While other European countries increase spending to support their pandemic-ravaged economies, the Vatican has been forced into a painful austerity drive as visitors and donations to the tiny city state have slumped.
The smallest independent country in the world has taken a series of emergency budget measures, including cutting the salaries of all cardinals, cancelling non-essential renovations of buildings and scaling back international travel.
Last month Pope Francis announced that all cardinals would have their pay reduced by 10 per cent from the start of April because of "the health emergency caused by the spread of Covid-19, which has adversely affected all sources of revenue for the Holy See". The pope himself will not take any pay cut as he receives no salary.
Reuters reported last month that cardinals who work at the Vatican and live there or in Rome are believed to get salaries of about €4,000 to €5,000 a month, and that many live in large apartments at well below market rents.
Juan Antonio Guerrero Alves, the Holy See's top economic official, has said the Vatican's spending this year will be "the lowest in the recent history of the Holy See", in sharp contrast to other European countries which have pumped money into their economies.
Last week the International Monetary Fund called on all euro zone countries to spend an extra 3 per cent of gross domestic product to mitigate the impact of the pandemic, and Italy announced it would spend an additional €40 billion to support struggling businesses and its economy.
The Vatican, which has a permanent population of fewer than 1,000 people, is not a member of the EU or euro zone but uses the euro as its official currency and issues its own euro coins.
Fr Guerrero Alves last month acknowledged that the Vatican was unable to act like other countries due to its minuscule size and lack of tax revenue.
“If we were a state like any other, we would have increased our debt and taken fiscal measures,” he said in comments to the Vatican’s state news outlet. “In our case, if donations don’t come in, besides saving as much as possible, we can only use reserves.”
Exhibitions shut
The Vatican has never made the size of its financial reserves public, which encompass vast real estate holdings around the world and other investments controlled by APSA, its sovereign wealth manager.
"The Vatican doesn't have the option of spending money like others to shelter its economy from the pandemic as what could it spend it on?" said Nicola Nobile, lead euro zone economist at Oxford Economics. "It is a small, open economy that relies on external revenues, notably tourism, which have collapsed."
While tourism to Italy, a rough proxy for visitors to the Vatican, has proven recession-proof in the past, during the pandemic it has been one of the worst-hit sectors. At the Vatican its museums and other exhibitions were shut for much of the year, depriving it of one of its most important sources of revenue.
At the start of Italy’s last prolonged recession in 2012, the number of visitors arriving in the country fell by 1.7 per cent compared to the year before. Last year, with tourism banned for months as a result of lockdown measures, visitors to the country fell by 59.1 per cent, according to official data.
The Vatican has said it expects total revenues to fall by 30 per cent to €213 million this year compared to 2019, the year before the Covid-19 pandemic hit Europe, and to post a deficit of €49.7 million for 2021 even as it cuts expenses. Its deficit in 2019 came in at €11 million.
Stripping out donations from Catholics around the world, which the Vatican has said fell during the pandemic along with revenues from real estate and commercial activities, the Holy See has said its deficit for this year would have expanded to €80 million, and that it will plug the gap from its reserves.
The budget crunch has also resulted in the Vatican increasingly looking towards outside donors to fund its events. Last year Angelo Vincenzo Zani, secretary for the Congregation for Catholic Education who was appointed by Pope Francis to run the Vatican's educational charity initiatives, acknowledged: "The Vatican hardly has anything; we are looking for outside help." – Copyright The Financial Times Limited 2021