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Unpaid bills threaten fiscal dilemma for Italy
April 5, 2012 / 2:57 PM / 6 years ago

Unpaid bills threaten fiscal dilemma for Italy

MILAN, April 5 (Reuters) - The Italian state has racked up bills with commercial creditors equivalent to 4 percent of economic output that it is under increasing pressure to pay, but it may turn to alternative solutions to keep its debt-reduction programme on track.

Italian public authorities have one of Europe’s worst track records for paying creditors, and in all they owe companies 60 billion euros - money the government can ill-afford to part with as it struggles to cut the budget deficit while the economy contracts.

Local and foreign businesses say the backlog is hampering economic activity, and an emotive domestic debate has been sparked by the suicide of a number of smaller-scale businessmen squeezed between unpaid bills and scarcer banking credit.

“Late payments are a huge problem and the public administration is giving a bad example,” said Sandro De Poli, chairman of the Italian unit of giant U.S. conglomerate GE .

“We have diligent Italian regions that pay in 60 days and others that take 900.”

Industry Minister Corrado Passera, the former head of Italian bank Intesa Sanpaolo and a key minister in Mario Monti’s government, has promised to tackle the issue.

An initial proposal by him to use Treasury bills as a form of payment ran into difficulties because the issuance would increase Italy’s 1.9 trillion euro debt pile - and companies could not use the bills to offset tax.

That option was adopted for a relatively insignificant 2 billion euros of unpaid invoices.

The Italian press has speculated that instead, the credits could be sold at a discount to banks that would pay the firms and eventually claim back what is due from the state.

The late-payment problem is particularly acute in the health sector, where creditors on average wait 315 days for a payment, according to industry association body Assobiomedica.

But the issue is not confined to public authorities, as unpaid invoices by private companies push the total bill to around 100 billion euros ($131 billion), Passera has said.


Experts say the public administration’s commercial debts do not count as public debt per se. But if Italy were to pay them without boosting its revenues, this would increase its borrowing requirement and eventually add to the debt.

One of the highest tax burdens in Europe and a shrinking economy limits Italy’s ability to raise further revenues, adding to the government dilemma.

“Late payments are a big problem,” agreed Domenico Rubino, Chief Financial Officer at the Italian unit of major Swiss-Swedish engineering firm ABB.

“Passera has said that Italy will try to honour at least 50 percent of the unpaid bills. This is a step in the right direction and we appreciate the move.”

New European Union rules that Italy is aiming to adopt before a March 2013 deadline set a 30-day limit for public authorities to meet payments.

The deadline could be stretched to 60 days under exceptional circumstances and this would also be the limit for payments owed to private companies.

But the limits would only apply to goods and services rendered after the cutoff date, raising the prospect of some bills being settled within a month while others remained unpaid for years.

An unexpected increase in its debt burden would be a risky move for Italy, which remains under close scrutiny from international investors at a time when Spain’s budget troubles have fuelled concerns that the euro zone debt crisis may reignite.

Analysts say Italy can’t afford to stir concerns among investors that its government’s commitment to fiscal discipline may be wavering.

“We know this is a problem of the utmost importance. But the solution must be compatible with our fiscal targets,” Passera said. ($1 = 0.7623 euros)

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