Press Release No. 07/129

Press Release: IMF Report on Budget Reform in Italy

June 15, 2007

At the request of the Minister of Economy and Finance of Italy, a team from the Fiscal Affairs Department of the IMF visited Rome during March 21-April 3, 2007, to advise on reforms of the budget system aimed at improving the quality and efficiency of public spending. The team met with a number of institutions involved in the budget process, and its report Italy: Budget System Reforms was published by the Italian authorities on June 15, 2007 on their website.

The report notes a growing recognition, among Italian policy makers and society at large, of the need to substantially improve the effectiveness and cost efficiency of public expenditure programs. But the current budget system greatly constrains the achievement of these objectives. For example, the budget is based on line items with little link to policy objectives. More than 90 percent of spending is predetermined by existing legislation that is not subject to periodic reviews of its effectiveness. Also, the complexity of the budget documents and the proliferation of micro-amendments during the Parliamentary approval process hinder a meaningful scrutiny and debate of strategic government policy choices by the legislature.

These are obviously complex issues, but the report notes that significant reflection and action on these issues, and dialogue with relevant stakeholders, have already been initiated by the Italian authorities. Specifically, a proposed program classification for the budget has just been prepared; a spending review is underway for five ministries; performance indicators have begun to be developed for selected spending programs; and proposals have been put forward by the budget commissions of Parliament to streamline the budget approval process.

Based on best-practice from international experience, the IMF report makes a number of recommendations for further enhancing the budget reform process. These include: developing a sound program-based budget classification and related cost-accounting; making spending reviews an integral part of the budget system; enhancing the role of the Council of Ministers in setting budget priorities; setting binding expenditure ceilings; more transparently reflecting existing and new spending priorities in budget documents; reducing the number of micro-amendments to the budget during its approval process; and increasing focus on results and the medium-term rather than inputs and the short-term, thus allowing Parliament to better assess the effectiveness of public spending, and at the same time promoting increased responsibility and accountability for the managers of spending programs.