June 22, 2020 / 11:45 AM / 12 days ago

Italy readies 15-20 billion euros of new stimulus, pushing deficit beyond 11% of GDP: source

ROME (Reuters) - Italy is preparing a new spending package worth 15-20 billion euros to help its battered economy through the coronavirus crisis, which will push its budget deficit beyond 11% of national output, a government source told Reuters.

FILE PHOTO: Italian Prime Minister Giuseppe Conte talks to Economy Minister Roberto Gualtieri ahead of a confidence vote at the Parliament in Rome, Italy, September 9, 2019. REUTERS/Remo Casilli/File Photo

The new package, which must be approved by parliament, will involve additional borrowing and drive Italy’s public debt towards 157% of national output from the 155.7% currently targeted, the source added.

“We need to boost funds to supplement the income of workers temporarily laid off and support local authorities whose tax revenues were hit by the lockdown,” said the source, citing some of the uses the new borrowing would be put to.

The Treasury declined to comment.

The COVID-19 outbreak first confirmed on Feb. 21 has killed more than 34,600 Italians, putting it among countries hardest hit by the pandemic. The Treasury estimates the economy will contract by at least 8% this year due to lockdown measures.

Looking to soften the recession, Rome has already adopted measures set to raise the deficit by 75 billion euros ($84.12 billion) this year to 10.4% of national output. Last year’s budget gap was just 1.6%, its lowest for 12 years.

Italy’s public debt as a proportion of GDP is the euro zone’s largest after that of Greece.

Prime Minister Giuseppe Conte said on Sunday the government was studying new measures to help struggling sectors such as tourism while it awaited help from European Union initiatives for the countries worst-hit by the coronavirus.

The government also plans to provide additional resources for a state-backed fund that shields banks from losses on loans to small- and medium-sized companies, Economy Minister Roberto Gualtieri said last week.

Ahead of the new stimulus, to be approved in July, Rome has so far pledged up to 180 billion euros of economic help for families and firms, including state guarantees on banking loans, but much less is likely to be actually spent.

The government will seek authorisation from parliament to increase the 2020 budget deficit, the source said.

($1 = 0.8916 euros)

Reporting by Giuseppe Fonte, Editing by Gavin Jones and Catherine Evans

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