VATICAN CITY — As the economic fallout of coronavirus lockdowns continues to be felt across the world, the Vatican is also feeling the effects, made worse, insiders say, by delayed implementation of financial reforms that have weakened its ability to deal with the crisis.

Since March 10, when a lockdown was enforced across Italy, the Vatican Museums, which in 2015 generated 80 million euros ($87 million) a year and are the Vatican’s highest income earner, have been closed and won’t reopen until May 18 under an ease-of-restrictions program the Italian government announced April 27.

Tourists have all but stopped visiting the Vatican, and fewer employees are also using its supermarket and department store, meaning all the Vatican’s commercial activities, including selling souvenirs and corporate hospitality, have taken an economic hit. It is also unlikely many tourists will return to the Vatican until some weeks after a lifting of the lockdown.

The Vatican has also been affected by collapsing oil prices and demand for fuel, as its gas stations selling tax-free diesel and gasoline earn the Holy See considerable income (Vatileaks documents reportedly showed that in 2012 alone, gas sales amounted to 27 million euros). Vatican-managed properties and businesses comprising 2,400 apartments, mostly in Rome and Castel Gandolfo, and 600 shops and offices are also likely to be hit by falling real estate prices and rents.

The Holy See Press Office did not respond to questions about how it was dealing economically with COVID-19, but Father Augusto Zampini, a member of Pope Francis’ coronavirus task force, told The Associated Press on April 24 that the Vatican City is no different from any company and that it is losing income as a result of the lockdown. He added that the Holy See is relying on emergency financial reserves to weather the storm.

Assuming the coronavirus, with its biggest effect on tourism, effectively shuts down most of the Vatican economically for four months, a conservative estimate of losses is between 50 and 80 million euros.

 

Before the Outbreak

But even before the outbreak began, the Vatican was reportedly struggling to make ends meet. The Holy See recorded a budget deficit of 70 million euros ($77 million) for the year 2018, double the previous year. The shortfall, reportedly caused by rising wage costs, chronic inefficiencies and decreased investment income, prompted the heads of dicasteries and Holy See institutions to hold an emergency meeting last September to discuss the “gravity of the situation.”

German Cardinal Reinhard Marx, who heads the Vatican’s Council for the Economy, a body that monitors the Holy See’s financial institutions, insisted at the time that the deficit could be resolved over the next year or two. “We have to go forward, otherwise I cannot see how to sign a budget with a structural deficit,” he told reporters in October. “But that is a way we can go in several years. That is not a catastrophe.”

In his book Universal Judgment published last fall, the Italian author Gianluigi Nuzzi claimed the Vatican was experiencing a financial crisis and that an accounting task force set up by Pope Francis had found that the deficit had “reached worrisome levels, at risk of leading to default.”

This was swiftly played down by the Vatican, but it also emerged last year that the Vatican had been using donations from Peter’s Pence (amounting to roughly $55 million a year but which is also falling) to help plug its deficit.

The Holy See’s total annual expenditure is not small, estimated to be around 300 million euros ($333 million). And unlike most governments of the world, the Vatican does not have a central bank that can spend limitlessly by printing money through monetizing its debt (a practice currently carried out by the Federal Reserve and others but considered immoral).

Vatican sources told the Register in April that its financial situation in 2019 improved due to more favorable capital markets and reverted to its deficit recorded in the early 2010s of around 20-25 million euros, but that was before the coronavirus pandemic outbreak.

 

Debt-Ridden ‘Black Holes’

Sources note that the Vatican’s financial woes are further compounded by having many entities within its sphere of responsibility that are reportedly drowning in debt — and which hand over those liabilities to the Vatican when desperate.

An example was seen in 2015, when the Administration of the Patrimony of the Apostolic See (APSA), the Vatican’s office for managing assets and real estate, secured a 50-million euro loan guarantee from the Bambino Gesù, a Vatican-run children’s hospital, to help bail out a bankrupt Rome hospital with Vatican connections and owned by a religious congregation. The hospital, the Istituto Dermopatico dell’Immacolata, continues to have debts of an estimated 800 million euros, despite the loan and a controversial attempt to raise $25 million in donations from the U.S.-based Papal Foundation.

Similar examples have cropped up in recent years, and while few know the extent of the debts held in these “black hole” institutions, some analysts believed they could be overwhelming even before the coronavirus froze income from the Holy See’s patrimony. The Holy See’s deficit has also been compounded by losses on speculative property deals in London.

A further economic concern is the Vatican’s pension fund, which faces a looming deficit. Cardinal George Pell, when he was prefect of the Vatican Secretariat for the Economy, said the deficit was running at 30 million euros a year and “substantial investment” was needed if pensions were to be paid in the future. Before the coronavirus pandemic, the pension deficit was estimated to reach $430-$870 million within the next 10 years.

The Vatican has numerous investments in the form of stocks, bonds and real estate it can still draw upon, although each of these will have lost value since the coronavirus outbreak. Its 2018 consolidated financial statement obtained by the Register (such statements have not been made public since 2015) shows that the Holy See had just over 1 billion euros in financial investments, and 510 million euros in real estate in Italy and abroad, although the figures for the latter are thought to be higher, with the inclusion of off-balance sheet property.

 

Possible Actions

The key question, therefore, is how will the Vatican fund these rising deficits, now intensified by the coronavirus.

“If they’re currently running into liquidity problems, they would need to sell some of the shares and debt obligations they hold,” said Juergen Siemer, a Catholic German economist currently working as a consultant in Rome. “They should do that now to reduce their risk exposure and buy some time. Then they need to sell some property (this always takes more time) and then they can, in parallel, develop concepts to increase revenues from the remaining properties.”

According to an informed Vatican source, a large proportion of Holy See property is rented to affluent tenants who would be ready to buy it at market value, especially if prices decreased, which is now probable.

In addition, Siemer said, the Vatican should also follow the same principles of every company or household in such a situation: “Cut some regular expenses” and “increase regular income and revenue.” 

The Vatican already appears to be seeking to increase revenue, but not always from bona fide sources that agree with key moral teachings of the Church, even if they might converge on others. One example is the Bill and Melinda Gates Foundation, a pro-contraception, pro-population control organization, which the Vatican is already looking to cofund its Global Education Pact scheduled in the fall.

Other means of tackling the deficit considered far more morally acceptable would be to improve efficiency and compliance — a path the Vatican has already embarked upon in some areas, such as its communications apparatus. The main body running Vatican City State, the Governorate, could cut its maintenance costs by 50%, some analysts contacted by the Register believe. They also propose cuts in salaries of senior management at the Vatican Bank, APSA and the Financial Information Authority.

Regarding improved efficiency, informed sources say the Vatican could have been better positioned to more effectively withstand COVID-19 had the reforms of Cardinal Pell been fully put into effect.

Under Cardinal Pell’s leadership, a “road map” was drawn up to centralize Vatican finances under one roof, placing them in one highly controlled operation. Loosely referred to at the time as Vatican Asset Management, a similar structure would have been built for the Vatican’s vast and inefficiently managed real estate holdings.

This was thwarted by the Vatican’s “old guard” — officials who generally preferred the established (and sometimes corrupt) ways of handling Vatican finances. Their obstructions led to the downsizing of the Secretariat for the Economy and the decapitating of the Office of the Auditor General.

Signs are emerging, however, that reforms are now gradually being implemented, beginning with some positive changes to personnel. This is giving some hope, but the sense among reformers behind the Vatican walls is that precious time has been lost.

Edward Pentin is the Register’s Rome correspondent.