Italy Debt Climbs to E2.3 Trln in July; State Revs Drop: BOI

By Silvia Marchetti

     ROME (MNI) - Italy's public debt climbed to E2.3 trillion in July while

state revenues in the first seven months of this year were 1.2% lower than seen

in 2016, the Bank of Italy said Friday.

     In their monthly statistical report, the Italian central bank confirmed the

continuing upward trend in public debt, now at the highest levels since 2015.

The E18.6 billion rise in July shows a significant acceleration from the E2.2

billion monthly increase in June.

     Despite Rome's plans to tighten public finances and commitments made,

Europe's third-largest economy continues to be stifled by the soaring debt, the

euro area's second-largest in volume after Greece.

     Several subsequent falls in debt last year lifted hopes that pressure on

Italy's public finances was finally easing, but 2016 ended with a sharp rise in

debt to 132.6% of GDP.

     Italy is under scrutiny from the European Commission for its public debt

due to potential stability risks linked to an "excessive economic imbalance",

which would lead to a deviation from fiscal targets and lead to possible fines.

     In February, Brussels requested Rome implement additional fiscal measures

to avoid being sanctioned. To meet the EC's requirements, in April an emergency

law  was passed by Italy's cabinet to curb structural deficit by E3.4 billion

(0.2% of GDP), thus revising this year's net borrowing target down from a

previous 2.3% to 2.1% of GDP.

     Following Brussels' warning, Rome has also revised its previously set debt

targets. According to updated government forecasts debt will fall to 132.5% of

GDP by end of this year from a previous estimate of 132.7%.

     However, the medium-term objective of a structural balance as envisaged by

the new fiscal compact's debt rule will be fully achieved only in 2020, when

debt is expected to fall to 123.7%.

     In June, Italy's Finance Minister Pier Carlo Padoan reassured the European

Commission that Italy will further tighten public finances by adjusting the

structural balance by 0.3% of GDP in 2018. This fiscal commitment will be at the

core of the upcoming 2018 budgetary law approval.

     The European commission has, however, acknowledged Rome's efforts in

balancing growth targets and fiscal sustainability. The EC has said it will take

into account reform and budgetary efforts when assessing Rome's budget in the

autumn.

     According to the BOI report the July increase in debt was due to a E32.9

billion rise in the Treasury's liquid assets to the current E85.6 billion level,

still much lower than E101 billion a year ago.

     This new spike in the Treasury's liquid assets was "partly compensated"

though by E13.3 billion monthly surplus cash from public administrations and by

the overall effect triggered by revaluation of inflation-protected securities

and variations in exchange rate.

     In July, monthly state revenues stood at E47.1 billion, E8.5 billion higher

than a year earlier. In the first seven months of 2017 total revenues amount to

E233.1 billion, registering a 1.2% annual drop that is also linked to an

extension in several tax payment deadlines, the central bank said.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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