Italy readies 30 bln euro stimulus plan, seen pushing deficit above 10% of GDP

ROME, April 8 (Reuters) - Italy’s government is preparing a new stimulus package worth more than 30 billion euros ($35.62 billion) to support its battered economy, driving up this year’s budget deficit, a senior Treasury official said on Thursday.

The money will fund additional grants to businesses forced to close due to coronavirus restrictions and extend an existing debt moratorium for small and medium-sized companies, the state auditor at the Treasury, Biagio Mazzotta, added.

The extra borrowing will probably push this year’s fiscal gap above 10% of gross domestic product (GDP), up from 9.5% in 2020 when the economy shrank by 8.9%, a government source told Reuters on condition of anonymity.

The last time Italy registered a double-digit deficit was in the early 1990s.

“The next stimulus package will certainly be substantial, I think it will be worth as much as the first one approved this year,” Mazzotta said at a conference on the COVID crisis.

Last month the government of national unity led by former European Central Bank (ECB) chief Mario Draghi detailed some 32 billion euros of expansionary measures.

Rome’s official estimate, made by the previous government in January, envisages a deficit-to-GDP ratio of 8.8% this year. That was premised on an economic growth forecast of 6%, which officials say will have to be revised down to a figure between 4% and 5%.

The extra borrowing will also increase Rome’s huge public debt, equal to 155.6% at the end of last year and proportionally the second highest in the euro zone after Greece.

The new deficit and debt targets, along with multi-year GDP growth forecasts, will be issued in the Treasury’s Economic and Financial Document, which is expected to be approved next week.

This forms the preliminary framework for the 2022 budget and must be sent to the European Commission for approval.

$1 = 0.8423 euros Reporting by Giuseppe Fonte, editing by Gavin Jones and Gareth Jones