(The following statement was released by the rating agency) LONDON, October 20 (Fitch) Fitch Ratings has affirmed Italy’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB’ with a Stable Outlook. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS Italy’s ‘BBB’ rating is supported by a diversified, high value-added economy, with GNI per capita, governance and human development indicators much stronger than the peer group median. Private sector indebtedness is moderate, there is a sustainable pension system, and government yields are low. Set against this are the extremely high level of public debt, a track record of fiscal slippage, relatively high net external debt, low trend GDP growth, ongoing weakness in the banking sector, and political risk. Italy’s rating also reflects the following key rating drivers:- The newly revised Stability Programme further backloads fiscal consolidation, following the pattern of recent budgets and largely in line with Fitch’s expectations at our April review. Fitch forecasts a narrowing in the 2017 general government deficit to 2.2% of GDP, from 2.5% in 2016, two-thirds of which is due to lower debt interest costs. This would equate to an increase in the structural deficit of close to 0.5% of GDP. The 2018 general government deficit target has been eased to 1.6% of GDP from 1.2% (and compares with the 2015 Stability Programme target to balance the budget) and the 2019 target to 0.9% of GDP from 0.2%. The deficit-reducing measures set out in the draft 2018 budget focus on improving tax efficiency and avoidance, and on broad-based central government expenditure cuts, with no activation of VAT safeguard clauses. Fitch forecasts some further slippage relative to targets in 2018 and 2019, with deficits of 1.9% and 1.5% of GDP respectively, which would be broadly neutral on a structural basis. Deficit reduction is expected to fall broadly evenly between revenue and expenditure, with next year’s election constraining a faster adjustment. General government debt is forecast to increase to 132.5% of GDP in 2017, from 132.0% in 2016, partly due to banking sector interventions earlier in the year totalling 0.6% of GDP, and to a low GDP deflator. Thereafter public debt falls only gradually in our medium-term projections, to 128.3% of GDP in 2021 (which assumes an increase in the primary surplus to 2.0% of GDP from 1.5%). This would leave Italy as one of the most highly indebted sovereigns in Fitch’s rated universe, and compares with a ‘BBB’ peer median of 42.3% of GDP.