IMF urges 'decisive' steps to cut Italy's debt

The International Monetary Fund called yesterday for "decisive implementation" by Italy to cut its public debt, as the country sought this week to calm market worries about the sustainability of its debt burden.

In its annual review of the Italian economy, the IMF welcomed plans by the government to reduce the fiscal deficit to below 3 percent of gross domestic product by 2012 and close to zero by 2014.

"(IMF) directors stressed that decisive implementation of the package is key and a number of them felt that more front-loaded spending measures would have a positive effect on market sentiments," it added, noting that tax reforms still had to be outlined in detail.

Italy has struggled to keep its public debt down to some 120 percent of gross domestic product and is stuck with one of the world's lowest economic growth rates.

With the Greek debt crisis intensifying, market fears have now turned to Italy and Spain, which have high public debt levels. Italian 10-year bond yields rose past 6 percent today, their highest in more than a decade.

The IMF said that, while Italian economy was set for a "modest recovery," its public debt was high and growth would likely remain constrained. It forecast Italian growth would reach 1.0 percent this year, down from 1.3 percent in 2010.

The IMF urged policies focused on spending cuts to reduce the country's large public debt, maintain financial sector stability and boost economic growth.

The Fund said it was "encouraged" by government plans to undertake a comprehensive review of public expenditure and that containing the pubic sector wage bill within broader reform measures would be helpful.

It commended the government's call for bank capital increases and urged swift completion of the recapitalization plan.