The debt to GDP ratio of the third largest Eurozone economy, Italy, reached record high last year despite a decline in government borrowing, said a report by the nation's statistics agency, Istat on Friday.

The nation's debt stood at 120.1 per cent of its GDP at the end of 2011, the highest level since 1996 before the creation of the euro.

At the end of 2010, Italy's debt to GDP ratio stood at 118.7 per cent.

Italy's budget deficit fell to 3.9 per cent of its GDP at the end of 2011 from 4.6 per cent of its GDP at the end of 2010, a sign of an improvement in the nation's public finances.

Moreover, the nation reported a primary budget surplus for the first time since 2008 last year. Italy ran a primary budget surplus of 15.66 billion euro equivalent to 1 per cent of its GDP at the end of 2011.

Primary budget surplus is the difference between revenue and government spending excluding interest payments on national debt.

The Italian government has adopted a series of severe austerity measures including spending cuts to bring down its mounting debt levels and restore its public finances to sustainability.

However, severe austerity measures mean that the economy is likely to contract 1.5 to 2 per cent in 2012.