IMF says Italy to miss deficit targets in 2012, 2013

Tue Apr 17, 2012 11:04am EDT

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* Italy budget deficit/GDP seen at 1.5 pct in 2013.

* Debt seen rising in 2012, 2013

* IMF forecasts may raise pressure on PM Monti for more cuts

ROME, April 17 (Reuters) - Italy will miss its budget deficit targets in 2012 and 2013 and its public debt will rise in both years despite the government's austerity measures, the International Monetary Fund forecast on Tuesday.

The IMF said in its Fiscal Monitor report that Italy's deficit would fall this year to 2.4 percent of output, well above Rome's 1.6 percent target, and would decline to 1.5 percent in 2013, when Italy is aiming to balance its budget.

The forecasts are a blow to Prime Minister Mario Monti, whose popularity is sliding and whose reform efforts are meeting rising criticism and resistance as the country's borrowing costs rise.

Italy's huge public debt, the second highest in the euro zone after Greece's as a proportion of GDP, will jump to 123.4 percent of gross domestic product this year, from 120.1 percent in 2011, and edge up to 123.8 percent in 2013, the IMF said.

Earlier on Thursday the IMF forecast the Italian economy would shrink by 1.9 percent this year and contract by 0.3 percent in 2013.

The Fund's forecast that Rome will significantly overshoot its balanced budget target next year will put pressure on Monti to adopt additional corrective measures, though the IMF itself has urged against this due to the weak economy.

IMF Managing Director Christine Largarde praised Monti's economic policies in an interview on Tuesday with Italian daily Il Sole 24 Ore and said his 30 billion euro austerity plan approved last year was "sufficient".

IMF Chief Economist Olivier Blanchard also told reporters on Tuesday that Monti was pursuing the right policies.

Since taking office in November the former European Commissioner has passed a reform of the pension system, partially deregulated some professional services and proposed a reform of the labour market which is still before parliament.

On Wednesday, the government will publish its own updated economic forecasts, which are expected to sharply cut its current projection, made in December, for a GDP fall of just 0.4 percent this year.

Despite the encouraging words of IMF officials, the figures in the IMF report were all more pessimistic than the government's.

It forecast that Italy's primary balance - the budget balance excluding debt servicing costs - would post a surplus of 3.0 percent of GDP in 2012 and 4.0 percent in 2013. The government currently has targets of 3.4 percent and 4.9 percent.

The so-called tax burden - fiscal revenues as a proportion of GDP - will jump to 48.3 percent this year and rise to 49.0 percent in 2013 as a result of Monti's austerity plan, the IMF said. The government forecasts it as stable at 43.8 percent in both years.

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