|  NEWS

The Italian government is planning fresh borrowing of as much as €10 billion to protect the country from the impact of the war in Ukraine.

This debt will feature as part of Italy’s annual economic and financial strategy, due to be unveiled on Wednesday.

According to officials, due to the new debt, expectations of shrinking Italy’s deficit are reduced, Yahoo Finance reports. The 5.6% of output shortfall originally predicted for this year will likely be confirmed.

The majority of the spending will predominantly go towards helping households and businesses, adding to a current bill surpassing €16 billion spent on easing the blow from rising fuel costs.

Italy may be one of the most affected countries within the euro area due to its high reliance on gas, should volatility remain regarding energy supplies coupled with rising costs, said Bloomberg Economics.

The action taken by Italy follows recommendations from the OECD for governments to take fiscal steps to lessen the impact of the war.

Last month, inflation in Italy reached its highest point in 30 years. The country’s Finance Minister Daniele Franco said the economy is being strongly impacted by the war due to the soaring prices and uncertainty.

The effect of the war will be evident in Prime Minister Mario Draghi’s strategy, which will reveal growth forecasts slashed to under 3% of economic output, down from 4%.

The economic and financial strategy may also feature additional spending for defence. A plan was mooted last week to bolster military spending by €1.5 billion, part of plans to assign 2% of output to the defence sector by 2028.

The head of economic policies for Italy’s Democratic Party, Antonio Misiani said that “creating new deficit cannot and should not be a taboo,” going on to add he forecasts the government will find some flexibility to hike borrowing.

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