April 23, 2020 / 8:29 PM / a month ago

Italy targets 2020 deficit at 10.4% of GDP, debt at 155.7% - draft

ROME, April 23 (Reuters) - Italy is targeting its budget deficit at 10.4% of gross domestic product this year and sees the public debt rising to 155.7% of GDP, according to a draft forecasting document obtained by Reuters.

The Economic and Financial Document (DEF), due to be approved by the cabinet on Friday, reflects the huge hit to the euro zone’s third largest economy from the coronavirus epidemic.

Italy has been one of the countries hardest hit by COVID-19, registering more than 25,000 deaths, the second highest toll in the world after that of the United States.

The draft document forecasts an economic contraction of 8.0% this year under an unchanged policy scenario.

This estimate does not include the impact of a stimulus package due to be approved by the government this month, and so the growth contraction finally targeted may be somewhat smaller.

The new package will be worth some 55 billion euros ($59.5 billion), the draft document said, confirming comments made to Reuters by a government source earlier on Thursday.

The deficit is seen falling to 5.7% of GDP next year, while the public debt is targeted to decline to 152.7%.

Italy had pencilled in an automatic increase in sales tax due to kick in next January, but the draft spells out that this hike will be scrapped and not be replaced by alternative levies or spending cuts.

Instead, the government will simply forego the revenues from the tax hike, preferring to allow a higher deficit rather than risk hurting an already weakened economy.

The draft forecasts that growth will partially rebound next year, with GDP rising 4.7%. (Reporting By Gavin Jones)

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