By Sara Rossi and Alessia Pe
MILAN (Reuters) - Any new government in Italy will have little room for rolling back reforms or pursuing "unorthodox" economic policies because of political and market constraints, Scope Ratings said in a report seen by Reuters on Thursday.
A conservative bloc of Giorgia Meloni's hard-right Brothers of Italy, Matteo Salvini's League and Silvio Berlusconi's Forza Italia looks set to win a parliamentary majority in the Sept. 25 vote, with financial markets already on alert about the policy changes their coalition may pursue after the election.
Still, Scope Ratings said Italy would likely stay on its reform track, adding this scenario supported its 'BBB+' rating with a 'stable' outlook for Italy.
"We believe the constraints any Italian government faces once in power will significantly curtail its room for manoeuvre and thus ultimately determine a narrow set of economic policy options," the ratings agency said in the report.
There are concerns that a new government might shy away from some of the reforms needed to ensure Italy gets access to around 200 billion euros ($199 billion) in EU funds for its post-COVID Recovery and Resilience Plan (PNRR).
The rightist alliance manifesto promised steep tax cuts, early retirement and amnesties to settle ongoing tax disputes, which look hard to implement in a country whose public debt is targeted at 147% of GDP this year.
"A far-right coalition able to implement its policy agenda over several years is not a given even if the parties win a parliamentary majority, considering significant policy differences in many areas and rivalry between their leaders," Scope added.
The ratings agency also mentioned Italy's checks and balances and a public at odds with some of the parties' preferences as potential hurdles.
"The risks that Italy postpones or even reverses reforms and prudent fiscal policy over the coming 12 to 18 months are manageable," it said.
According to Scope, Italian public debt is likely to remain at around 145%-150% of GDP over the coming years, resulting in gross financing needs of around 25%-30% of GDP.
"With the 10-year BTP (yield) already at around 4%, this implies very limited, if any, fiscal space for Italy's next government given the country's weak medium-term growth outlook," the agency added.
(Reporting by Alessia Pé and Sara Rossi, editing by Agnieszka Flak)