January 29, 2020 / 10:11 AM / a month ago

IMF sees Italy deficit overshoot, says debt won't come down

ROME, Jan 29 (Reuters) - Italy’s budget deficit will overshoot the government’s target this year and its public debt will remain around record highs in coming years and then rise, the International Monetary Fund said on Wednesday.

In the concluding report following the IMF’s annual mission to Rome, the fund urged the Italian authorities to adopt “upfront high quality measures” to consolidate public finances.

“It is strongly advisable to take advantage of the current low interest rates to implement credible medium-term consolidation,” the fund said, calling for a budget surplus of 0.5% of gross domestic product by around 2025.

It forecast this year’s deficit would be 2.4% of GDP, overshooting the government’s 2.2% target due mainly to lower nominal GDP growth, and said Italy’s record high public debt will not come down as targeted in the coming years.

“Debt is projected to remain high at close to 135% of GDP over the medium term and to increase in the longer term owing to pension spending,” the report said.

Italian economic growth will come in at around 0.5% this year, the fund said, confirming its previous forecast, and then remain at around 0.6% or 0.7% over the next few years.

“These forecasts are the lowest in the EU, reflecting weak potential growth,” the IMF said.

Turning to the financial sector, it noted significant progress by Italy’s banks in reducing non-performing loans and said the capitalisation and asset quality of the banking sector had improved considerably.

Nonetheless, “further bank consolidation is needed,” it said, given the limited scope of Italy’s lenders to increase revenues. (Reporting by Gavin Jones, editing by Crispian Balmer)

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