With reference to the press releases "Annual National Accounts - Year 2018" by Istat and "Revised estimates of general government debt following the release of Eurostat’s new Manual (MGDD)" by Bank of Italy, both published today, the MEF states the following.
The revision for the stock of the General Government Debt in the years 2015-2018 is largely due to the revised statistical treatment of interest capitalized on postal savings notes (Buoni Postali Fruttiferi - BPFs), the saving certificates issued up to 2001 which, following the transformation of “Cassa Depositi e Prestiti” (in 2003), were reassigned to the MEF, becoming straight public debt.
As already known, the two kinds of BPFs ("ordinary" and "term" series) transferred to the MEF are non-negotiable, almost exclusively in paper format, refundable on demand and maturing interest according to a capitalization mechanism. Such interests is payed only at time of reimbursement of the certificates, which can also be withdrawn in advance with respect to the natural maturity (which for ordinary series can be up to 30 years).
At the end of 2018, the outstanding stock ok BPFs amounted to 12.8 Euro billion in terms of principal and 58.2 Euro billion in terms of accrued interest. The large size of the latter is mainly due to three factors: a) several series of BPFs were issued in years with very high interest rates on public debt (some of them were issued at rates of 9%); b) a significant percentage of the BPF stock presents a very long maturity; c) the feature of the instrument itself is that interests can be paid only at the time of reimbursement and not during the life of the certificates (as it happens for the coupons of other Central Government bonds). The outstanding series will expire progressively until 2031; however, the subscribers are entitled to be reimbursed within a maximum of 10 years from the expiry date.
As reported in Bank of Italy's press release, according to the new Manual on Government Deficit and Debt released by Eurostat on August, 2nd 2019 and differently from the previous editions, the capitalized interest on such instruments now has to be included in the calculation of their "face value". As stated by art. 1 of the European Regulation 479/2009 for the purpose of the protocol on Excessive Deficit Procedure (EDP), the face value is the criteria to be adopted for the calculation of the Government Debt within the EDP context. Due to this purely accounting revision, which was largely expected and envisaged for years, the debt figures show significant increases.
From the National Accounting perspective, it must be restated that the afore-mentioned revision of the stock of debt has no impact on other variables, in particular on the General Government net borrowing, which has always included the accrued interest on BPFs so far. On the other hand, in the Italian financial accounts released by Bank of Italy according to the European standards, the amount of the accrued interests on the BPFs has always been correctly recorded.
From a funding perspective, specific accounts were created by MEF in 2003 in order to meet the BPFs obligations and therefore to pay the capital and the accrued interests on such instruments. As of 31-12-2018, around 45.4 Euro billion were set aside on these accounts.
Moreover it has to be considered that the revision of both GDP and General Government debt stock communicated today leads to a more favorable debt/GDP ratio dynamic, with a more marked downward trend in the 2015-2017 period then before and a lighter increase in 2018.
Finally, it must be noted that considering the redemption profile of revalued BPF (capital plus interest) the large volumes maturing during the period 2020-2024 will contribute to a faster decrease in the debt/GDP ratio in that period, despite the relatvely higher starting point.