ROME (Reuters) - Italy's caretaker cabinet approved a decree on Saturday to pay some 40 billion euros ($52 billion) of the state's debts to private companies over the next 12 months.
The decree, intended to provide vital liquidity to cash-strapped firms and help tackle a deep recession, had been scheduled to be approved last Wednesday but was delayed due to doubts over how to fund the measure.
The massive backlog of bills owed by Italy's public administration has been a longstanding source of complaint by companies which have struggled to raise credit from banks facing increasingly tight credit conditions themselves.
Mario Monti's outgoing government said on Saturday it was committed to not breaching the European Union's deficit ceiling of 3 percent of gross domestic product.
"We have to follow a path between the two requirements to help our economy to recover...and to maintain budget discipline," Economy Minister Vittorio Grilli told a news conference. "It's a narrow path but a path that is absolutely viable."
He said the government planned to monitor the situation again in September and the Economy Ministry would be able to adopt corrective measures if the deficit was heading over a "precautionary" limit of 2.9 percent.
The government says settling the bills will provide a sorely needed cash injection for an economy now stuck in its longest recession for 20 years.
Italy has faced weeks in political limbo with no party able to form a government while economic problems continue to pile up.
Monti last month hiked the 2013 deficit target sharply to 2.9 percent of GDP from 1.8 percent, just fractionally below the EU's 3 percent ceiling, after last year's deficit came in at exactly 3 percent.
Public finance data so far this year has not been encouraging, with borrowing in the first quarter higher than the same period of 2012.
(Reporting By Catherine Hornby and Giuseppe Fonte; editing by Francesca Landini and Richard Meares)
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