Questions in the News
Responses to Questions About IMF Policies and Country Operations
Italy
Last Updated: July 26, 2007| Question: In the Fund's recently updated World Economic Outlook, the projections for Italian growth are not revised upward. Could you elaborate why this is the case? Also could you comment on the pension reform measures in Italy that were finally passed by the government? |
| Answer:
MR. AHMED: On the issue of pension reform, I should say that our reaction to this agreement at this stage obviously is preliminary because several important aspects of the recent agreement remain to be finalized. We still need some information and analysis including those relating to labor market aspects before you can have a definitive assessment. That said, we share the European Commission's assessment on this and welcome the agreement's aim to protect the financial impact of already legislated reforms, which has been a key consideration for us. But it is also key to strengthen incentives to work, that is to encourage participation in the labor force and to lengthen working life. We believe that it will be important to bear these aspects in mind in resolving positively and quickly the outstanding aspects of the agreement. On the issue of the Italian growth projections, the WEO update is an interim process during which we look at the major economies and the world economy as a whole and see where there have been significant changes from the situation as it was when we did the last WEO analysis. In some cases there have been significant changes for one reason or another—either the events have turned out to be more positive, as has been the case in a number of emerging markets, in Europe in some countries as well, and in Japan; or in other cases, events have turned out to be such that the projections now for the remainder of the year have been revised down, particularly in this case in the U.S. So my colleagues yesterday went over some of those and Italy was one of the countries where there has not been that much of a change from the time that we looked at it a few weeks ago. July 26, 2007 Transcript of a Press Briefing by Masood Ahmed, Director of the External Relations Department, IMF |
| Question: What do you think has been the main factor that has sustained bigger and better than expected growth in the Italian economy? And what is the most urgent liberalization reform that Italy has to pursue this year? |
| Answer:
The way I would summarize the main conclusions of the Article IV consultations, which the Board discussed and which is summarized in a recent Public Information Notice, is that, first of all, the directors noted a number of positive developments. The first of these is the fact that there is a broad-based economic upswing. There is a stable inflation rate, the signs of economic restructuring, and also continued employment gains. Secondly, The Board noted buoyant revenues on the fiscal side, which in 2007 will likely bring the deficit under 3 percent of GDP—another important dimension. Incidentally, I should say that the 2006 deficit net of one-off operations may also come in under 3 percent of GDP. The third area that the Board noted included the two recent liberalization packages and the actions to enhance competition and transparency in financial markets. Directors also underscored the importance of moving forward on a number of areas, and particularly taking advantage of the current strong economic environment. There are four areas that I want to list for you. First, move forward on expenditure-based fiscal consolidation, which should address the key spending areas of public employment, local government finances, and health care—and to do so within a multiyear spending framework. As planned, this should be supported by overhauling the current budget procedures, which can be cumbersome in some instances. Secondly, safeguarding the financial impact of already legislated pension reform and providing incentives to lengthen the average working life, which would also support growth and welfare. Third, further competition-enhancing reforms across a broad front, which again are obviously aimed at raising the potential growth rate. And fourth, developing an adequate social safety net, although directors cautioned against any reversal of prior liberalization of labor contracting, which they felt had contributed to buoyant economic growth in this past decade. February 15, 2007 Press Briefing by Mr. Masood Ahmed, Director, External Relations, IMF |
| Question: Could you provide your opinion on the latest budget recently passed by the Italian Government. How urgent is retirement reform in this adjustment process? |
| Answer:
First of all, I think that the 2007 budget could reduce and should reduce deficits below the 3 percent of GDP threshold, and I think that is a very important question. We have seen a better than expected outcome of the 2006 budget, many of it related to an increase in revenues more than anticipated but also in, I think, the efforts that the previous government and the acting government have done in its budgetary policy although we should all be aware that expenditure has overshot targets of the 2006 budget. So that means expenditure reform will be a challenging and important part of Italian budgetary policy.
We believe that the 2007 budget contains initial measures that could, over time, contribute to containing expenditure pressures, but considerably more needs to be done. Let me just mention some structural reforms in spending areas: civil service reform, the strengthening of the so-called domestic stability pact, pension reform, and the health pact that should be rigorously implemented. At the same time, we see that there is no fiscal conservation without growth. So, in that respect, lately the liberalization agenda of Italy—opening the products and services market to greater competition and making potential growth in Italy higher—is a key question in looking forward.
January 16, 2007 Press Conference by Managing Director Rodrigo de Rato, IMF |
| Question: What is the IMF's reaction to the announcement by the two rating agencies, S&P and Fitch, that they have cut Italy's debt rating, which would, presumably, mean the government would have to offer higher interest rates when issuing bonds? What is your evaluation of the Italian government's draft budget? |
| Answer:
In general, we have no comments on rating agency decisions, but I would note that in the medium term, as we have said before, the authorities in Italy should commit to a credible path of debt and deficit reduction based on durable expenditure-reducing measures. We have not yet had the opportunity to examine the budget in detail, nor to discuss this 2007 draft budget with the authorities. We, however, look forward to doing so during the Article IV which is scheduled for November. We continue to believe that adjustments should be based on structural reforms covering key expenditure areas.
October 19, 2006 Press Briefing by David Hawley, Assistant Director, External Relations Department, IMF |
| Question: The Italian Government presented its draft budget last week. Does it match the IMF expectations? |
| Answer:
The revised target—4.8 percent of GDP for this year—appears to us realistic based on developments to date. Indeed, we think that continued strong revenue growth, should it persist, would afford the opportunity to make even more rapid progress in reducing the deficit and debt both this year and the next. As yet, we haven't had the opportunity to examine in detail the measures proposed in the 2007 draft budget or to discuss them with the authorities, but we are looking forward to doing that during the Article IV mission, which is scheduled for November. After that mission, we will be in a position to give you more considered views on both the budget and the prospects for next year.
October 5, 2006 Press Briefing by Masood Ahmed, Director of External Relations, IMF |
| Question: The WEO's figures with respect to Italy are less optimistic than the ones of other institutions like the OECD or the European Union. What are the reasons for you to say, for instance, Italy will grow at 1.5 percent? How do you explain this permanent weakness of the Italian economy in a relative sense, that is, in comparison to other European countries? |
| Answer:
As we have said, we see the cyclical recovery gathering strength in Italy. Our numbers show that the pace will be around 1.5 percent for the year, for this year, and a little slowdown to 1.3 percent next year, which is in line with what will happen in the overall euro area.
We see a rebound in Italian investment, and continued moderate consumption growth, and we see it is important also that inflationary pressures should remain contained in Italy.
There is a potential risk, certainly, in the need for the coalition government to establish very clear economic and budgetary guidelines and in that respect, the approval of the 2006 budget is an important question and we certainly encourage not only the government, but also the rest of the political parties to move ahead. The fiscal environment for Italy is very challenging, and has generated much work between the Fund and the previous government, and the present government. There is certainly, because of this rebound in growth, a better prospect for revenues and the fiscal situation, but nevertheless, we see a very challenging fiscal situation. This is the analysis I can give you of the situation in Italy, and I want to place emphasis on the point that not only on the fiscal side do we need a firm fiscal policy in Italy, but certainly on the need to move more forcefully on structural reforms. That will make product and labor markets more efficient in Italy. Some of the reforms of previous years have paid back in terms of unemployment, some of the reforms we see in the financial sector go in the right direction. But this is a good opportunity to accelerate those reforms, given that the cyclical framework of Italy is better than it was only a few months ago.
September 15, 2006 Press Briefing by Rodrigo de Rato, Managing Director, IMF |
| Question: Regarding the Italian economy, you say that in order to get the 2.8 percent of targeted reduction of deficit, it is necessary to implement structural fiscal reforms covering key expenditure areas. The question is: can the 30 billion that the government has targeted at this moment be considered enough to achieve this target? The second question is on taxation on capital gains. The government has just announced that it will raise tax rates on capital gains and withholding tax on Treasury bonds at 20 percent. Do you think that this kind of measure could raise fiscal revenues or that there is a risk of an outflight of capital flows toward other European countries? |
| Answer:
Let me take the second part of the question first. I think what we said in the WEO is that we believe fiscal adjustment in Italy should very much focus on the expenditure side of the budget. Tax rates are already very high in Italy and we do not see that there is much scope for raising revenue further there. So, expenditure reforms are very important, focusing on public administration, healthcare, pensions. More broadly, clearly Italy faces a very difficult fiscal situation, with public debt over a hundred percent of GDP. The corrective package that has been put in place so far we think will only have a marginal impact on the deficit this year. Nevertheless, it is certainly true that short-term fiscal prospects have brightened somewhat, because revenue has been quite buoyant, so there a chance of overperformance relative to this year's budget if the expenditure side can be held, but clearly achieving the target for next year of 2.8 percent of GDP is going to be a big challenge for the government.
September 14, 2006 Press Conference on the World Economic Outlook Report, Charles Collyns, Deputy Director, Research Department, IMF |
| Question: Could you confirm that an IMF mission is scheduled for Italy? |
| Answer:
Yes, our plan is that there is going to be a staff visit during the third week of July, which is to say the week beginning July 17.
July 6, 2006 Press Briefing by Masood Ahmed, Director of External Relations, IMF |
| Question: IMF Economic Counsellor Raghuram Rajan at his April 19 press conference asked the new Italian government to take urgent measures to adjust the budget deficit. As you know, the new coalition has a very tiny majority in Parliament. The question is, do you think the new government will, in this situation, be strong enough to take those measures? |
| Answer:
Of course, I will contact the new Italian government when it is formed, and I will have as close a relationship personally and institutionally as I had with the previous one. I have had the privilege of knowing many of the people who are involved right now, and certainly Mr. Prodi, whom I worked with when I was Finance Minister of Spain and he was both President of the Council in Italy and then later President and later President of the Commission. I have high respect for him.
But let me tell you that experience of different countries does not show that the only key factor for putting forward a program is having big majorities. You have many countries with big majorities that wait too long to enact programs, and then they are not able to do it. Time is a key issue. The credibility of governments is certainly related to parliamentary backing, but it is also related to the timing of decisions. So, our opinion is that the beginning of a government is a very good, important time. Whether the government has a majority, or has a relative majority, is certainly an important issue. But timing is as crucial as that. So, in that respect, we certainly will encourage the new Italian government to put forward an ambitious agenda of reform. Italy has benefited from reform in the past years. Certainly, we have seen the cyclical position improving; we see the projections of growth to recover; and we see inflationary pressures very subdued in Italy.
Not only that we have a new government—and that is always a new opportunity—but we also have an immediate economic situation that is improving, relatively improving. What we cannot hide is that the medium-term outlook is troublesome, so measures have to be taken. If they are not taken, this actual outlook will deteriorate. There are a lot of challenges on the fiscal side, the level of public debt, but also challenges that are going to be looming harder which are the ones related to the aging of the population, which is not only an Italian problem but is certainly an Italian problem.
April 20, 2006 Press Briefing by Rodrigo de Ratio, IMF Managing Director |
| Question: In Italy, where elections produced a government with a very slim majority, do you think the government will be able to put in place the necessary reforms? |
| Answer:
It is still very early days to see what the government is capable of and what it can do. Nevertheless, the policy challenges facing Italy are tremendous and need to be taken up almost on a war footing. There is a very substantial fiscal deficit; the public debt is extremely high, and Italy has been steadily losing competitiveness over the last few years. There is an important need for both macro-policy reform but also structural reforms to increase the level of competitiveness across the board, in product markets, the service sector, the financial sector. Serious reform is needed in Italy and so I am hopeful that the new government will seize the policy opportunities and do far more, but, of course, we have to wait and see.
April 19, 2006 Press Briefing by Raghuram Rajan, Economic Counselor and Director of Research |
| Question: The WEO was very critical of the performance of Italy in terms of growth and also in terms of fiscal performance. How is the Italian economy doing? |
| Answer:
We have seen progress in the Italian economy in recent years. The reform agenda, both in labor markets and in pension reform, has been positive and there have been results; employment has grown significantly. The question in Italy —and there is an agreement between the authorities and us —is productivity. In that respect, the so-called competitive package is the key to move forward on the issues of Bankruptcy Law, business deregulation, private pensions, and reform of the financial sector and financial oversight. Certainly, fiscal consolidation, given the level of public debt in Italy and also the aging problems of the Italian population, has to put at the top of the list. Growth has been disappointing in Italy in the last year, but the second quarter of this year recorded a stronger-than-expected pick-up in activity. We believe that the reform agenda in Italy is very important and very clear, and we are ready to work with the government regarding those issues both in the Article IV consultations and the recent financial sector analysis that we are doing and that will be ready some time next year. September 22, 2005 Press Conference by Rodrigo de Rato, IMF Managing Director |
| Italy: archived questions and answers |