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Italy Targets Bringing Deficit in Line With EU Rules by 2023

Alessandro Speciale and Alberto Brambilla
·2 mins read

(Bloomberg) -- Italy plans to bring its budget deficit back into line with European Union rules in 2023 after a dramatic increase in spending driven by the coronavirus outbreak, a Finance Ministry official said.

The shortfall is expected to fall to 7% of gross domestic product next year after rising to an estimated 10.8% in 2020, according to the official, who asked not to be named in line with departmental policy. The deficit will only shrink back to 3% in three years’ time, the official said.

“More public spending is needed to sustain an economy hit by shock,” European Central Bank Governing Council member and Bank of Italy Governor Ignazio Visco said Sept. 27, adding that stimulus programs are helping boost consumption.

Italy is set to receive as much as 209 billion euros ($245 billion) in EU aid that will be partly funded by jointly issued debt to help its post-coronavirus reconstruction. Finance Minister Roberto Gualtieri has pledged to disclose a “significant” long-term target for reducing the country’s crippling debt pile, which stood at 134.7% at the end of 2019.

Italy’s economy is forecast to shrink 9% this year and then rebound 6% in 2021, according to the Finance Ministry official. Government debt will jump to 158% of GDP this year but will already start shrinking next year, the official said, while public investment will rise sharply thanks in part to the European Union’s massive recovery fund program.

The agreement on budget targets comes after weeks of tense negotiations within Prime Minister Giuseppe Conte’s fractious coalition. The financial plan will be presented by Gualtieri at a cabinet meeting Wednesday, and it’s slated for approval at a another cabinet meeting scheduled for Sunday, according to the official.

The outlook will set the framework for Italy’s 2021 budget, which must be approved by parliament by the end of the year.

(Updates with central bank governor in third paragraph.)

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