Italy’s Fiscal Outlook

By Giuseppe Fonte

ROME (Reuters) – Italy is likely to balance its primary budget this year, excluding interest payments on government debt, according to Economy Minister Giancarlo Giorgetti. This announcement comes as Rome prepares a medium-term fiscal plan for European Commission approval.

The country aims for a significant primary surplus over time to manage its high debt, currently at almost 140% of GDP, the second-highest in the euro zone after Greece.

Giorgetti expressed optimism, stating, “I believe that as early as 2024 we will achieve the goal of a balanced primary budget,” during an event in Parma, northern Italy. These comments indicate a potential improvement in the country’s state finances after the Treasury predicted a primary budget deficit of 0.4% of GDP for 2024.

Italy has been placed under the EU’s Excessive Deficit Procedure due to a 2023 headline deficit of 7.4% of GDP, the highest in the euro zone. The fiscal plan, set to be sent to Brussels by early October after parliamentary approval, will reaffirm Italy’s commitment to reducing its deficit below the EU’s 3% GDP ceiling by 2026.

Additionally, Italy plans to adhere to new fiscal rules requiring gradual deficit and debt reduction starting in 2025, lasting four to seven years depending on reform commitments.

To support this, the Treasury will limit the annual growth of net primary expenditure to about 1.5%, reflecting controlled spending under government oversight. The government is expected to present its full budget plan next week, considering the anticipated updates to GDP data from 1995-2023 from ISTAT.

Giorgetti noted the GDP data will show a modest upward correction, yet stated it won’t resolve fiscal challenges. Despite limited fiscal flexibility, he aims to make temporary cuts to social contributions and tax reductions for low and middle-income earners permanent, which could cost the state around 15 billion euros ($16.75 billion) annually.

($1 = 0.8957 euros)