Italy set to confirm deficit targets for this year and next -sources

By Giuseppe Fonte

ROME (Reuters) – Italy is likely to confirm its budget deficit targets for this year and next, people familiar with the matter said, as the Treasury aims for tighter fiscal policy to limit the impact of rising euro zone interest rates.

In its Economic and Financial Document (DEF) to be unveiled next week, the Treasury aims for a 2023 fiscal gap at 4.5% of gross domestic product, unchanged from the target set last November, the people told Reuters.

The government is also expected to keep its 3.7% deficit goal for 2024.

Last year, Italy reported a budget gap of 8% of GDP, but Rome is gradually phasing out the strongly expansionary policy adopted since 2020 to soften the impact of the COVID-19 pandemic and an energy crisis exacerbated by Russian invasion of Ukraine.

Reuters reported on Thursday that the actual deficit this year is now projected at 4.35%, which potentially allows leeway of up to 3 billion euros ($3.27 billion) of additional spending or tax cuts without going above the 4.5% goal.

Any such spending, if confirmed, would come on top of a 5 billion euro package aimed mainly at curbing firms’ and consumers’ energy bills, which was approved last month.

All figures in the document are still subject to changes as talks within the Prime Minister Giorgia Meloni’s government continue, the sources cautioned.

Meloni’s office has called a cabinet meeting to approve the document on April 11 at 1300 GMT.

The government is also expected to upgrade its growth estimate for this year to at least 0.9% from 0.6%, the sources said, but the outlook for 2024 is darkening amid growing difficulties in spending EU post-COVID recovery funds.

Italy is due to receive roughly 200 billion euros in grants and cheap loans through 2026, making it the bloc’s largest beneficiary in absolute terms.

However, the government is falling behind both on targets and milestones agreed with Brussels in return for the aid, and on spending money already received.

($1 = 0.9163 euros)

(Reporting by Giuseppe Fonte, editing by Gavin Jones and Tomasz Janowski)