Italy to Use Contingency Fund to Offset Lower Growth, Sole Reports

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Italy will use a contingency fund of 2 billion euros ($2.2 billion) to ensure its structural deficit target is met amid lower-than-forecast economic output and tax revenue, Il Sole 24 Ore reported, without saying where it got the information from.

The newspaper said on Sunday that the government will make use of a clause that was agreed with the European Union and included in this year’s budget law. It requires the use of the extra funds to offset the impact of disappointing growth. The Treasury will this week slash its forecast for 2019 economic growth to 0.1 percent from 1 percent previously, two senior officials told Bloomberg earlier in April.

Any shortfall in tax revenue would be offset by the ad hoc funds set aside in the budget, Deputy Finance Minister Massimo Garavaglia told reporters on Saturday, following remarks by European Commission Vice President Valdis Dombrovskis that weakening growth may force the country to freeze spending.

“It’s what is in the legislation,” Garavaglia said.

According to Reuters, Italy will probably raise its 2020 budget deficit goal to around 2.1 percent of GDP, and hike the target again in the summer.

The cabinet is expected to approve the new economic and public-finance forecasts and targets at a meeting in Rome on Tuesday. The outlook update, known as the Economic and Financial Document, will include tax cuts to be introduced in the coming years, Deputy Premier Matteo Salvini said Sunday at an event in northern Italy, Ansa newswire reported.

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Charles Daly, Andrew Davis

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