IMF says Italy needs ‘credible’ fiscal plan for its finances
Italian Prime Minister Giuseppe Conte (right) poses for selfies with construction workers, after the first deck (top left) of the New Genoa Bridge is lifted in a ceremony on October 1, 2019 in Genoa.
VALERY HACHE | AFP | Getty Images
Italy’s new government needs a “credible” plan to make the country’s finances more sustainable in the medium term, a member of the International Monetary Fund (IMF) told CNBC on Tuesday.
the recently established coalition in Rome, formed by the Five Star Movement (M5S) – which promotes more benefits for citizens – and the Partito Democratico (PD) – a pro-European social democratic party – on Monday raised its deficit forecasts for 2020. The government projects a budget deficit of 2.2% of the country’s gross domestic product (GDP) in 2020, instead of 2.1% of GDP which was a commitment set earlier this year.
The structural deficit, which suppresses fluctuations in growth, is expected to drop to 1.4% in 2020 from 1.2% this year, according to Reuters.
“Whatever Italy is doing right now, it must be anchored in a credible medium-term fiscal consolidation plan,” Poul Thomsen, head of the IMF’s Europe department, told CNBC’s “Street Signs” on Tuesday.
The focus is on Italy’s budget plans for 2020 – which must be sent for scrutiny in Brussels by October 15. This is after the previous government in Rome challenged European fiscal rules, causing market nervousness.
Investors and the European Commission, which controls the tax plans Member States want to know if Italy is committed to reducing its massive debt. Rome’s public debt stands at around 132% of GDP, the second highest in the euro area.
Thomsen told CNBC that Italy also needs to address its lack of productivity – a measure of labor market efficiency. “Without solving this, Italy will never solve his tax problem. “
Productivity growth has been weak since almost two decades, hampering Italy’s overall economic performance. However, Thomsen said the new management “understands” the problems facing the economy.
“So far we have had limited contact with the new government, but what I’m hearing certainly suggests that they understand what the problems are,” he said.