{ "title": "2012 Article IV Consultation with Italy - Concluding Statement of the IMF Mission", "publication": "IMF News, May 16, 2012", "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs051612", "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs051612", "overlayPath": "/en/news/articles/2015/09/28/04/52/mcs051612/index.md", "summary": "Describes the preliminary findings of IMF staff at the conclusion of certain missions (official staff visits, in most cases to member countries).", "publishDate": "2012-05-16", "sections": [ { "heading": "Overview and near-term outlook", "content": "- With broad political support, the authorities have embarked on an ambitious and wide-ranging agenda that has lifted Italy from the brink and is now seen as a model for fiscal stabilization and growth-enhancing reforms.\n- The work has only just begun; emphasis should remain on comprehensive structural reforms, a supportive growth-friendly and sustainable fiscal strategy, and measures to promote a more dynamic and resilient banking system.\n- Italy’s success depends on progress at the European level to resolve the crisis and promote growth.\n- Short-term outlook:\n - The economy is expected to contract this year due to strong headwinds from fiscal consolidation, tight financial conditions, and the global slowdown.\n - Economic activity is expected to recover in early 2013, led by a modest pickup in exports and investment.\n - Headline inflation is expected to ease only gradually, as weak demand will be partly offset by higher indirect taxes.\n- Risks to the outlook:\n - Downside: renewed financial turmoil could push government bond yields higher, tighten bank credit, and weaken activity; slow implementation of fiscal and structural reforms could undermine confidence and raise fiscal concerns.\n - Upside: a more robust global recovery or faster progress in reforms could boost market sentiment and activity.\n- European dimension:\n - Progress in creating a more complete monetary union, greater fiscal and financial discipline and risk sharing, and further monetary easing and unconventional measures by the ECB would support Italy’s adjustment." }, { "heading": "I. Structural Reforms to Jumpstart Growth", "content": "- Potential gains:\n - IMF staff estimates suggest that product and labor market reforms that bring Italy closer to OECD best practices could increase the level of GDP by about 6 percent over the medium term.\n- Priority reform areas and recommendations:\n - Labor market:\n - Pass the labor market reform bill quickly to reduce uncertainty and encourage new hires; the bill promotes open-ended and apprenticeship contracts for young workers and makes unemployment insurance more universal.\n - Clarify conditions for reinstatement via the judicial process to reduce uncertainty and facilitate out-of-court settlements of dismissal disputes.\n - Bridge the gap between permanent and temporary workers:\n - Allow a more flexible open-ended contract for new workers that gradually increases employment protection with tenure.\n - Reduce marginal tax rates for married second-earners to raise female labor participation.\n - Allow firms and workers to set firm-level contracts by default, unless opting out to national ones.\n - Greater differentiation of public wages across regions to support private wage flexibility and employment, especially in the South.\n - Product markets:\n - Accelerate reforms in energy, public and professional services sectors.\n - Complete planned separation of gas distribution and production by end year to improve competition and reduce energy prices.\n - Accelerate opening of professional orders to strengthen competition and lower rents.\n - Push for privatization, especially of local public utilities, to enhance efficiency, cost, and quality of public services.\n - Increase efficiency of the judicial system to reduce legal backlog, lower business costs and uncertainty, and strengthen labor market reforms.\n - SMEs and access to finance:\n - Reduce high start-up costs and streamline tax and other regulations.\n - Expand risk-based lending (as opposed to collateral-based) and develop the venture capital and private equity industry.\n - Recent initiatives to foster firm recapitalization, such as the allowance for corporate equity, are welcome.\n - Promote greater inward FDI (among the lowest in the OECD) to help SMEs access global supply chains and technology transfer." }, { "heading": "II. Making Fiscal Consolidation More Growth-Friendly", "content": "- Recent fiscal actions:\n - The government has enacted an impressive fiscal package to improve the primary surplus—significant and front-loaded consolidation; pension reforms; a modest shift from direct to indirect taxes (supporting a “fiscal devaluation”); and more aggressive action against tax evasion.\n - As a result, the primary surplus of the general government is expected to rise significantly, to above 4 percent of GDP by 2013, the highest in the euro area.\n- Assessment and guidance:\n - The fiscal adjustment in 2012–13 is appropriate; sizeable improvement in the structural primary balance will weigh on growth but is critical for fiscal sustainability.\n - The mission welcomes focus on targeting a structural balance which adjusts for the economic cycle.\n - The mission welcomes government efforts to identify and implement expenditure cuts to avoid an increase in the VAT rate later this year.\n- Composition of adjustment and recommendations:\n - Shift further toward expenditure cuts and lower taxes to better distribute the burden and support growth.\n - Specific measures could include:\n - Cutting government expenditure, such as the public sector wage bill or other areas identified in the ongoing spending review.\n - Reducing Italy’s sizeable tax expenditures.\n - Stepping up efforts against tax evasion.\n - Using savings to reduce the labor tax wedge, raise the allowance for corporate equity, or finance a modest, well-targeted increase in public infrastructure investment.\n - Staff estimates that a sizeable shift in composition of adjustment could raise the level of GDP by 1 percent over the long term.\n- Fiscal institutions and medium-term anchor:\n - Newly adopted constitutional fiscal rule is important for strengthening fiscal discipline.\n - Adopt a binding multi-year expenditure framework and unify/enhance the role of spending reviews.\n - The fiscal council should be fully independent in staffing, funding, and work agenda.\n - To raise buffers, target a 1 percent of GDP structural surplus from 2014 onwards as the medium-term anchor for the fiscal rule to put the debt ratio on a more robust downward path.\n- Public payments and debt management:\n - Complete the stocktaking exercise to determine the size of pending and overdue public payments at central and subnational levels and develop a strategy for improved reporting and timeliness.\n - Improve coordination among levels of government and maintain incentives for subnational fiscal prudence.\n - Debt management should maintain favorable maturity structure and diversify the investor base.\n - Provide collateral in swap transactions and report such transactions regularly in government accounts to enhance transparency.\n - Assess scope to mobilize public assets, including through privatization, to maximize revenue generation and reduce public debt." }, { "heading": "III. Promoting a More Dynamic and Resilient Banking System", "content": "- System strengths:\n - Italian banks benefit from a large and stable retail funding base, low leverage, and a traditional lending model with limited exposures to risky assets.\n - Resilience has been supported by firm supervision and regulation; banks strengthened capital bases without large-scale government equity support.\n- Key vulnerabilities and statistics:\n - Gross impaired loans (including bad, substandard, restructured, and past-due loans) have risen to 11 percent in 2011, from less than 6 percent before the crisis.\n - Declines in provisioning rates below pre-crisis levels leave banks vulnerable, especially from weaker SME and construction sectors.\n - Exceptional liquidity support from the ECB has been critical for meeting banks’ funding needs and preventing a sharp contraction of credit.\n- Policy recommendations:\n - Reduce impaired loans to free up resources for new lending:\n - Encourage banks to develop strategies for selling, restructuring, or writing down impaired loans.\n - Facilitate a market for restructuring distressed assets by ensuring adequate bank provisioning, aligning tax deductibility of loan loss provisioning and write-offs, and streamlining bankruptcy and foreclosure procedures.\n - Maintain adequate capital and liquidity buffers:\n - The Bank of Italy (BoI) should encourage large banks under the EBA to meet capital needs by raising equity or disposing of noncore assets rather than cutting loans.\n - Consider extending BoI stress tests to a larger set of institutions, including mid-sized banks, and publish results in regular Financial Stability Reports to enhance transparency and market discipline.\n - Encourage banks to improve capacity to post eligible collateral at the BoI to facilitate access to Eurosystem liquidity facilities.\n\n- Acknowledgement:\n - The IMF team visited Italy from May 3 to May 16, 2012, for the annual evaluation of the economy as part of the regular consultations under Article IV of the IMF’s Articles of Agreement; this statement describes the preliminary findings of the staff.\n\nConcluding Statement of the IMF Mission, May 16, 2012.\n\n---\n\n\n References\n\n- Italy and the IMF\n- Mission Concluding Statements\n- Opening Remarks by Reza Moghadam\n- PRESS CENTER\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs051612" } ], "bullets": [ "[Markdown version](/en/news/articles/2015/09/28/04/52/mcs051612/index.md)", "[Structured JSON version](/en/news/articles/2015/09/28/04/52/mcs051612/index.json)", "[Bundle manifest](/en/news/articles/2015/09/28/04/52/mcs051612/bundle-manifest.json)", "Published: May 16, 2012", "With broad political support, the authorities have embarked on an ambitious and wide-ranging agenda that has lifted Italy from the brink and is now seen as a model for fiscal stabilization and growth-enhancing reforms.", "The work has only just begun; emphasis should remain on comprehensive structural reforms, a supportive growth-friendly and sustainable fiscal strategy, and measures to promote a more dynamic and resilient banking system.", "Italy’s success depends on progress at the European level to resolve the crisis and promote growth.", "Short-term outlook:", "Risks to the outlook:", "European dimension:", "Potential gains:", "Priority reform areas and recommendations:", "Recent fiscal actions:", "Assessment and guidance:", "Composition of adjustment and recommendations:", "Fiscal institutions and medium-term anchor:", "Public payments and debt management:", "System strengths:", "Key vulnerabilities and statistics:", "Policy recommendations:", "Acknowledgement:", "[Italy and the IMF](http://www.imf.org/external/country/ITA/index.htm)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[Opening Remarks by Reza Moghadam](https://www.imf.org/external/np/speeches/2012/051612a.htm)", "[PRESS CENTER](http://presscenter.imf.org/)", "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2015/09/28/04/52/mcs051612/index.md", "json": "/en/news/articles/2015/09/28/04/52/mcs051612/index.json", "bundleManifest": "/en/news/articles/2015/09/28/04/52/mcs051612/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T23:45:57.897Z" }