IMF Executive Board Concludes 2020 Article IV Consultation with Italy
IMF News, March 19, 2020
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- Published: March 19, 2020
Executive Board Assessment
- Executive Directors expressed "deep sympathy to the Italian people and the authorities for the high human and economic costs of the COVID 19 pandemic" and "conveyed their solidarity with Italy at this difficult time."
- Directors commended the authorities for their "resolute response, including their most recent decisive actions," and called for "coordinated regional and international actions to address the effects of the pandemic."
- Directors noted that the staff report’s extensive discussion of medium-term issues reflected challenges and priorities "prior to the outbreak of COVID 19" and recognized that authorities’ near-term priorities have shifted "to combating the pandemic and supporting health care, workers, firms and households."
- Directors considered that the outbreak has created both "health and economic emergencies that need to be addressed urgently," amplifying uncertainty and downside risks.
- Once the health crisis has passed, Directors stressed the need to implement a comprehensive package to boost potential growth and enhance resilience comprising:
- structural reforms to raise productivity and investment,
- a credible medium-term fiscal consolidation to put public debt on a firm downward path,
- measures to support financial sector health.
- Directors commended the authorities for "prudent implementation of fiscal policy in 2019 that was better than expected" and recognized that "the fiscal balance will worsen this year on account of the pandemic effects and response."
- Directors welcomed the authorities’ plan to undertake "medium term fiscal consolidation, once the pandemic has subsided," and urged implementing "growth friendly and inclusive measures, including comprehensive tax reform."
Financial Sector Assessment
- Directors commended progress in "strengthening banks’ balance sheets" and welcomed the findings of the FSAP.
- Directors stressed the need to address remaining financial sector vulnerabilities, including:
- strengthen banking sector resilience,
- improve the viability of bank business models,
- reinforce the crisis management framework.
- Most Directors noted that the use of the Deposit Guarantee Scheme (DGS) "for preventive measures outside resolution or liquidation could be a useful instrument, in line with the DGS Directive."
- Its use "should not be overly restricted but justified on a case by case basis."
- While acknowledging the importance of moderating the sovereign–bank nexus, many Directors pointed to the need for "a careful assessment of the benefits and costs" and that the envisaged approach should be "in line with discussions at the EU level."
Italy: Selected Economic Indicators, 2017–22 (as presented)
- Real Economy (change in percent)
- Real GDP: 2017: 1.7; 2018: 0.8; 2019: 0.3; 2020: -0.6
- Final domestic demand: 2017: 1.5; 2018: 1.2; 2019: 0.4; 2020: -0.1; 2021: 0.7
- Exports of goods and services: 2017: 5.4; 2018: 2.3; 2019: -1.9; 2020: 5.3; 2021: 3.2
- Imports of goods and services: 2017: 6.1; 2018: 3.4; 2019: -0.4; 2020: -2.0; 2021: 4.9; 2022: 3.1
- Consumer prices: 2017: 1.3; 2018: 0.6; 2019: 1.0
- Unemployment rate (percent): 2017: 11.3; 2018: 10.6; 2019: 10.0; 2020: 10.4; 2021: 10.2; 2022: 10.1
- Public Finances
- General government net lending/borrowing 1/ (percent of GDP): 2017: -2.4; 2018: -2.2; 2019: -1.6; 2020: -2.6; 2021: -2.3
- Structural overall balance (percent of potential GDP): 2017: -1.8; 2018: -1.3; 2019: -1.5
- General government gross debt 1/ (percent of GDP): 2017: 134.1; 2018: 134.8; 2019: 137.0; 2020: 136.9; 2021: 136.2
- Balance of Payments (percent of GDP)
- Current account balance: 2017: 2.7; 2018: 2.6; 2019: 3.0
- Trade balance: 2017: 2.5; 2018: 3.3
- Exchange Rate
- Exchange rate regime: Member of the EMU
- Exchange rate (national currency per U.S. dollar): 0.9
- Nominal effective rate: CPI based (2000=100): 100.9; 103.8
- Sources: National Authorities; and IMF staff calculations.
- Note: 1/ Percent of GDP.
Policy Recommendations and Priorities
- Near-term: prioritize combating the pandemic and supporting health care, workers, firms, and households.
- Post-pandemic package should include:
- structural reforms to raise productivity and investment,
- credible medium-term fiscal consolidation to place public debt on a firm downward path,
- measures to support financial sector health,
- growth-friendly and inclusive measures, including comprehensive tax reform.
- Financial sector-specific: address remaining vulnerabilities, strengthen resilience, improve bank business model viability, reinforce crisis management, and consider targeted use of the DGS consistent with the DGS Directive and EU-level discussions.
Timing and Scope of the Staff Report
- The staff report reflects discussions with the Italian authorities in January 2020 and is based on information "as of January 28, 2020."
- It "focuses on Italy’s medium-term challenges and policy priorities and was prepared prior to the outbreak of COVID-19 in Italy."
- The report "does not cover the outbreak or the related policy response," and the outbreak "has greatly amplified uncertainty and downside risks around the outlook."
- IMF staff "is closely monitoring this health crisis and will continue to work on assessing its impact and the related policy response in Italy and globally."
IMF Communications Department; Press Release No. 20/94; March 19, 2020.
