By Giuseppe Fonte
ROME (Reuters) - Italy's economy minister said on Tuesday strict control of public spending was essential as the European Union prepares to restore tough fiscal rules next year that have been suspended since 2020 due to the COVID-19 pandemic.
EU governments are negotiating amendments to the rules, with Italy proposing ways to make them as lenient as possible, but minister Giancarlo Giorgetti made clear tough decisions lay ahead.
"Tight control of public spending trends will become an imperative that can no longer be avoided," he told parliament while presenting the Treasury's new budget framework.
Giorgetti said the sustainability of Italy's public debt was the "main challenge" facing the country.
Proportionally the highest in the euro zone after Greece's, Rome's debt is targeted to hit 139.6% of gross domestic product (GDP) in 2026, just marginally down from 140.2% expected this year.
The new goals factor in proceeds from asset disposals worth around 21 billion euros ($22.22 billion) planned over the next three years, meaning that without divestments the debt would rise.
"It is an ambitious project, but I think it can be realised," Giorgetti said.
He added that state sell-offs would include bailed-out bank Monte dei Paschi di Siena (MPS) and might also involve public infrastructure, though he provided no details.
DARKENING OUTLOOK
Prime Minister Giorgia Meloni's government will detail next week its 2024 budget amid a darkening economic outlook.
The Bank of Italy said on Monday that weakness in economic activity continued in the third quarter of this year, after GDP shrank by 0.4% in the previous three-month period.
Middle East turmoil following Hamas' weekend attack on Israel has added "further instability to a picture already complicated by conflicts and geopolitical tensions", Giorgetti said.
As part of Meloni's top priorities for the budget, Italy will extend to 2024 the tax cuts that have helped middle and low-income workers cope with high consumer prices this year.
"Extending it to 2024 will absorb the resources made available by next year's fiscal leeway," the minister added.
The government set the deficit-to-GDP ratio at 4.3% in 2024, but Italy's fiscal gap is on course for a lower 3.6% of national output under current trends. That allows leeway of around 15.7 billion euros in 2024.
($1 = 0.9453 euros)