middle of the month, due to the substantial payments that need to be made (e.g., payment of social security allowances). This trend is then reversed in the second part of the month, with a peak in the last ten days mainly due to the collection of tax revenues.

These sudden fluctuations complicate cash management activities, as the Treasury must also hold substantial amounts of cash for significant redemptions of maturing government securities, which are not always simultaneously offset by similar issuances, especially not for medium and long-term bonds. In fact, it is market practice for securities other than BOTs to normally be distributed in several tranches over a number of months, while redemptions are made through a single payment on the maturity date. The fluctuations shown in the above chart are therefore also attributable to securities being issued and, above all, to those maturing, which may sometimes contribute to the significant decline at the beginning and half of the month. Other relevant causes connected to the account volatility are due to the misalignment between regular tax returns, usually distributed in the second half of the month, and the expenditures, mostly resulting from pensions and interest expenditure on government securities, which are instead distributed over the first days of the month.

Cash management operations and market context

As shown in Chart III.20, cash balances over the 12-month period in 2021 were always higher than the monthly averages in 2020. The trend, since the beginning of the year, has been upward to a peak in April, while in the second half of the year the descent began, bringing values back to 2020 levels in the last months of 2021. This trend is explained by the vastly different contingent situation in the first half of the two years under observation. While the first half of 2020 was particularly critical due to the outbreak of the pandemic and thus the financial effort in supporting businesses and households-with the inevitable decline in average stocks for the period-in 2021, conversely, thanks to monetary policy interventions and economic support measures adopted by the European Union and individual countries, the Treasury, given the uncertain environment it was facing anyway,

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

adopted an issuance policy strategy characterised by a strong acceleration in funding activity in the first months of the year. This policy, also accompanied by the inflow of funds from the SURE program, helped characterise the first half of the year with ample liquid assets. In the second half of the two years observed, on the other hand, diametrically opposite situations emerge: in 2020, average balances increased due to the excellent funding activity carried out earlier, as well as due to the positive performance of the economy and tax revenues, which were better than expected and finally due to the collection of the first tranches of the SURE program.

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| |
|:---|
|  CHART III.20: DIFFERENCE BETWEEN MONTHLY MAXIMUM AND MINIMUM TREASURY'S CASH ACCOUNT – 2020 AND 2021 (EUR MILLION) |
| ![](image00075.jpg) |
|  Source: MEF |

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During 2021, the Treasury only used medium and long-term bilateral operations to invest the liquidity of the Cash Account.

In 2021, the average stock of bilateral operations was in line with that of 2020, coming in at about 9.4 billion instead of about 9.5 billion in the previous year. Fairly predictable result given the unchanged market environment. characterised, let us recall, by an abundance of liquid assets in the market and a consequent lack of demand from banking operators, which resulted in fewer opportunities for employment and concomitantly more liquidity stored in the Treasury's Cash Account held at the Bank of Italy.

Compared to previous years, the average duration of these operations has lengthened further, standing at 42 days in 2021 compared to 30 days in 2020 and 24 in 2019. The increase in the average maturity allowed the Treasury to obtain better opportunities to invest the excess liquidity, at more advantageous rates than the deposit facility rate.

In 2021, due to the abundance of liquidity in the account and the decidedly unattractive rate terms applied by major counterparties in the uncollateralised segment, the Treasury did not resort to OPTES funding operations.

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|:---|
|  CHART III.21: BREAKDOWN OF THE TREASURY LIQUIDITY - AVERAGE VALUES FOR 2021 (EUR MILLION) |
| ![](image50.jpg) |
|  Source: MEF |

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The liquidity share related to investments in longer-term bilateral operations was about 11.50%, while the remainder was deposited in the Cash Account, whose average balance for 2021 exceeds 88% of the total.

Table III.14 shows for all of 2021 the total amount of Treasury liquidity at the end of the month, broken down between market operations and the Cash Account. <br>

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| | | | |
|:---|:---|:---|:---|
|  TABLE III.14: CASH ACCOUNT AND INVESTMENTS OF THE TREASURY'S LIQUIDITY AT THE END OF EACH MONTH - 2021 (EUR MILLION) | TABLE III.14: CASH ACCOUNT AND INVESTMENTS OF THE TREASURY'S LIQUIDITY AT THE END OF EACH MONTH - 2021 (EUR MILLION) | TABLE III.14: CASH ACCOUNT AND INVESTMENTS OF THE TREASURY'S LIQUIDITY AT THE END OF EACH MONTH - 2021 (EUR MILLION) | TABLE III.14: CASH ACCOUNT AND INVESTMENTS OF THE TREASURY'S LIQUIDITY AT THE END OF EACH MONTH - 2021 (EUR MILLION) |
| **Reference month** | **Balance of<br> the Cash account** | **OPTES liquidity operations** | **Treasury's total available**<br> **cash** |
| January | 66635 | 8000 | 74635 |
| February | 94492 | 8000 | 102492 |
| March | 77103 | 7000 | 84103 |
| April | 89273 | 12000 | 101273 |
| May | 78758 | 12000 | 90758 |
| June | 70901 | 12000 | 82901 |
| July | 102792 | 12000 | 114792 |
| August | 127054 | 12000 | 139054 |
| September | 86711 | 9000 | 95711 |
| October | 85671 | 6000 | 91671 |
| November | 60511 | 6000 | 66511 |
| December | 37503 | 9000 | 46503 |
|  Source: MEF | Source: MEF | Source: MEF | Source: MEF |

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Repo operations

In 2021, the Treasury, in order to cope with the critical issues typical of the uncollateralised money market, which is characterised by an oversupply of liquidity and interest rates stably in the negative area, expanded the tools at its disposal for a more efficient cash management.

To this end, a process of reviewing the Framework Decree was initiated during 2021 to enable the Treasury to have more flexible operational tools that adhere to market practices in order to more efficiently and effectively manage liquid assets.

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III. PUBLIC DEBT MANAGEMENT IN 2021<br>

Among these instruments, the one that could be implemented as early as 2021 was repurchase agreement (Repo) operations.

This operation began on 24 May 2021<sup>57</sup>, with the aim of managing cash flows through funding operations, to manage any temporally limited cash needs, and lending operations, to invest surplus cash in the money market. Through an ad hoc tranche issuance, the Treasury has established a portfolio aimed at Repo market operations, consisting of 15 nominal BTPs for a total amount of EUR 15 billion, which will be updated on a periodic basis (quarterly/semi-annual) both to supplement securities that will mature over time and to adjust quantities due to specific cash management needs. Since the start of operations, there has been a steady increase in the use of the securities portfolio, with the peak reached in mid-November (over 13 billion).

Repo contracts, in addition to their main function of raising and/or deploying liquidity, bring additional benefits such as, for example, supporting market makers in the provision of liquidity in the secondary market and limiting distortions on Repo rates of specific securities due to scarcity phenomena in the market.

The goal of reducing market distortions was pursued upstream with the choice of securities to be included in the portfolio, giving preference to those with high "specialness" (Repo rate below that of the reference market). Thanks to the Treasury's Repo operation, in fact, there has been-especially from September 2021 onward-a reduction in average market specialness in the BTP segment, relative to maturities between 2023 and 2031.

Therefore, through Repo operations, the Treasury offered, mainly to Primary Dealers, a tool by which it facilitated market making and thus supported the liquidity of securities in the secondary market.

Considering market rate levels, for the first few months of operation, the Treasury operated in the Repo market only in funding. This strategy, appropriately calibrated, has allowed a gradual easing of issuance on the money segment of BOTs, especially on six-month maturities.

In relation to the first half of operations, the volume-weighted average rate of Repo operations conducted was -0.586%, a level approximately 3 basis points lower than what would have been raised through BOT issues of the same maturity, assuming that such issues have no impact on monetary rate levels.

Finally, Repo operations helped to contain the overall average cost of liquid assets by about 1.5 basis points.

<sup>57</sup> For more details on Repo operation, see the related in-depth box at the end of the Ch. I.

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Conclusions

In 2021, cash management activity was particularly complex, due to all the reasons provided above. In this changed context, the Treasury had to adapt its cash management policy to ensure adequate cash availability and, where possible, use the exceeding liquidity in OPTES operations to reduce the impact of negative rates on the cash available in the Account. During the second half of the year, the Treasury continued to achieve the stabilisation of cash availability and limit the liquidity cost, by introducing Repo operations.

It should nonetheless be noted that, despite the growing difficulties involved with cash management, the effect of quantitative easing measures and the low level of interest rates along the entire yield curve were altogether favourable for Italy's public debt management.

86 MINISTRY OF ECONOMY AND FINANCE

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| ![](image51.jpg) |
| Ministero dell'Economia e delle Finanze |

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![](image00076.jpg)

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| &nbsp;&nbsp;&nbsp; ![](image00067.jpg) |
| <br> MINISTERO DELL'ECONOMIA E DELLE FINANZE<br>|
|  <br>**PUBLIC DEBT**<br> **REPORT**<br> **2021** |

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## Annex

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INDEX

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| | | |
|:---|:---|:---|
| ANNEXES | ANNEXES | 1 |
| Annex 1: | The Treasury's involvement in international discussions on debt management<br>| *5* |
| Annex 2: | The Department of the Treasury's Public Debt Directorate: organisational structure<br>| *7* |
| Annex 3: | SAPE (Issuance Portfolio Analysis Software)<br>| *11* |
| Annex 4: | Derivatives used by the Treasury: role, types, and collateralisation system<br>| *13* |
| Annex 5: | Italy and the role of Sovereign Green Bonds<br>| *19* |
| STATISTICAL ANNEX | STATISTICAL ANNEX | 23 |
| Sources of information on public dept available on the Treasury website | Sources of information on public dept available on the Treasury website | *23* |
| Tables and charts | Tables and charts | *24* |

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1<br>

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  <u> APPENDIX TO THE 2021 PUBLIC DEBT REPORT </u>

2 MINISTRY OF ECONOMY AND FINANCE

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ANNEXES<br>

ANNEXES

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  <u> APPENDIX TO THE 2021 PUBLIC DEBT REPORT </u>

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ANNEXES<br>

ANNEX 1

The Treasury's involvement in international discussions on debt management

Please find below a list of the main ways in which the Treasury is involved in international discussions on public debt management issues:

&nbsp;&nbsp;&nbsp;&nbsp;• Regular liaison with European DMOs is ensured as part of the special subcommittee (European Sovereign Debt Markets - ESDM) of the EU Economic and
 Financial Committee (EFC); the EFC has an advisory role vis-à-vis the European Commission and the Council of the European Union and is appointed to define actions for the coordination of Member States' economic and financial policies.

&nbsp;&nbsp;&nbsp;&nbsp;• Regular participation in the working groups organised by supranational institutions such as the OECD<sup>1</sup>, the IMF and the World Bank. The Treasury is also involved in the OECD's "Working Party on Public Debt Management" (WPDM)<sup>1</sup>,
 which constitutes a stable platform to compare the public debt management policies and techniques of the organisation's member countries, as well as in the "Government Borrowers' Forum" organised annually by the World Bank for the 40
 participating countries to share their practical experiences. The Treasury's standing with regard to public debt management is implicitly recognised by the "Public Debt Management Network", a joint initiative promoted by the OECD, the World
 Bank and the Italian Department of the Treasury (the only government institution alongside these two multilateral institutions), the aim of which is to share knowledge, information and research on public debt management issues.

&nbsp;&nbsp;&nbsp;&nbsp;• Another key opportunity for institutional coordination is the Treasury's participation in Eurostat statistical working groups and its contribution to
 drawing up the six-monthly notifications as part of the Excessive Deficit Procedure (EDP), especially in relation to entries being correctly recorded that are directly linked to public debt, in accordance with the harmonised European System
 of Accounts (ESA). By overseeing these accounting aspects, the Treasury is able to keep all relevant profiles under control, also moving beyond general considerations of a purely financial nature and with a direct impact on the state
 budget.

&nbsp;&nbsp;&nbsp;&nbsp;• Finally, the Treasury attends the annual "International Retail Debt Management Conference", made up of the DMOs of a limited number of countries; this

### __

<sup>1</sup> The WPDM began to meet as an OECD working group of public debt management experts in 1979. Italy's Treasury has continuously contributed to the annual work of the WPDM since 1985 and is part of the Steering Group established in 2003. Currently, the DMOs of all 36 OECD countries contribute to the work of the WPDM, as do the International Monetary Fund, the World Bank and the European Commission, as observers.

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  <u> APPENDIX TO THE 2021 PUBLIC DEBT REPORT </u>

conference is specifically dedicated to the operational issues involved with the placement of government securities among non-institutional investors and, every two years, it is supported by the World Bank to include emerging countries in its comparisons.

6 MINISTRY OF ECONOMY AND FINANCE

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ANNEXES<br>

ANNEX 2

The Department of the Treasury's Public Debt Directorate: organisational structure

The Department of the Treasury's "Second Directorate", dedicated to public debt management, is made up eleven offices. This Directorate carries out its tasks by working closely together with other institutional structures, such as the other directorates within the Department of the Treasury, the State General Accounting Department and the Bank of Italy. The various responsibilities of the Public Debt Directorate are shown in the chart below, grouped according to function.

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The Directorate has a front, middle and back office, as is typically the case for financial market operators and other Debt Management Offices (DMOs) managing public debt in advanced countries.

The Front Office covers all activities in direct contact with the market. These primarily involve all issuance activities that define primary market operations, regarding both the domestic and foreign market; said issuance activities take into

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account funding requirements, from market analysis to the decisions as to which type of securities to offer and the relative placement procedures and time frames.

Front Office activities also include the very short-term management of liquidity and extraordinary debt exchange and repurchase operations, as well as derivative operations.

Front Office activities also entail monitoring the various aspects of the government securities secondary market, as well as selecting and assessing dealers specialising in government securities.

The Middle Office is responsible for risk management<sup>2</sup>, carrying out all the necessary analyses, including legal and market analysis activities, to define the cost-risk profile that must drive and/or restrict Front Office operations. The various issuance portfolios identified, with their respective cost and risk combinations, (which, for many years<sup>3</sup>, have been based on a specific software that allows for "Cost-at-Risk" analysis based on a probabilistic model), are used by the Front Office to define the most appropriate issuance and hedging strategies. Risk management activities also include the monitoring of counterparty risk, determining the constraints that must be respected in terms of both derivative portfolio management and liquidity investment operations.

Middle Office activities also include multi-annual forecasts on interest expenditure and general government debt to be used for policy documents and institutional reporting purposes<sup>4</sup>.

The work carried out by the Back Office includes preparing issuance decrees and the stricter accounting activities relating to procedures to ensure timely payments.

All debt management activities are underpinned by the work to prepare the relative legal documentation for loans and derivatives, as well the drafting of prospectuses, both for international issuance programmes (Global, MTN) and for other securities placed with methods other than auctions. Likewise, since the Public Debt Directorate falls within the administrative context of the Department of the Treasury, it also carries out all the other legal-administrative and accounting tasks common to ministerial organisations.

The Public Debt Directorate also carries out other tasks of crucial importance.

These include the very important activities that may be classed under "communications", focusing on real-time information regarding issuances, as well

<sup>2</sup> For a more detailed assessment of best practices regarding Sovereign Debt Portfolio Risk Management, please refer to the International Monetary Fund's Working Paper "A Primer on Managing Sovereign Debt-Portfolio Risks", produced in partnership with dozens of DMOs, including the Italian Treasury.

<sup>3</sup> See the information contained in Annex 3 below.

<sup>4</sup> In particular, the Economic and Financial Document ("DEF") provided for by Italian Law no. 39 of 7 April 2011 (in relation to which Directorate II contributes to Section I "Italy's Stability Programme" and Section II "Analyses and Trends in Public Finances"), the DEF Update, the Draft Budgetary Plan ("DPB") as required by EU Regulation no. 473/2013, the Annex to the so-called "Quarterly Cash Report" (referred to by Art. 14 of Italian Law no. 196/2009 as the "Report on the General Government's Consolidated Cash Account"), the Report to Parliament on the sinking fund for government securities (an annex to the General Financial Statement of the Italian State) as referred to by Art. 44, paragraph 3, of Italian Presidential Decree no. 398/2003, and the half-yearly Report to the Court of Auditors on public debt management pursuant to the Italian Ministerial Decree dated 10/11/1995.

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as statistics about the structure, dynamics and composition of debt represented by government securities and the relative market. The main channel for these

activities is the public debt website. These activities also include the statistics stemming from the monitoring of the debt and derivatives exposure of local authorities.

In addition to this monitoring, the Directorate is also responsible for any extraordinary operations relating to local authorities' debt, as governed by specific regulations.

The role of liaising with external institutions, in particular at international level, is also of great importance; this includes: contributing to the coordination of public debt managers in Europe as part of a dedicated subcommittee (European Sovereign Debt Markets - ESDM) of the EU Economic and Financial Committee; taking part in Eurostat statistical working groups and contributing to preparing the six-monthly notifications as part of the Excessive Debt Procedure (EDP); participating in the various working groups of supranational institutions, such as the OECD and the IMF; the network between the Italian Treasury, the OECD and the World Bank regarding public debt management issues; relations with institutional investors and rating agencies<sup>5</sup>.

Finally, across-the-board IT services refer to all offices, since almost all the Directorate's work processes are computerised; some are shared by all government departments, with the same applications for the Department of the Treasury or for the entire Ministry, and others are specific to public debt, featuring dedicated tools and applications<sup>6</sup>. The latter are structured on the basis of the Directorate's specific needs<sup>7</sup> and use both internal information and data flows from the Bank of Italy, from Monte Titoli S.p.A. - the company that guarantees the centralised management of government securities - or from the company that manages the electronic government securities market (MTS S.p.A.).

<sup>5</sup> For more detailed information on when and how the Italian Treasury takes part in international discussions in this regard, please refer to Annex 1 of this Report.

<sup>6</sup> Databases and applications are designed and maintained in collaboration with the Department of the Treasury's IT Coordination department and with SOGEI, the supplier of digital architecture and support services. Società Generale d'Informatica S.P.A. ("SOGEI") is an Information Technology company that is 100% owned by the Italian Ministry of Economy and Finance.

<sup>7</sup> For example, please refer to the particularly significant aspects involved with developing and managing "SAPE", the Issuance Portfolio Analysis Software, as illustrated in Annex 3 below.

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ANNEXES<br>

ANNEX 3

SAPE (Issuance Portfolio Analysis Software)

The mathematical models and corresponding software (SAPE – Issuance Portfolio Analysis Software) used by the Treasury to support its management choices regarding the public debt portfolio are the result of a research project, made possible thanks to the FIRB 2003 funding received from the Italian Ministry of Education, University and Research (D.D. 2186-Ric 12/12/2003), and issued by the Institute for Calculation Applications of the Italian National Research Council (which heads up a group that also includes other academic institutions, such as Bocconi University, the University of Milan and Tor Vergata University of Rome); this funding was granted as part of the strategic programme entitled "Humanities, economics and social sciences", project objective "Public debt management". In the early 2000s, this project launched the modelling and software development work that led the Department of the Treasury to adopt a tool that could support it in making decisions regarding public debt management; by using stochastic simulation techniques, this tool could analyse the cost and risk profile of government securities portfolios.

Over the years, this model underwent various development phases, managed in collaboration with the Department of the Treasury and the various bodies involved, currently made up of the "M. Picone" Institute for Calculation Applications ("IAC") of the Italian National Research Council ("CNR") and the Cambridge Judge Business School at the University of Cambridge, as well as SOGEI, the Italian Treasury's IT solutions provider for the public administration.

The mathematical models and corresponding software are subject to continuous updates in order to take into account ongoing developments of the reference techniques. This allows for the various databases to be integrated in an increasingly comprehensive way, as well as taking into account the various management activities that may affect future scenarios. Since the end of 2017, the outstanding debt database used by SAPE has been made up of domestic securities, derivatives and securities in USD.

The main objective of the portfolio analysis is to measure debt servicing costs on an annual accrual basis, in accordance with ESA 2010 rules. The choice between different possible issuance portfolios must be weighted by taking into account both the cost, in terms of interest expenditure, and the interest rate risk for each individual portfolio compared with a representative sample of how interest rates may evolve.

For each possible issuance portfolio, it is possible to simulate the cost function distribution with respect to all the scenarios regarding how interest rates may evolve. This distribution simulation provides all the necessary information about costs (i.e., where the distribution is positioned) and risks (the scale of the distribution) for the portfolio in question. SAPE calculates different summary cost

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indicators (average cost, CaR - Cost at Risk-, maximum cost, etc.) and risk indicators (standard cost deviation, relative CaR, ES - Expected Shortfall - etc.), allowing for the possible issuance portfolios to be studied in as much detail as possible.

This model shows how the cost distribution evolves over time for each individual portfolio. This allows for accurate checks into the evolution of the selected costs and risks, making it possible for the decision maker to choose the portfolio whose temporal evolution profile best matches the policy and strategy choices in question.

The model underwent initial significant development when mutual guarantee agreements were introduced for derivative instruments<sup>8</sup>; this development allowed

for the estimate of effects in terms of Credit Value Adjustment and, as a result, in terms of the guarantees to be established/received as part of the Credit Support Annexes, to be included in the simulations.

The SAPE software's central element is the module that generates the scenarios regarding how interest rates will evolve. This module interacts with the cost and risk calculation module in a completely transparent way and also offers the possibility to use a range of stochastic models to generate medium/long-term scenarios for interest rates and inflation rates; above all, this is useful in order to assess the expected performance, in terms of cost-risk analysis, of the various strategies relating to public debt issuance policies. More generally speaking, by generating scenarios, expected exposure can be quantified with respect to yield curve volatility. Joint estimate models for the forward interest rate structure include government and break-even inflation (BEI) curves and swap curves (Euro and USD).

A five-year forecast period is generally used for cost-risk analyses on issuance portfolios. The scenarios generated by the model's stochastic simulation are in line with historical data in terms of the statistical properties of the yield curves, particularly in terms of the variance calculated for the different maturities and covariance between nominal rates and BEI and between nominal and swap rates.

<sup>8</sup> For further information in this regard, please refer to Annex 4 below.

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ANNEX 4

Derivatives used by the Treasury: role, types, and collateralisation system

Introduction

In principle, the derivatives sector is considerably vast, encompassing operations that have very different structures and purposes, used in almost all areas of finance and the economy. Sovereign issuers such as the Italian Treasury only use a few types of derivatives, for specific risk management objectives underlying its debt portfolio, with particular regard to interest rate and exchange rate risks. Please find below a description of (i) the role played by derivatives in managing Italy's public debt; (ii) the types of operations that are used; and, (iii) the collateralisation system.

The role of derivative operations used by the Treasury

As highlighted at the beginning of this Report<sup>9</sup>, the objective of curbing debt costs at the same time as maintaining an acceptable level of risk inherent in the existing debt structure, imposed upon DMOs by international best practices, does not end upon issuance and in relation to the market conditions at the time. This objective is instead achieved in a dynamic way, through ongoing actions that regard the entire portfolio and continue even after issuance.

In addition to debt exchange and repurchase operations, DMOs may also use derivatives to mitigate these risks after issuance.

Any mismatch between the structure of the portfolio resulting from the outcome of capital market placements and the management objectives considered preferable<sup>10</sup> can thus be rectified with the use of derivatives, increasing the DMO's compliance with policy objectives and partly separating the achievement of these objectives from the performance recorded at the time of placement.

Furthermore, while issuance activity is managed with continuity and predictability, in order to create the technical prerequisites of the necessary

<sup>9</sup> For an indispensable, more in-depth examination of the objectives pursued by public debt managers, also using derivative instruments, please refer to Chap. I.1 above, as well as the documents mentioned therein.

<sup>10</sup> A document drawn up jointly by best practice experts from the OECD, the IMF and the World Bank in 2008 highlighted the practice adopted in this regard by many Sovereign debt managers, emphasising the fact that: *"the implementation of the debt strategy may include the use of derivatives to separate funding decisions from the optimal portfolio composition decision, reduce the cost of borrowing, and manage risks in the portfolio (in particular, interest rate refixing risk and refinancing risk)". - OECD (2008) "Use of Derivatives for Debt Management and Domestic Debt Market Development: Key Conclusions"*, available at <u>http://www.oecd.org/fr/finances/dette-publique/39354012.pdf</u>

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investment liquidity for potential buyers, derivative operations, on the other hand, do not have a pre-defined timetable. In fact, derivative contracts may be signed at any time, when market conditions allow for DMOs' specific needs to be met; in this way, they contribute to removing a certain degree of rigidity from DMOs' management activities.

In authorising the use of derivatives on an annual basis, the Framework Decree states that they should contribute to achieving the general management objectives of curbing overall borrowing costs and protecting against market risks and refinancing risks, based on the information available and market conditions.

From an operational point of view, management of the derivatives portfolio must also take into account two main aspects: (i) the guarantee agreements that assist these operations, and (ii) the existing constraints for certain types.

With regard to the first aspect, please refer to the specific paragraph below on the objectives and characteristics of mutual guarantee agreements (collateralisation).

With regard to the second aspect, in September 2014, Eurostat issued new rules on how to record the market value of derivatives, only applicable to swaps arising from the restructuring of pre-existing swaps or to swaptions being exercised. In fact, for these specific cases, it was established that these operations shall affect debt stock levels from an accounting point of view (despite them not entailing actual recourse to the capital market).

The types of derivative contracts used by the Treasury

The types of derivative contracts used by the Treasury Please find below the functional characteristics of the three types of derivative operations used and/or usable to manage the Treasury's debt portfolio:

&nbsp;&nbsp;&nbsp;&nbsp;• Cross-currency swaps ("CCS") are used to synthetically convert liabilities generated by bond issues denominated in a foreign currency into euro
 denominated liabilities, with no alterations to the foreign-currency denominated security purchased by the investor. These instruments therefore eliminate the exchange rate risk for the Treasury and make it possible to directly compare the
 funding costs obtained on international markets with the cost of domestic debt. As outlined in this Report, the international issuance programme allows for the institutional investor base for Italian public debt to be diversified and to
 obtain competitive cost conditions compared with those for domestic debt.

&nbsp;&nbsp;&nbsp;&nbsp;• Interest rate swaps ("IRS") involve an exchange of flows involving a fixed rate being paid versus a floating rate being received, usually on long-term
 maturities. With a view to managing the debt portfolio in a comprehensive way, this type of derivative extends the financial duration of debt and acts as a precaution against expected interest rate increases. As already mentioned, this
 choice is in line with the need to manage the portfolio's cost-risk trade¬off and, in particular, with the specific characteristics of Italian public debt management, as described in Chapter I of this Report.

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&nbsp;&nbsp;&nbsp;&nbsp;• Finally, receiver swaptions<sup>11</sup> are derivative contracts that act in a
 similar way to IRS, in that they extend the financial duration of debt and mitigate interest rate risk, but they also provide cash benefits deriving from the sale of an option. Options sold by the Treasury give the counterparty the right to
 enter into an interest rate swap agreement, at a future date, under pre-defined conditions, as long as a lump sum (premium) is paid to the Treasury when the contract is signed. The IRS generated by sold receiver swaptions being exercised,
 like those that have not been sold as an option, are generally medium/long-term swaps, whereby the Treasury pays a fixed rate and receives a floating rate starting from a given date if the counterparty exercises its option. Swaptions are
 exercised if the market conditions are favourable for the Treasury's counterparty as at the date of the option being exercised (i.e., interest rates have fallen below the market expectations at the time the relative contract was signed);
 any IRS generated by the option being exercised shall nonetheless act as medium/long-term insurance for the Treasury.

#### Collateralisation agreements - objectives and characteristics
Collateralisation agreements were introduced for the derivative operations carried out by the Italian government with two objectives in mind.

The first objective was to align with standard practices in the derivatives market. In fact, for all financial instruments, the market value of the operation (Mark to Market) may significantly vary in terms of size and whether it is positive or negative, depending on market trends. For government bonds and securities, these variations affect, inter alia, the credit risk borne by the security holder<sup>12</sup>, and therefore how they are accounted for and the relative allocations to provisions. For derivatives (for example, interest rate derivatives), on the other hand, changes in the operation value may generate potential credit exposure for the party (the government or counterparty for a derivative) for whom the instrument has a positive value at a given moment in time. This means that, over time, either of the two parties may become, alternatively, the potential creditor/debtor of a sum, which may change significantly in terms of its size and whether it has a positive or negative value; however, said sum shall only become "real" if one of the two counterparties goes bankrupt or if the operation is closed before its natural expiry (by definition, the market value at the operation date is equal to zero).

While the interbank derivatives market has always been a collateralised market, Sovereigns' use of guarantee schemes to manage the credit exposure associated with derivative contracts has only been examined relatively recently. On the one hand, the 2008 crisis revealed the risks involved with governments being exposed vis-à-vis the banking sector without guarantees. On the other hand, the

### __

<sup>11</sup> A receiver swaption is an option that is sold/purchased to/by a counterparty that entitles the purchaser to enter into a swap contract at a future date, whereby the purchaser will pay a floating rate and receive a fixed rate on a given notional amount.

<sup>12</sup> By contrast, the issuer, by definition, is not exposed to any credit risk.

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subsequent and consequent tightening of regulatory constraints on banks gradually made it more expensive for the latter to maintain significant, unsecured exposure vis-à-vis governments, and, beyond certain limits, this even became unsustainable without capitalisation measures. Governments therefore also began using the market standard of mutual guarantee mechanisms as part of their ongoing operations.

The second objective regards the regulatory constraints on banks: given these obligations, the creation of a collateralisation system gives the Italian government the possibility to implement new hedges at sustainable costs (for example, hedges against exchange rate risk in the case of securities denominated in a foreign currency being issued).

It should also be noted that, by freeing up the resources that banking regulations require to be allocated to such exposure, the presence of collateral can indirectly allow the Italian government to strengthen the support of these counterparties for Italy's public debt, on both the primary and secondary market.

Guarantee agreements ("Credit Support Annexes" or "CSA") are regulated by Italian Ministerial Decree no. 103382 of 20 December 2017 ("Guarantee Decree") and, indeed, are annexes to the ISDA Master Agreement ("ISDA MA") in place with each counterparty.

The Public Debt Directorate has drawn up a model governed by Italian law, in line with the regulations governing each ISDA MA signed by the Italian government and all the relative confirmations. When drawing up the contracts to be signed, the Directorate in question based its choices, on the one hand, on public finance constraints, pursuant to Art. 6, paragraph 3, of the "Guarantee Decree", and, on the other, on its own organisational requirements, which led to a bespoke CSA being drafted. The contractual specifications defined in the CSA refer to margining frequency, the minimum amount, and the rounding of margins.

The resources necessary to pay the guarantees are allocated to a specific expenditure item, established by Italy's 2019 Budget Law and called "Expenses deriving from guarantee operations on derivatives exposure"; from this expenditure item, the guarantees are transferred to a special accounting system specifically set up for this purpose. Pursuant to Art. 5 of said Decree, the guarantee must be made up of cash in euro.

CSAs may be distinguished between those connected with previous derivative operations and those relating to new operations. The initial phase focused on pre¬existing derivative instruments with a number of counterparties, which resulted in the latter having significant credit exposure vis-à-vis the Italian government, above a threshold originally set at € 4 billion (as per the joint provision of Art. 6, paragraph 1, letter b), of the "Guarantee Decree" and Art. 4, paragraph 4, of the 2018 "Framework Decree"). As of 31 December 2017, there were only very few counterparties that met the requirements to sign a guarantee agreement for derivative positions already in the Italian government's portfolio.

A collateral structure was therefore defined, aimed at limiting the outgoing amounts for the Italian government. For each agreement, full collateralisation is not required upon signing, as the annual guarantee amounts to be paid to the counterparty are defined within a narrow "corridor", which tends to expand as time goes by. According to estimates, the Italian Treasury will have to pay limited and almost constant amounts over a considerable number of years; said amounts will

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gradually tend to hedge the counterparty's entire credit exposure vis-à-vis the Treasury. The expenditure commitments are therefore not only very limited compared with the overall exposure of the individual portfolios but are also set over a significant period, starting from when the agreement in question is signed. The margin to pay shall only be less than the expected amount, with a subsequent reduction in outgoing cash flows for margining purposes, if there are substantial increases in the interest rate swap curve, leading to a reduction in the overall mark-to-market of the collateralised portfolio. Time frames for the "corridor" to be applied to the cash flows is based on the need to mediate between the sustainability of the guarantee from the point of view of public finances (which makes it essential, at least in the early years, to limit said time frames) and the need to provide counterparties with a guarantee on their overall exposure vis-à-vis the Italian government within a reasonable number of years.

The work to prepare the guarantee agreement required a significant amount of time, which was necessary in order to carry out the legal analysis and the strictly financial analysis, with the latter aimed at defining, with each counterparty, the appropriate amount of the benefit to be paid to the Treasury, pursuant to Art. 6, paragraph 2, of the Guarantee Decree. All CSAs therefore only became operational in the second half of 2018 and only with regard to pre-existing operations with the banks that met the relative requirements.

The second phase, on the other hand, involved signing CSA agreements with all dealers specialising in government securities, with reference to any new operations<sup>13</sup>. This phase was completed in the second half of 2018, with a residual part being completed at the beginning of 2019. These agreements referred exclusively to derivative operations carried out after the relative agreement was signed. These agreements were signed pursuant to Art. 6, paragraph 1, let. a), of the "Guarantee Decree" with the same format being used for each individual counterparty, thereby meeting uniformity requirements with a view to treating all counterparties equally.

<sup>13</sup> Primarily, derivative contracts aimed at hedging new issuances in a foreign currency.

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ANNEX 5

Italy and the role of Sovereign Green Bonds

The year 2021 saw a strong rebound in GSS (Green, Social and Sustainability Bond) issuance due to increased demand from domestic and international investors and increased issuance by new and existing issuers.

According to the Debt Global State of the Market report, published by the Climate Bonds Initiative, despite continuing uncertainty related to post-pandemic inflation and dwindling central bank support, the global climate bond market attracted $1.1 trillion in new volume – 46% more than the $730.5 billion in 2020. Within that, green bonds still accounted for the largest component of issuance, with 49% of the total ($523 billion) – a 75% increase over the previous year's volumes. Such a jump pushed the cumulative total of outstanding bonds to $1.6 billion. Europe was the most prolific region, with cumulative issuance reaching USD 758 billion by year-end.

The continued expansion of the market and the need to provide adequate information to investors on the projects financed prompted the European Commission to publish the proposed Green Bond Standards (GBS) Regulation in parallel with the new Sustainable Finance Strategy, in order to implement Action 2 of the Action Plan on the development of sustainable finance.

The European Green Bonds Regulation introduces a common framework of rules in line with the European Taxonomy - the classification of economic activities that can be defined as "sustainable" on the basis of the six objectives contained in EU Regulation 852/2020, to which all issuers can voluntarily adhere.

In this context, although some issues remain to be considered, including the difficulty of alignment with the Taxonomy for Sovereign issuers, the proposal for a European regulation has been well received by the Italian Republic, as it proposes to set a benchmark at an international level, limiting the risk of greenwashing and at the same time strengthening investors' confidence in subscribing to green bonds, contributing to the development of the sustainable finance market.

During 2021, the Treasury completed the organisational process that enabled the Italian Republic to enter the sustainable finance market with the first issue of the BTP Green, the government bond dedicated to financing expenditure incurred by the State with a positive environmental impact, as provided for by the Budget Law for 2020 (Italian Law No. 160 of 27 December 2019).

As part of the preparatory activities for the first issuance, on 25 February, the Treasury made available the Green Bond Framework (GBF), the regulatory and organisational framework of reference for the issuance of green bonds that illustrates Italy's environmental strategy and the four essential mechanisms that accompany the issuance of BTP Green: the criteria for selecting the expenditures in the State budget deemed eligible, the use of the proceeds, the monitoring of such expenditures, and the environmental impact of the same.

In line with the best market practices already adopted by other Sovereign issuers, the GBF received a Second Party Opinion from Vigeo Eiris, the independent evaluation body specially selected by the Treasury. This opinion constitutes an ex-

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ante certification of the consistency of the approach used in the GBF with the environmental objectives and with the broader sustainability strategy of the Italian Republic, both from the point of view of resource allocation and from that of quantifying the positive effects on the climate and the environment, as well as with respect to the compliance of eligible expenses with the GBP (2018 edition) and the GBS under discussion in the European Union.

The contents of the Framework were elaborated through a complex activity of identification and collection of data and information within the Inter-Ministerial Committee for the monitoring and publication of the information necessary for the issuance of Green Bonds established with the Italian Prime Ministerial Decree of 9 October 2020, in compliance with the provisions of the Stability Law for 2020 (Italian Law No. 160 of 27 December 2019), which is responsible for coordinating the Public Administrations involved in the process of reporting on the information relevant to the use of the resources collected through Green Bonds.

The Ministries participating in the Committee collaborated with the structure of the Department of the Treasury in order to identify the eligible expenses, ensuring, through the activation of the necessary institutional collaborations, a continuous transmission of the information necessary for the traceability and monitoring of the use of the sums disbursed.

This information flow ensures the reporting of the actual utilisation of the sums, as well as the monitoring of the environmental impact of the uses indicated in the GBF.

Following the publication of the GBF and the related Second Party Opinion, the syndicated issuance of the first tranche of the BTP Green took place last 3 March, followed by the reopening of the bond in October via syndication.

In accordance with the criteria set forth in Section 4 of the GBF, last September, the Treasury disclosed the details of the green expenses for an amount similar to the net proceeds of the first issue.

The allocation of the proceeds collected in 2021 from the issuance of the BTP Green 2045 was made on the basis of the environmental objectives expressed by the European Taxonomy of Sustainable Activities<sup>14</sup> and indicated in the Framework for BTP Green issues:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. Climate change mitigation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Climate change adaptation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Sustainable use and protection of water resources and the marine environment;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. Transition to a circular economy;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. Pollution prevention and control;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. Protection, enhancement and restoration of biodiversity, ecosystems and environmental services.

<sup>14</sup> EU Regulation 2020/852 of 18 June 2020.

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Furthermore, the use of the proceeds raised through the issuance of Green bonds contributes to the achievement by the Italian Republic of the following 2030 Sustainable Development Goals (SDGs):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Goal 6: Clean Water and Sanitation

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Goal 7: Clean and Affordable Energy

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Goal 11: Sustainable Cities and Communities

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Goal 12: Responsible Consumption and Production

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Goal 13: Act for the Climate

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Goal 14: Life Under Water

The sums collected were indeed attributed to the expenditure of the State budget already made in the year the bond was issued (2021) and in the three previous years (2018-2020) with reference to the six categories indicated in the GBF:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. Renewable sources for electricity and heat production

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Energy efficiency

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Transport

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. Pollution prevention and control and circular economy

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. Protection of the environment and biological diversity

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. Research

In 2022, the Treasury will make available the Report on the Allocation and Impact of the 2045 BTP Green - which was drafted in 2021 by the Department of the Treasury in collaboration with the Ministries belonging to the Committee and in line with the best market practices already adopted by other Sovereign issuers.

In particular, the Report, the publication of which is expected within one year of issuance, provides information on:

&nbsp;&nbsp;&nbsp;&nbsp;• the description of expenditures aimed at improving environmental conditions in line with the United Nations Sustainable Development Goals in adherence
 to the "Green Bond Principles" issued by the International Capital Market Association (ICMA) in June 2018 and, as far as possible, with the environmental objectives of EU Regulation No. 852 of 2020 (so-called European Taxonomy);

&nbsp;&nbsp;&nbsp;&nbsp;• the detailed analysis of green programmes and projects according to their financial nature (tax breaks, capital expenditure and current expenditure),
 their time distribution over the 2018-2021 four-year period and their relative weight in the allocated total;

&nbsp;&nbsp;&nbsp;&nbsp;• the methodology and assumptions underlying environmental impact assessments.

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STATISTICAL ANNEX

SOURCES OF INFORMATION ON PUBLIC DEBT AVAILABLE ON THE TREASURY WEBSITE

The Treasury's website hosts a dedicated area about public Debt (<u>www.dt.mef.gov.it/en/debito_pubblico/</u>) featuring a wide range of both qualitative and quantitative information about each one of the operational issues included in this Report.

Information available in this area provides details about (but is not limited to) issuance timetable and official communications, auction results, securities' features and relevant legal framework, Specialist's assessment and extraordinary operations, available cash as well as documents of a more general nature, as the several releases of this Report or the annual Guidelines for the public Debt management.

The area also includes a data-rich statistical Section (<u>www.dt.mef.gov.it/en/debito_pubblico/dati_statistici/</u>) providing quantitative information about all public Debt topics, namely featured in the Quarterly Bulletin, including trends recorded in the government securities' portfolio composition, coupons, yields at issuance and average life, risks indicators and derivatives portfolio.

The dataset is steadily updated according to operations, while also keeping past data series available.

The following pages complete the information already provided in this Report by featuring selected Charts and Tables about some of the information available in the website.

23<br>

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  <u> APPENDIX TO THE 2021 PUBLIC DEBT REPORT </u>

TABLES AND CHARTS

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| &nbsp;&nbsp; GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF UP TO 30 MONTHS (EUR MILLION) | &nbsp;&nbsp; GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF UP TO 30 MONTHS (EUR MILLION) | &nbsp;&nbsp; GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF UP TO 30 MONTHS (EUR MILLION) | &nbsp;&nbsp; GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF UP TO 30 MONTHS (EUR MILLION) | &nbsp;&nbsp; GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF UP TO 30 MONTHS (EUR MILLION) | &nbsp;&nbsp; GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF UP TO 30 MONTHS (EUR MILLION) |
|  |  | **BOT** |  | **CTZ** | **BTP *Short Term*** |
|  | **3 months** | **6 months** | **12 months** | **24 months** | **18-30 months** |
|  Jan-18 | - | 6500 | 7500 | 4501 | - |
|  Feb-18 | - | 6500 | 6500 | 2300 | - |
|  Mar-18 | - | 6000 | 6500 | 3830 | - |
|  Apr-18 | - | 6000 | 6000 | 2300 | - |
|  May-18 | - | 6000 | 6500 | 1750 | - |
|  June-18 | - | 6050 | 6600 | 2013 | - |
|  July-18 | - | 7150 | 6600 | 2051 | - |
|  Aug-18 | - | 6450 | 6000 | 2013 | - |
|  Sept-18 | - | 6103 | 6600 | 2013 | - |
|  Oct-18 | - | 6050 | 6000 | 3900 | - |
|  Nov-18 | - | 6000 | 5500 | 2500 | - |
|  Dec-18 | - | 6500 | 6050 | - | - |
|  Jan-19 | - | 14300 | 7700 | 5046 | - |
|  Feb-19 | - | 6000 | 6500 | 2588 | - |
|  Mar-19 | - | 6600 | 6525 | 2300 | - |
|  Apr-19 | - | 6600 | 6102 | 4550 | - |
|  May-19 | - | 6810 | 6500 | 2875 | - |
|  June-19 | - | 6600 | 6747 | 2588 | - |
|  July-19 | - | 6500 | 7150 | 2300 | - |
|  Aug-19 | - | 6600 | 7150 | 2300 | - |
|  Sept-19 | - | 7150 | 7150 | 1598 | - |
|  Oct-19 | - | 7150 | 6600 | 3000 | - |
|  Nov-19 | - | 6500 | 5834 | 2013 | - |
|  Dec-19 | - | 6072 | - | - | - |
|  Jan-20 | - | 13000 | 7000 | 2300 | - |
|  Feb-20 | - | 6025 | 6000 | 2588 | - |
|  Mar-20 | - | 7000 | 6500 | 3163 | - |
|  Apr-20 | 6500 | 7700 | 7150 | 3163 | - |
|  May-20 | - | 7150 | 14700 | 5200 | - |
|  June-20 | - | 7157 | 7431 | 4200 | - |
|  July-20 | - | 7700 | 10274 | 3501 | - |
|  Aug-20 | - | 7460 | 7035 | 3450 | - |
|  Sept-20 | - | 6500 | 7372 | 3827 | - |
|  Oct-20 | - | 6500 | 7161 | 2500 | - |
|  Nov-20 | - | 6000 | 5500 | 2000 | - |
|  Dec-20 | - | - | 7000 | - | - |
|  Jan-21 | - | 13500 | 7000 | 3450 | - |
|  Feb-21 | - | 6500 | 7000 | 2501 | - |
|  Mar-21 | - | 6000 | 6043 | - | 4001 |
|  Apr-21 | - | 7150 | 7000 | - | 4500 |
|  May-21 | - | 6000 | 7500 | - | 3844 |
|  June-21 | - | 6500 | 7502 | - | 2750 |
|  July-21 | - | 7072 | 8250 | - | 4084 |
|  Aug-21 | - | 6500 | 7700 | - | 3300 |
|  Sept-21 | - | 5500 | 7700 | - | 2500 |
|  Oct-21 | - | 6000 | 6000 | - | 2700 |
|  Nov-21 | - | 5126 | 5000 | - | 2700 |
|  Dec-21 | - | - | 6600 | - | - |

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24 MINISTRY OF ECONOMY AND FINANCE

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<u> STATISTICAL ANNEX </u>  

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| | | | | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) | GROSS MARKET ISSUES AT NOMINAL VALUE - SECURITIES WITH A MATURITY OF MORE THAN 30 MONTHS<br> (EUR MILLION) |
|  | **CCT eu** | **BTP €i** | **BTP €i** | **BTP €i** | **BTP €i** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP Italia** | **BTP<br> Futura** |
|  | 5 – 7<br> years | 5<br> years | 10<br> years | 15<br> years | 30<br> years | 3<br> years | 5<br> years | 7<br> years | 10<br> years | 15<br> years | 20<br> years | 30<br> years | 50<br> years | 4 – 8<br> years | 8 – 16<br> years |
| Jan-18 | 2001 | 914 |  | 836 | - | 3000 | 2414 | 3431 | 1500 | - | 9000 | - | - | - | - |
| Feb-18 | 2300 | 1008 | 1292 | - | - | 2875 | 1798 | 3090 | 5463 | - | - | 2250 | 883 | - | - |
| Mar-18 | 1973 | 3250 |  | - | - | 2875 | 5200 | 5200 | 2300 | 1290 | - | - | - | - | - |
| Apr-18 | 2300 | - | 1334 | 708 | - | 5200 | 2875 | 2875 | 3450 | - | 1464 | 1575 | - | - | - |
| May-18 | 3502 | - | 604 | - | - | 3116 | 2750 | 2875 | 3000 | 1552 | - | - | - | 7709 | - |
| June-18 | 2300 | 964 | 1270 | - | 494 | 2300 | 2013 | 2467 | 2158 | - | - | 1045 |  | - | - |
| July-18 | 2300 | - | - | - | - | 2300 | 2000 | 2300 | 2688 | 1500 | 1500 | - | - | - | - |
| Aug-18 | 1725 | - | - | - | - | - | 2300 | - | 4999 | - | - | - | - | - | - |
| Sept-18 | 755 | - | - | 1200 | - | 2526 | 3750 | 4856 | 2250 | - | - | 1800 | - | - | - |
| Oct-18 | 1250 | - | 1146 | - | - | 4550 | 2000 | 1725 | 2000 | 1130 | - | - | - | - | - |
| Nov-18 | 1060 | 1000 | - | - | - | 2758 | 2276 | 1898 | 2750 | - | 1500 | - | - | 2164 | - |
| Dec-18 | 702 | - | - | - | - | - | 2300 | - | 2588 | - | - |  | - | - | - |
| Jan -19 | 863 | - | 845 | - | 486 | 3450 | 2300 | 2588 | 1738 | 10000 | - | 1500 | - | - | - |
| Feb-19 | 3575 | 977 | - | 481 | - | 2251 | 3163 | 2588 | 2875 | - | - | 8000 | - | - | - |
| Mar-19 | 1250 | - | 1070 | - | - | 5200 | 2000 | 2875 | 4000 | - | 1500 | - | - | - | - |
| Apr-19 | 1150 | - | - | 1045 | - | 2875 | 4224 | 4875 | 3163 | 1800 | - | - | - | - | - |
| May-19 | 1150 | 728 | 709 | - | - | 2750 | 2875 | 2500 | 3450 | - | - | 1755 | - | - | - |
| June-19 | 750 | - | 745 | - | 422 | 3163 | 1886 | 1735 | 2750 | 1800 | 6000 | - | - | - | - |
| July-19 | 1150 | 444 | - | 808 | - | 3079 | 2588 | 2500 | 3163 | - | - | - | 3000 | - | - |
| Aug-19 | 1280 | - | - | - | - | - | 3163 | - | 3738 | - | - | - | - | - | - |
| Sept-19 | 1150 | - | - | - | 450 | 4001 | 2588 | 2588 | 4000 | - | - | 1800 | - | - | - |
| Oct-19 | 841 | - | 4000 | - | - | 3163 | 3776 | 2588 | 3129 | - | 970 | 830 | - | 6750 | - |
| Nov-19 | 863 | - | - | - | 660 | 2500 | 2875 | 3251 | 3450 | - | - | 957 | - | - | - |
| Dec-19 | 750 | - | - | - | - | - | 2250 | - | 2750 | - | - | - | - | - | - |
| Jan -20 | - | 1438 | - | - | - | 3450 | 2155 | 2746 | 2501 | - | 1250 | 7000 | - | - | - |
| Feb-20 | 3575 | - | 900 | 600 | - | 2250 | 3163 | 2750 | 3738 | 9000 | - | - | - | - | - |
| Mar-20 | - | - | - | - | 841 | 3500 | 2500 | 795 | 4000 | - | 1500 | - | - | - | - |
| Apr-20 | 751 | - | 1150 | - | - | 5378 | 12750 | 3600 | 3500 | 1500 | - | 6000 | - | - | - |
| May-20 | - | - | 1150 | - | - | 5400 | 0 | 3000 | 4303 | - | 1200 | - | - | 22298 | - |
| Jun-20 | 1000 | 2600 | - | - | - | 6500 | 2500 | 3000 | 18000 | 2400 | - | - | - | - | - |
| July-20 | 1438 | - | 1022 | - | - | 4200 | 3111 | 5302 | 2208 | - | 2400 | - | - | - | 6132 |
| Aug-20 | - | - | - | - | - | 2750 | 2954 | 2750 | 3900 | - | - | 1250 | - | - | - |
| Sept-20 | 1331 | - | 750 | - | - | 3293 | 5850 | 3448 | 3000 | - | 10000 | - | - | - | - |
| Oct-20 | - | 750 | - | - | - | 4488 | 3000 | 2700 | 5023 | - | - | 1585 | - | - | - |
| Nov-20 | 1150 | - | - | - | - | 3600 | 3000 | 2100 | 3600 | 1500 | - | - | - | - | 5711 |
| Dec-20 | 2500 | - | - | - | - | 3008 | 2501 | 3000 | 3003 | - | - | - | - | - | - |
| Jan -21 | - | 1150 | - | - | - | 2750 | - | 4500 | - | 10000 | - | 2000 | - | - | - |
| Feb-21 | 1725 | - | - | - | 4000 | 3001 | 4200 | 4800 | 14500 | - | 2400 | - | - | - | - |
| Mar-21 | 1275 | - | 1436 | - | - | 6045 | 5000 | 3300 | - | - | 8,500\* | - | - | - | - |
| Apr-21 | 1634 | 1150 | - | - | 863 | 4702 | 4800 | 7000 | 3600 | 2400 | - | - | 5000 | - | 5477 |
| May-21 | 1274 | - | 1250 | - | - | 3344 | 2796 | 4695 | 2500 | - | - | 1820 | - | - | - |
| Jun-21 | 2300 | - | - | - | 1078 | 4200 | 3600 | 3000 | 14200 | - | 2100 | - | - | - | - |
| July-21 | 6000 | - | - | - | - | 5850 | 3600 | 3300 | - | 2100 | - | - | - | - | - |
| Aug-21 | 1274 | 1150 | - | - | - | - | 5850 | - | 3000 | - | - | - | - | - | - |
| Sept-21 | 2000 | - | 1000 | - | - | 2375 | 2500 | 2400 | 3250 | - | - | 2100 | - | - | - |
| Oct-21 | 2013 | - | - | - | 863 | 3600 | 2000 | 2400 | 2500 | - | 5,000\* | 1800 | - | - | - |
| Nov-21 | 1250 | - | 1150 | - | - | 2000 | 2000 | 3750 | 3750 | - | - | - | - | - | 3268 |
| Dec-21 | 1500 | - | - | - | - | 3500 | 2000 | - | 2250 | - | - | - | - | - | - |
| &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; \* BTP *Green* with a term at issue of 24 years<br> N.B. Securities placed in connection with exchange operations are not included |

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MINISTRY OF ECONOMY AND FINANCE 25

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  <u> APPENDIX TO THE 2021 PUBLIC DEBT REPORT </u>

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| &nbsp;&nbsp; GROSS ISSUES IN THE MARKET AT NOMINAL VALUE - OFF-THE-RUN SECURITY REOPENINGS (EUR MILLION) | &nbsp;&nbsp; GROSS ISSUES IN THE MARKET AT NOMINAL VALUE - OFF-THE-RUN SECURITY REOPENINGS (EUR MILLION) | &nbsp;&nbsp; GROSS ISSUES IN THE MARKET AT NOMINAL VALUE - OFF-THE-RUN SECURITY REOPENINGS (EUR MILLION) | &nbsp;&nbsp; GROSS ISSUES IN THE MARKET AT NOMINAL VALUE - OFF-THE-RUN SECURITY REOPENINGS (EUR MILLION) | &nbsp;&nbsp; GROSS ISSUES IN THE MARKET AT NOMINAL VALUE - OFF-THE-RUN SECURITY REOPENINGS (EUR MILLION) | &nbsp;&nbsp; GROSS ISSUES IN THE MARKET AT NOMINAL VALUE - OFF-THE-RUN SECURITY REOPENINGS (EUR MILLION) | &nbsp;&nbsp; GROSS ISSUES IN THE MARKET AT NOMINAL VALUE - OFF-THE-RUN SECURITY REOPENINGS (EUR MILLION) | &nbsp;&nbsp; GROSS ISSUES IN THE MARKET AT NOMINAL VALUE - OFF-THE-RUN SECURITY REOPENINGS (EUR MILLION) | &nbsp;&nbsp; GROSS ISSUES IN THE MARKET AT NOMINAL VALUE - OFF-THE-RUN SECURITY REOPENINGS (EUR MILLION) |
|  | **CCTeu** | **BTP€i** | **BTP€i** | **BTP€i** | **BTP** | **BTP** | **BTP** | **BTP** |
|  | 7 years | 2 – 10<br> years | 11 – 15<br> years | 16 – 30<br> years | 2 – 5<br> years | 6 – 10<br> years | 11 – 15<br> years | 16 – 30<br> years |
|  Jan-18 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | 1000 | - | - |
|  Feb-18 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Mar-18 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | 960 |
|  Apr-18 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  May-18 | - | 647 | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  June-18 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | 468 |
|  July-18 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Aug-18 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Sept-18 | 996 | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Oct-18 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | 670 |
|  Nov-18 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Dec-18 | 700 | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Jan-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | 849 | - | - |
|  Feb-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Mar-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Apr-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  May-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  June-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | 1466 | - | - |
|  July-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Aug-19 | 508 | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Sept-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Oct-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Nov-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | 639 |
|  Dec-19 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Jan-20 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Feb-20 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Mar-20 | 1000 | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | 1205 | - | - |
|  Apr-20 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | 1500 | - | 900 |
|  May-20 | 858 | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | 2800 | 1200 | - |
|  June-20 | 340 | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | 645 | 580 | - |
|  July-20 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | 1292 | 903 | 748 |
|  Aug-20 | 1250 | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Sept-20 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Oct-20 | 1251 | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Nov-20 | - | 1250 | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Dec-20 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Jan-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 505 | 995 | - | - |
|  Feb-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Mar-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Apr-21 | - | - | - | - | 2100 | - | - | - |
|  May-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | 2000 | - | - |
|  June-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 654 | 3725 | - | - |
|  July-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | 3600 | - | - |
|  Aug-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Sept-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Oct-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Nov-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
|  Dec-21 | - | - | - | - | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - | - | - | - |
| &nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included |

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| | |
|:---|:---|
| **26** | MINISTRY OF ECONOMY AND FINANCE |

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<u> STATISTICAL ANNEX </u>  

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| | | | | | | | | | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) | GROSS COMPOUND YIELDS ON GOVERNMENT BOND ISSUES (MONTHLY WEIGHTED AVERAGES) |
|  | **BOT** | **BOT** | **BOT** | **CTZ** | **CCT**<br> **eu** | **BTP€i** | **BTP€i** | **BTP€i** | **BTP€i** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP** | **BTP Italia** | **BTP Futura** |
|  | 3<br> months | 6<br> months | 12<br> months | 24<br> months | 5-7<br> years | 5<br> years | 10<br> years | 15<br> years | 30<br> years | 2<br> years | 3<br> years | 5<br> years | 7<br> years | 10<br> years | 15<br> years | 20<br> years | 30<br> years | 50<br> years | 4-8<br> years | 8-16<br> years |
| Jan-18 | - | -0.437 | -0.420 | -0.237 | 0.48 | 0.51 | - | 1.06 | - | - | 0.04 | 0.60 | 1.35 | 1.86 | - | 2.99 | - | - | - | - |
| Feb-18 | - | -0.403 | -0.401 | -0.216 | 0.42 | -0.41 | 0.89 | - | - | - | 0.05 | 0.66 | 1.43 | 2.06 | - | - | 3.16 | 3.19 | - | - |
| Mar-18 | - | -0.430 | -0.403 | -0.225 | 0.42 | -0.43 | - | - | - | - | 0.00 | 0.89 | 1.47 | 2.06 | 2.45 | - | - | - | - | - |
| Apr-18 | - | -0.421 | -0.399 | -0.275 | 0.35 | - | 0.47 | 0.76 | - | - | 0.05 | 0.68 | 1.27 | 1.83 | - | 2.59 | 2.88 | - | - | - |
| May-18 | - | 1.213 | -0.361 | 0.350 | 0.23 | - | 1.28 | - | - | - | 0.07 | 0.56 | 1.34 | 1.70 | 2.38 | - | - | - | 1.77 | - |
| June-18 | - | 0.092 | 0.550 | 0.917 | 2.00 | 0.90 | - | - | 2.14 | - | 1.16 | 2.32 | 2.37 | 3.00 | - | - | 3.54 | - | - | - |
| July-18 | - | 0.066 | 0.337 | 0.647 | 1.67 | - | 1.55 | - | - | - | 1.10 | 1.82 | 2.31 | 2.77 | 3.04 | 3.28 | - | - | - | - |
| Aug-18 | - | 0.438 | 0.679 | 1.277 | 1.75 | - | - | - | - | - | - | 1.80 | - | 2.87 | - | - | - | - | - | - |
| Sept-18 | - | 0.206 | 0.436 | 0.715 | 2.31 | - | - | 1.65 | - | - | 1.20 | 2.44 | 2.55 | 3.25 | - | - | 3.55 | - | - | - |
| Oct-18 | - | 0.159 | 0.949 | 1.626 | 1.77 | - | 2.34 | - | - | - | 2.51 | 2.03 | 3.28 | 2.90 | 3.66 | - | - | - | - | - |
| Nov-18 | - | 0.163 | 0.630 | 0.995 | 2.32 | 1.45 | - | - | - | - | 1.98 | 2.58 | 3.12 | 3.36 | - | 3.90 | - | - | 2.55 | - |
| Dec-18 | - | - | 0.370 | - | 2.31 | - | - | - | - | - | - | 2.35 | - | 3.24 | - | - | - | - | - | - |
| Jan-19 | - | 0.095 | 0.285 | 0.518 | 1.81 | - | 2.52 | - | 3.51 | - | 1.07 | 1.79 | 2.35 | 2.70 | 3.41 | - | 3.68 | - | - | - |
| Feb-19 | - | -0.007 | 0.181 | 0.592 | 1.65 | 1.63 | - | 3.02 | - | - | 0.99 | 1.49 | 2.26 | 2.60 | - | - | 3.91 | - | - | - |
| Mar-19 | - | -0.062 | 0.060 | 0.288 | 1.83 | - | 2.37 | - | - | - | 1.06 | 1.59 | 2.05 | 2.81 | - | 3.35 | - | - | - | - |
| Apr-19 | - | -0.028 | 0.070 | 0.697 | 1.83 | - | - | 2.77 | - | - | 1.08 | 1.71 | 2.05 | 2.61 | 3.00 | - | - | - | - | - |
| May-19 | - | -0.048 | 0.122 | 0.818 | 1.77 | 1.58 | 2.43 | - | - | - | 1.24 | 1.72 | 2.23 | 2.59 | - | - | 3.65 | - | - | - |
| June-19 | - | -0.063 | 0.069 | 0.431 | 1.95 | - | 1.88 | - | 2.98 | - | 1.05 | 1.81 | 1.96 | 2.60 | 2.87 | 3.15 | - | - | - | - |
| July-19 | - | -0.210 | -0.061 | 0.041 | 1.60 | 0.53 | - | 1.65 | - | - | 0.49 | 1.34 | 1.24 | 2.09 | - | - | - | 2.88 | - | - |
| Aug-19 | - | -0.217 | 0.107 | 0.008 | 1.06 | - | - | - | - | - | - | 0.80 | - | 1.56 | - | - | - | - | - | - |
| Sept-19 | - | -0.224 | -0.226 | -0.236 | 0.77 | - | - | - | 1.67 | - | -0.01 | 0.32 | 0.56 | 0.96 | - | - | - | 2.06 | - | - |
| Oct-19 | - | -0.213 | -0.219 | -0.112 | 0.52 | - | 0.98 | - | - | - | 0.05 | 0.26 | 0.60 | 0.88 | - | 1.78 | 2.03 | - | 0.68 | - |
| Nov-19 | - | -0.215 | -0.135 | -0.033 | - | - | - | - | 2.02 | - | 0.22 | 0.42 | 0.91 | 1.06 | - | - | 2.29 | - | - | - |
| Dec-19 | - | - | -0.191 | - | 0.71 | - | - | - | - | - | - | 0.64 | - | 1.29 | - | - | - | - | - | - |
| Jan-20 | - | -0.288 | -0.242 | -0.091 | - | 0.06 | - | - | - | - | 0.18 | 0.61 | 0.94 | 1.35 | - | 2.14 | 2.50 | - | - | - |
| Feb-20 | - | -0.287 | -0.319 | -0.143 | 0.18 | - | 0.96 | 1.13 | - | - | -0.10 | 0.31 | 0.48 | 0.94 | 1.49 | - | - | - | - | - |
| Mar-20 | - | 0.055 | 0.072 | 0.307 | - | - | - | - | 2.15 | - | 0.74 | 0.36 | 0.92 | 1.00 | - | 1.97 | - | - | - | - |
| Apr-20 | 0105 | 0.227 | 0.534 | 1.001 | 0.66 | - | 2.02 | - | - | - | 0.86 | 1.68 | 1.37 | 1.48 | 2.06 | - | 3.13 | - | - | - |
| May-20 | - | 0.012 | 0.149 | 0.441 | - | - | 1.50 | - | - | - | 0.87 | - | 1.53 | 1.78 | - | 2.49 | - | - | 1.41 | - |
| June-20 | - | -0.224 | 0.014 | 0.102 | 0.53 | 0.78 | - | - | - | - | 0.46 | 0.91 | 1.10 | 1.64 | 1.91 | - | - | - | - | - |
| July-20 | - | -0.276 | -0.159 | -0.031 | 0.56 | - | 0.97 | - | - | - | 0.30 | 0.68 | 0.95 | 1.28 | - | 1.91 | - | - | - | 1.29 |
| Aug-20 | - | -0.330 | -0.192 | -0.014 | - | - | - | - | - | - | 0.08 | 0.46 | 0.72 | 1.04 | - | - | 1.91 | - | - | - |
| Sept-20 | - | -0.392 | -0.225 | -0.118 | 0.45 | - | 0.78 | - | - | - | 0.07 | 0.58 | 0.75 | 1.11 | - | 1.82 | - | - | - | - |
| Oct-20 | - | -0.478 | -0.436 | -0.265 | - | 0.24 | - | - | - | - | -0.14 | 0.35 | 0.34 | 0.89 | - | - | - | - | - | - |
| Nov-20 | - | -0.518 | -0.478 | -0.369 | 0.27 | - | - | - | - | - | -0.19 | 0.23 | 0.35 | 0.79 | 1.05 | - | - | - | - | 0.61 |
| Dec-20 | - | - | -0.498 | - | -0.02 | - | - | - | - | - | -0.30 | 0.01 | 0.19 | 0.59 | - | - | - | - | - | - |
| Jan-21 | - | -0.483 | -0.478 | -0.277 | - | 0.11 | - | - | - | - | -0.23 | - | 0.30 | - | 0.99 | - | 1.47 | - | - | - |
| Feb-21 | - | -0.429 | -0.454 | -0.308 | 0.04 | - | - | - | 1.48 | - | -0.33 | 0.07 | 0.18 | 0.62 | - | 1.14 | - | - | - | - |
| Mar-21 | - | -0.486 | -0.421 | - | -0.19 | - | 1.56 | - | - | -0.39 | -0.22 | 0.11 | 0.31 | - | - | 1.55<sup>1</sup> | - | - | - | - |
| Apr-21 | - | -0.481 | -0.436 | - | -0.08 | 0.16 | - | - | 1.86 | -0.30 | -0.17 | 0.05 | 0.36 | 0.72 | 1.26 | - | - | 2.18 | - | 1.376 |
| May-21 | - | -0.504 | -0.443 | - | -0.06 | - | 0.76 | - | - | -0.33 | -0.06 | 0.17 | 0.69 | 0.88 | - | - | 2.06 | - | - | - |
| June-21 | - | -0.521 | -0.490 | - | -0.07 | - | - | - | 1.97 | -0.37 | -0.22 | 0.17 | 0.46 | 0.95 | - | 1.55 | - | - | - | - |
| July-21 | - | -0.524 | -0.459 | - | 0.17 | - | - | - | - | -0.29 | -0.19 | 0.12 | 0.38 | - | 1.19 | - | - | - | - | - |
| Aug-21 | - | -0.519 | -0.513 | - | 0.05 | -0.01 | - | - | - | -0.29 | - | 0.02 | - | 0.66 | - | - | - | - | - | - |
| Sept-21 | - | -0.545 | -0.477 | - | 0.03 | - | 0.59 | - | - | -0.32 | -0.27 | -0.01 | 0.32 | 0.67 | - | - | 1.69 | - | - | - |
| Oct-21 | - | -0.550 | -0.474 | - | -0.21 | - | - | - | 1.80 | -0.23 | -0.19 | 0.11 | 0.48 | 0.86 | - | 1.68<sup>1</sup> | 1.82 | - | - | - |
| Nov-21 | - | -0.563 | -0.533 | - | -0.01 | - | 0.80 | - | - | -0.26 | -0.16 | 0.28 | 0.60 | 1.05 | - | - | - | - | - | 1.255 |
| Dec-21 | - | - | -0.467 | - | 0.07 | - | - | - | - | - | -0.10 | 0.19 | - | 1.02 | - | - | - | - | - | - |
| &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; <sup>1</sup> BTP *Green* issue yield<br> N.B. Securities placed in connection with exchange operations are not included |

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MINISTRY OF ECONOMY AND FINANCE 27

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  <u> APPENDIX TO THE 2021 PUBLIC DEBT REPORT </u>

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| &nbsp;&nbsp; GROSS COMPOUND YIELDS AT GOVERNMENT BOND ISSUANCE - OFF-THE-RUN SECURITY REOPENINGS<br> (MONTHLY WEIGHTED AVERAGES) | &nbsp;&nbsp; GROSS COMPOUND YIELDS AT GOVERNMENT BOND ISSUANCE - OFF-THE-RUN SECURITY REOPENINGS<br> (MONTHLY WEIGHTED AVERAGES) | &nbsp;&nbsp; GROSS COMPOUND YIELDS AT GOVERNMENT BOND ISSUANCE - OFF-THE-RUN SECURITY REOPENINGS<br> (MONTHLY WEIGHTED AVERAGES) | &nbsp;&nbsp; GROSS COMPOUND YIELDS AT GOVERNMENT BOND ISSUANCE - OFF-THE-RUN SECURITY REOPENINGS<br> (MONTHLY WEIGHTED AVERAGES) | &nbsp;&nbsp; GROSS COMPOUND YIELDS AT GOVERNMENT BOND ISSUANCE - OFF-THE-RUN SECURITY REOPENINGS<br> (MONTHLY WEIGHTED AVERAGES) | &nbsp;&nbsp; GROSS COMPOUND YIELDS AT GOVERNMENT BOND ISSUANCE - OFF-THE-RUN SECURITY REOPENINGS<br> (MONTHLY WEIGHTED AVERAGES) | &nbsp;&nbsp; GROSS COMPOUND YIELDS AT GOVERNMENT BOND ISSUANCE - OFF-THE-RUN SECURITY REOPENINGS<br> (MONTHLY WEIGHTED AVERAGES) | &nbsp;&nbsp; GROSS COMPOUND YIELDS AT GOVERNMENT BOND ISSUANCE - OFF-THE-RUN SECURITY REOPENINGS<br> (MONTHLY WEIGHTED AVERAGES) | &nbsp;&nbsp; GROSS COMPOUND YIELDS AT GOVERNMENT BOND ISSUANCE - OFF-THE-RUN SECURITY REOPENINGS<br> (MONTHLY WEIGHTED AVERAGES) |
|  | **CCT** | **BTP€i** | **BTP€i** | **BTP€i** | **BTP** | **BTP** | **BTP** | **BTP** |
|  | 7 years | 2 – 10<br> years | 11 – 15<br> years | 16 - 30<br> years | 2 - 5<br> years | 6 - 10<br> years | 11 – 15<br> years | 16 – 30<br> years |
|  Jan-18 | - | - | - | - | - | 1.83 | - | - |
|  Feb-18 | - | - | - | - | - | - | - | - |
|  Mar-18 | - | - | - | - | - | - | - | 2.92 |
|  Apr-18 | - | - | - | - | - | - | - | - |
|  May-18 | - | -0.05 | - | - | - | - | - | - |
|  June-18 | - | - | - | - | - | - | - | 3.42 |
|  July-18 | - | - | - | - | - | - | - | - |
|  Aug-18 | - | - | - | - | - | - | - | - |
|  Sept-18 | 2.32 | - | - | - | - | - | - | - |
|  Oct-18 | - | - | - | - | - | - | - | 3.79 |
|  Nov-18 | - | - | - | - | - | - | - | - |
|  Dec-18 | 2.22 | - | - | - | - | - | - | - |
|  | - | - | - | - | - | 2.50 | - | - |
|  Jan-19 |  |  |  |  |  |  |  |  |
|  Feb-19 | - | - | - | - | - | - | - | - |
|  Mar-19 | - | - | - | - | - | - | - | - |
|  Apr-19 | - | - | - | - | - | - | - | - |
|  May-19 | - | - | - | - | - | - | - | - |
|  June-19 | - | - | - | - | - | 1.94 | - | - |
|  July-19 | - | - | - | - | - | - | - | - |
|  Aug-19 | 1.11 | - | - | - | - | - | - | - |
|  Sept-19 | - | - | - | - | - | - | - | - |
|  Oct-19 | - | - | - | - | - | - | - | - |
|  Nov-19 | 0.40 | - | - | - | - | - | - | - |
|  Dec-19 | - | - | - | - | - | - | - | - |
|  | - | - | - | - | - | - | - | - |
|  Jan-20 |  |  |  |  |  |  |  |  |
|  Feb-20 | - | - | - | - | - | - | - | - |
|  Mar-20 | - | - | - | - | 2.50 | 1.29 | - | - |
|  Apr-20 | - | - | - | - | - | 1.44 | - | 2.49 |
|  May-20 | - | - | - | - | - | 1.43 | 2.23 | - |
|  June-20 | - | - | - | - | - | 1.24 | 1.55 | - |
|  July-20 | - | - | - | - | - | 1.20 | 1.36 | 1.59 |
|  Aug-20 | - | - | - | - | - | - | - | - |
|  Sept-20 | - | - | - | - | - | - | - | - |
|  Oct-20 | - | - | - | - | - | - | - | - |
|  Nov-20 | - | -0.39 | - | - | - | - | - | - |
|  Dec-20 | - | - | - | - | - | - | - | - |
|  | - | - | - | - | 0.11 | 0.43 | - | - |
|  Jan-21 |  |  |  |  |  |  |  |  |
|  Feb-21 | - | - | - | - | - | - | - | - |
|  Mar-21 | - | - | - | - | - | - | - | - |
|  Apr-21 | - | - | - | - | 0.12 | - | - | - |
|  May-21 | - | - | - | - | - | 0.83 | - | - |
|  June-21 | - | - | - | - | -0.46 | 0.43 | - | - |
|  July-21 | - | - | - | - | - | 0.78 | - | - |
|  Aug-21 | - | - | - | - | - | - | - | - |
|  Sept-21 | - | - | - | - | - | - | - | - |
|  Oct-21 | - | - | - | - | - | - | - | - |
|  Nov-21 | - | - | - | - | - | - | - | - |
|  Dec-21 | - | - | - | - | - | - | - | - |
| &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included |

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28 MINISTRY OF ECONOMY AND FINANCE

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<u> STATISTICAL ANNEX </u>  

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| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) | &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) | &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) | &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) | &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) | &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) | &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) | &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) | &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) | &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) | &nbsp;&nbsp; WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS (MONTHS) |
|  |  |  |  | **BTP** | **BTP** | **BTP** | **BTP** | **BTP** |  |  |
| **BOT** | **CCT** | **CCTeu** | **CTZ** | **ordinary** | **indexed** | **Futura** | **Italia** | ***Green*** | **Foreign** | **TOTAL** |
|  Jan-18 | 5.05 | 49.20 | 12.28 | 93.01 | 96.42 | - | 51.88 | - | 144.09 | 82.88 |
|  Feb-18 | 5.15 | 48.91 | 11.78 | 94.24 | 95.42 | - | 50.96 | - | 143.17 | 83.46 |
|  Mar-18 | 5.14 | 48.41 | 14.88 | 93.24 | 93.71 | - | 49.95 | - | 145.36 | 82.95 |
|  Apr-18 | 5.11 | 52.46 | 14.48 | 92.46 | 93.33 | - | 48.96 | - | 145.41 | 82.82 |
|  May-18 | 5.11 | 52.39 | 13.80 | 92.28 | 92.23 | - | 52.90 | - | 145.34 | 82.49 |
|  June-18 | 5.18 | 52.11 | 13.17 | 92.70 | 91.69 | - | 51.91 | - | 144.42 | 82.50 |
|  July-18 | 5.21 | 51.67 | 12.49 | 91.82 | 90.89 | - | 50.89 | - | 143.52 | 81.67 |
|  Aug-18 | 5.18 | 51.12 | 11.78 | 92.43 | 89.87 | - | 49.88 | - | 142.49 | 81.75 |
|  Sept-18 | 5.20 | 50.64 | 11.07 | 91.62 | 96.53 | - | 48.89 | - | 141.83 | 81.53 |
|  Oct-18 | 5.14 | 49.92 | 11.09 | 91.58 | 95.66 | - | 49.58 | - | 141.99 | 81.34 |
|  Nov-18 | 5.07 | 53.14 | 10.70 | 90.63 | 94.40 | - | 48.50 | - | 141.97 | 80.80 |
|  Dec-18 | 4.93 | 52.57 | 12.37 | 90.75 | 93.38 | - | 47.48 | - | 141.20 | 81.37 |
|  Jan-19 | 5.11 | 51.74 | 12.40 | 90.56 | 93.10 | - | 46.46 | - | 140.17 | 80.73 |
|  Feb-19 | 5.18 | 51.35 | 11.94 | 92.53 | 92.14 | - | 45.54 | - | 139.24 | 81.83 |
|  Mar-19 | 5.16 | 50.44 | 11.30 | 93.14 | 91.25 | - | 44.52 | - | 137.44 | 81.89 |
|  Apr-19 | 5.13 | 49.62 | 11.50 | 92.82 | 90.74 | - | 43.54 | - | 137.00 | 81.37 |
|  May-19 | 5.11 | 48.76 | 13.39 | 93.16 | 89.61 | - | 42.52 | - | 139.56 | 81.72 |
|  June-19 | 5.18 | 47.78 | 12.95 | 92.87 | 89.31 | - | 41.80 | - | 138.84 | 81.44 |
|  July-19 | 5.24 | 46.92 | 12.37 | 92.71 | 88.53 | - | 40.79 | - | 141.83 | 81.17 |
|  Aug-19 | 5.22 | 46.09 | 11.76 | 92.63 | 87.51 | - | 39.77 | - | 144.51 | 80.73 |
|  Sept-19 | 5.27 | 45.25 | 11.04 | 93.40 | 98.43 | - | 38.78 | - | 144.23 | 81.72 |
|  Oct-19 | 5.22 | 44.46 | 13.47 | 93.43 | 98.20 | - | 43.27 | - | 149.82 | 82.43 |
|  Nov-19 | 5.14 | 47.96 | 12.93 | 92.65 | 98.03 | - | 42.27 | - | 148.80 | 82.27 |
|  Dec-19 | 5.00 | 47.04 | 11.75 | 92.74 | 97.01 | - | 41.25 | - | 149.77 | 82.42 |
|  Jan-20 | 5.09 | 46.02 | 11.61 | 93.03 | 95.44 | - | 40.23 | - | 154.29 | 82.29 |
|  Feb-20 | 5.09 | 45.08 | 11.12 | 94.03 | 94.88 | - | 39.27 | - | 153.36 | 82.73 |
|  Mar-20 | 5.09 | 44.18 | 14.17 | 94.71 | 94.87 | - | 38.25 | - | 152.15 | 83.50 |
|  Apr-20 | 5.00 | 43.20 | 13.56 | 94.61 | 94.09 | - | 46.35 | - | 139.97 | 83.48 |
|  May-20 | 5.06 | 42.25 | 13.63 | 94.61 | 93.26 | - | 49.15 | - | 129.67 | 82.42 |
|  June-20 | 5.00 | 41.25 | 13.39 | 94.94 | 91.92 | - | 48.30 | - | 135.97 | 82.42 |
|  July-20 | 5.19 | 40.23 | 12.91 | 94.04 | 91.07 | 119.51 | 47.28 | - | 135.15 | 81.76 |
|  Aug-20 | 5.07 | 39.37 | 12.37 | 93.13 | 90.06 | 118.49 | 46.26 | - | 135.43 | 80.82 |
|  Sept-20 | 5.03 | 38.43 | 12.07 | 94.56 | 89.19 | 117.50 | 45.28 | - | 134.30 | 81.52 |
|  Oct-20 | 5.10 | 37.23 | 11.49 | 96.50 | 88.07 | 116.48 | 48.43 | - | 133.21 | 83.04 |
|  Nov-20 | 4.95 | 36.25 | 13.87 | 96.56 | 86.79 | 105.92 | 47.48 | - | 128.96 | 83.39 |
|  Dec-20 | 4.91 | 39.42 | 13.07 | 95.51 | 85.78 | 104.90 | 46.46 | - | 129.79 | 83.40 |
|  Jan-21 | 4.96 | 38.41 | 12.51 | 95.34 | 84.61 | 103.88 | 45.44 | - | 128.68 | 82.85 |
|  Feb-21 | 5.16 | 37.81 | 11.90 | 94.67 | 90.32 | 102.96 | 44.52 | - | 127.81 | 82.88 |
|  Mar-21 | 5.07 | 36.75 | 10.92 | 94.86 | 89.61 | 101.94 | 43.51 | 289.18 | 134.08 | 83.58 |
|  Apr-21 | 5.10 | 36.06 | 9.93 | 96.23 | 89.80 | 129.76 | 42.52 | 288.20 | 139.02 | 84.68 |
|  May-21 | 5.11 | 35.26 | 8.95 | 96.55 | 88.92 | 128.74 | 41.49 | 287.18 | 146.04 | 84.77 |
|  June-21 | 5.17 | 34.67 | 10.24 | 96.63 | 89.62 | 127.75 | 40.51 | 286.19 | 152.63 | 85.27 |
|  July-21 | 5.28 | 36.17 | 9.22 | 95.44 | 88.60 | 126.73 | 39.49 | 285.17 | 151.65 | 84.19 |
|  Aug-21 | 5.29 | 35.65 | 8.20 | 95.68 | 87.37 | 125.71 | 38.47 | 284.15 | 150.66 | 83.94 |
|  Sept-21 | 5.32 | 35.44 | 7.21 | 96.27 | 96.99 | 124.73 | 37.48 | 283.17 | 149.54 | 84.76 |
|  Oct-21 | 5.27 | 34.69 | 6.19 | 96.21 | 97.38 | 123.71 | 36.46 | 282.15 | 148.61 | 85.00 |
|  Nov-21 | 5.09 | 34.22 | 7.81 | 96.19 | 96.43 | 126.04 | 35.48 | 281.16 | 151.42 | 85.50 |
|  Dec-21 | 5.02 | 34.71 | 6.76 | 95.93 | 95.42 | 125.02 | 34.46 | 280.14 | 151.51 | 85.37 |
| &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included | &nbsp;&nbsp;&nbsp; N.B. Securities placed in connection with exchange operations are not included |

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MINISTRY OF ECONOMY AND FINANCE 29

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  <u> APPENDIX TO THE 2021 PUBLIC DEBT REPORT </u>

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|:---|
|  BOT: COMPOUNDED GROSS YIELDS |
| <br> ![](image00085.jpg) |

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|:---|
|  CTZ / BTP SHORT TERM: COMPOUNDED GROSS YIELDS |
| <br> ![](image00093.jpg) |

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30 MINISTRY OF ECONOMY AND FINANCE

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<u> STATISTICAL ANNEX </u>  

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|:---|
|  BTP: COMPOUNDED GROSS YIELDS |
| <br> ![](image00086.jpg) |

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|:---|
|  BTP ITALIA AND BTP€I - REAL YIELDS |
| <br> ![](image00087.jpg) |

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MINISTRY OF ECONOMY AND FINANCE 31

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  <u> APPENDIX TO THE 2021 PUBLIC DEBT REPORT </u>

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| |
|:---|
|  CCTEU: COMPOUNDED GROSS YIELDS |
| <br> ![](image00088.jpg) |

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|:---|
|  EURO AREA 10-YEAR BENCHMARK SPREADS OVER BUND (BASIS POINTS) |
| <br> ![](image00089.jpg) |

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32 MINISTRY OF ECONOMY AND FINANCE

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<u> STATISTICAL ANNEX </u>  

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|:---|
|  ASSET SWAP SPREAD (BASIS POINTS) |
| <br> ![](image00090.jpg) |

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|:---|
|  SECONDARY MARKET YIELD CURVE |
| <br> ![](image00091.jpg) |

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MINISTRY OF ECONOMY AND FINANCE 33

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  <u> APPENDIX TO THE 2021 PUBLIC DEBT REPORT </u>

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|:---|
|  MONTHLY DEVELOPMENT OF THE WEIGHTED AVERAGE RESIDUAL MATURITY OF GOVERNMENT BONDS<br> (EXPRESSED IN MONTHS) |
| <br> ![](image00092.jpg) |

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34 MINISTRY OF ECONOMY AND FINANCE

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|:---|
| ![](image51.jpg) |
| Ministero dell'Economia e delle Finanze |

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