IMF Executive Board Concludes 2020 Article IV Consultation with Italy
March 19, 2020
WASHINGTON, DC On March 18, 2020, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Italy (see important note below on the timing of the report, which predates the outbreak of COVID-19). [2]
Executive Board Assessment [3]
Executive Directors expressed deep sympathy to the Italian people and the authorities for the high human and economic costs of the COVID 19 pandemic. They also conveyed their solidarity with Italy at this difficult time and 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.
While Directors broadly agreed with the thrust of the staff appraisal, they noted that the extensive discussion of medium-term issues in the staff report reflected the challenges and priorities facing Italy prior to the outbreak of COVID 19. They recognized and supported the authorities’ near-term priorities that have rightly 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, while amplifying uncertainty and downside risks. Once the health crisis has passed, they stressed the need to implement a comprehensive package of measures to boost potential growth and enhance resilience. This should comprise structural reforms to raise productivity and investment, a credible medium-term fiscal consolidation to put public debt on a firm downward path, and measures to support financial sector health.
Directors commended the authorities for their prudent implementation of fiscal policy in 2019 that was better than expected. They recognized that the fiscal balance will worsen this year on account of the pandemic effects and response. They 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.
Directors commended the authorities for the progress made in strengthening banks’ balance sheets. They welcomed the findings of the FSAP and stressed the need to address resolutely remaining financial sector vulnerabilities, strengthen banking sector resilience, improve the viability of bank business models, and 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. Moreover, 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 |
||||||
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|
|
Real Economy (change in percent) |
||||||
|
Real GDP |
1.7 |
0.8 |
0.3 |
-0.6 |
0.8 |
0.8 |
|
Final domestic demand |
1.5 |
1.2 |
0.4 |
-0.1 |
0.7 |
0.7 |
|
Exports of goods and services |
5.4 |
2.3 |
1.2 |
-1.9 |
5.3 |
3.2 |
|
Imports of goods and services |
6.1 |
3.4 |
-0.4 |
-2.0 |
4.9 |
3.1 |
|
Consumer prices |
1.3 |
1.2 |
0.6 |
0.7 |
1.0 |
1.2 |
|
Unemployment rate (percent) |
11.3 |
10.6 |
10.0 |
10.4 |
10.2 |
10.1 |
|
Public Finances |
||||||
|
General government net lending/borrowing 1/ |
-2.4 |
-2.2 |
-1.6 |
-2.6 |
-2.4 |
-2.3 |
|
Structural overall balance (percent of potential GDP) |
-1.8 |
-1.9 |
-1.3 |
-1.5 |
-1.8 |
-1.8 |
|
General government gross debt 1/ |
134.1 |
134.8 |
134.8 |
137.0 |
136.9 |
136.2 |
|
Balance of Payments (percent of GDP) |
||||||
|
Current account balance |
2.7 |
2.6 |
3.0 |
3.1 |
3.2 |
3.0 |
|
Trade balance |
3.0 |
2.5 |
3.3 |
3.3 |
3.3 |
3.2 |
|
Exchange Rate |
||||||
|
Exchange rate regime |
Member of the EMU |
|||||
|
Exchange rate (national currency per U.S. dollar) |
0.9 |
0.8 |
0.9 |
… |
… |
… |
|
Nominal effective rate: CPI based (2000=100) |
100.9 |
103.8 |
… |
… |
… |
… |
|
Sources: National Authorities; and IMF staff calculations. |
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|
1/ Percent of GDP. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] The staff report reflects discussions with the Italian authorities in January 2020 and is based on the information available 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. It, therefore, does not cover the outbreak or the related policy response, which has since become the overarching near-term priority. The outbreak has greatly amplified uncertainty and downside risks around the outlook. 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.
[3] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .
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