{
  "title": "ITALY: Concluding Statement of the 2015 Article IV Mission",
  "publication": "IMF News, May 18, 2015",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs051815a",
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  "summary": "Preliminary finding: Italy’s economy is emerging slowly from a painful recession.",
  "publishDate": "2015-05-18",
  "sections": [
    {
      "heading": "A Window of Opportunity to Revitalize the Economy",
      "content": "- Preliminary finding: Italy’s economy is emerging slowly from a painful recession.\n- Recent supportive factors:\n  - ECB’s quantitative easing (QE) has lowered government bond yields to pre‐crisis lows (despite a recent uptick) and reduced bank and corporate funding costs.\n  - Lower oil prices, a weaker euro, and recent reform efforts have improved confidence indicators.\n- Short‑term growth projections:\n  - Growth is projected at 0.7 percent this year and 1.2 percent next year.\n- Key constraints:\n  - Persistent structural weaknesses, incomplete implementation of previous reforms, depressed demand, weakened balance sheets, and subdued growth expectations.\n  - Real activity and investment remain far from pre‑crisis levels.\n  - Unemployment remains uncomfortably high (over 12 percent), especially among the youth.\n  - Public debt is at a very high level of over 130 percent of GDP.\n- Policy focus recommended:\n  - (1) Tackle the long‑standing productivity problem.\n  - (2) Support bank and corporate balance‑sheet repair.\n  - (3) Rebalance fiscal adjustment and reduce public debt."
    },
    {
      "heading": "Reforms to Revive Productivity",
      "content": "- Public administration reform recommendations:\n  - Increase autonomy and accountability of public sector managers.\n  - Strengthen benchmarking and performance‑based budgeting.\n  - Improve mobility of workers and wage differentiation in line with productivity.\n- Local public services:\n  - Reform and rationalize local public enterprises; note existence of more than 8,000 local public enterprises identified as a source of inefficiency and a burden on public finances.\n- Public tenders:\n  - Increase transparency in tendering procedures and standardize contracts, particularly for local public services.\n- Civil justice reform:\n  - Rationalize cases reaching the Supreme Court (Corte di Cassazione).\n  - Allow specialization of courts; use ad hoc measures to reduce backlog; develop court performance indicators.\n- Product and service market competition:\n  - Continue liberalization since 2008; swift approval and implementation of the Annual Competition Law recommended.\n  - Further liberalize highly regulated sectors such as transport.\n- Labor market reforms (Jobs Act and beyond):\n  - New labor contract with gradually increasing protection lowers dismissal costs and should improve worker reallocation.\n  - Extend coverage of unemployment benefits and link support to job search and training.\n  - Implement planned reform of the wage supplementation scheme to encourage worker transitions from unprofitable to profitable firms.\n  - National coordination of ALMPs to reduce regional disparities and improve vacancy filling.\n  - Encourage firm‑level contract negotiation and greater flexibility in national contracts."
    },
    {
      "heading": "Balance Sheet Repair to Help Investment",
      "content": "- Current situation:\n  - Profits have declined and debt burdens have increased since 2008 for many firms, particularly SMEs.\n  - Nonperforming loans (NPLs) have reached a record level of 18 percent of loans, with the vast majority stemming from the corporate sector.\n  - Loans to SMEs remain scarce and expensive.\n- Strategy elements to strengthen bank and corporate balance sheets:\n  - Accelerate provisioning and write‑offs:\n    - Supervisory actions introducing time limits for write‑off of vintage NPLs to encourage faster resolution.\n  - Improve the insolvency regime:\n    - Rationalize and streamline procedures; address gaps in pre‑insolvency and reorganization (including obstacles to debt/equity swaps); accelerate start of insolvency; increase asset sale flexibility; reduce litigation; establish qualifications for insolvency practitioners.\n  - Restart the NPL market:\n    - Encourage private AMCs through regulatory measures and tax incentives.\n    - A centralized, system‑wide, state‑backed AMC consistent with EU state aid rules could jumpstart the market if properly designed.\n  - Foster restructuring/resolution of distressed SMEs:\n    - Establish standard criteria for bank assessments of SME viability and introduce guidelines for creditor‑led restructuring.\n  - Promote alternative financing sources:\n    - Fully implement measures to facilitate SME access to capital markets and liberalize the credit market.\n  - Enhance use and enforcement of collateral:\n    - Introduce fiduciary arrangement contracts, expand out‑of‑court enforcement, reform secured transactions law, and improve collateral registries."
    },
    {
      "heading": "Fiscal Rebalancing to Support Growth and Reduce Public Debt",
      "content": "- Fiscal context:\n  - Italy’s primary surplus is among the highest in the euro area after years of adjustment.\n  - The protracted recession has contributed to a steady rise in the debt‑to‑GDP ratio, limiting fiscal room.\n- Policy recommendations:\n  - Continue fiscal rebalancing through more efficient spending and lower taxes.\n  - Labor tax cuts in the 2015 budget are welcome, but labor and capital remain heavily taxed.\n  - Ongoing spending reviews are essential to identify efficiency gains in procurement, transfers to public enterprises, and health.\n  - Decisive implementation will help meet the deficit target and allow further tax burden reduction.\n  - Maintain a modest structural surplus over the medium term to reduce debt faster and provide insurance against changes in market sentiment.\n- Near‑term stance:\n  - The planned modest consolidation of ¼ percent of GDP is appropriate, given still‑subdued growth and high debt.\n  - The re‑indexation of pensions in accordance with the Constitutional Court ruling should not modify the fiscal stance this year and going forward.\n  - The safeguard clause should be fully offset by spending cuts to avoid damaging tax hikes while building fiscal buffers.\n  - A modest use of the flexibility under the Stability and Growth Pact could support the structural reform program and create room for further tax cuts.\n- Privatization:\n  - Faster privatization would reduce debt; recent sale of ENEL shares is positive.\n  - Privatization targets should be more ambitious to take advantage of favorable market conditions."
    },
    {
      "heading": "Mutually Reinforcing Reforms to Lift Italy’s Potential",
      "content": "- Integrated impact:\n  - Lowering the tax wedge and repairing bank and corporate balance sheets will boost jobs and investment in productive sectors and firms.\n  - The Jobs Act will facilitate worker transitions to new opportunities created by these reforms.\n  - Productivity gains from structural reforms will be amplified by a more efficient public sector and more competitive product and service markets.\n- Urgent recommendation:\n  - Maintain reform momentum and press ahead full force with the comprehensive reform agenda to realize the window of opportunity.\n\nSource: ITALY: Concluding Statement of the 2015 Article IV Mission (May 18, 2015).\n\n---\n\n\n References\n\n- Italy and the IMF\n- Mission Concluding Statements\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/mcs051815a"
    }
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    "Published: May 18, 2015",
    "Preliminary finding: Italy’s economy is emerging slowly from a painful recession.",
    "Recent supportive factors:",
    "Short‑term growth projections:",
    "Key constraints:",
    "Policy focus recommended:",
    "Public administration reform recommendations:",
    "Local public services:",
    "Public tenders:",
    "Civil justice reform:",
    "Product and service market competition:",
    "Labor market reforms (Jobs Act and beyond):",
    "Current situation:",
    "Strategy elements to strengthen bank and corporate balance sheets:",
    "Fiscal context:",
    "Policy recommendations:",
    "Near‑term stance:",
    "Privatization:",
    "Integrated impact:",
    "Urgent recommendation:",
    "[Italy and the IMF](http://www.imf.org/external/country/ITA/index.htm)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[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)"
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