The Chairman of the PBO, Giuseppe Pisauro, testified at a hearing (in Italian) before the Joint Budget Committees of the Senate and the Chamber of Deputies as part of the consideration of the Update of the 2015 Economic and Financial Document. In his remarks, Pisauro discussed the findings of the analysis conducted by the PBO of the macroeconomic scenario, developments in the public finances and compliance with fiscal rules.
The macroeconomic scenario
The PBO validated the policy macroeconomic scenario for 2015-2016 published in the Update of the EFD, as GDP growth and developments in the main components of demand forecast by the Ministry for the Economy and Finance (MEF) were within the range of forecasts developed by the PBO panel of forecasters. The MEF’s forecast is significantly higher than the panel estimates for subsequent years, however (0.4 on average in 2017 and 2018, and 0.3 in 2019). This discrepancy is essentially due to more optimistic projections for domestic demand, including both consumption and investment.
The PBO also noted the real risk of a less favourable international scenario than that assumed by the MEF, which would have an adverse impact not only on real growth but also, as a result of lower inflation, on nominal GDP.
The public finances
The NADEF revised the path towards the medium-term objective, postponing achievement of structural balance until 2018.
Compared with the EFD published in April, the Government announced a more gradual spending review in view of tax cuts and new spending programmes with a permanent impact on budget balances. This was also made possible by greater scope for deficit spending, which nevertheless must be recouped by 2018. This scenario could plausibly lead to only partial suspension of the safeguard clauses (which currently provide for an increase in VAT) as from 2017.
Fiscal rules
The PBO found that the new path towards structural balance is consistent with the European rules in accordance with the flexibility recently specified by the European Commission. However, the request for even more flexibility (+0.1 per cent of GDP for structural reforms and +0.3 per cent for investment) has not yet been approved by the European institutions on the basis of an assessment of compliance with the conditions for granting such relief.
The debt rule, where Italy is just barely in compliance (only 0.1 percentage point of PIL in 2018), represents the greatest risk factor. The official projections are based on a number of optimistic assumptions, especially regarding revenue from privatizations and nominal GDP growth, with the latter being judged imprudent by the PBO for 2017-18.