AN INTERNATIONAL Monetary Fund official said today that the eurozone’s third-largest economy is “on the right track” and has made notable progress in the six months since Premier Mario Monti took over.

An IMF review of Italy found its reform measures have meant the country is financially more secure and the program of reform should be considered a model for Europe, Reza Moghadam, the director of the IMF’s European department, told a news conference in Rome. But he urged urgent measures to boost growth, and said Italy’s banks need to boost their capital.

“There has been remarkable progress. It is not easy to remember that Italy faced a very difficult and dangerous situation at the end of last year” Moghadam told reporters after meeting with Monti and his government of technocrats.

Monti was brought in last November to head a government of technocrats aimed at preventing Italy from succumbing to the eurozone’s debt crisis. Italy’s debt ratio is 120 per cent of GDP, or €1.9 trillion, a sum that would overwhelm the eurozone if Italy were unable to raise money from the bond markets to make payments on outstanding debt.

The IMF mission report was the second vote of international confidence for the Monti government , the day after President Barack Obama in a phone call asked Monti to open the first session at the Group of Eight meeting in Camp David.

Monti said the IMF’s report showed that Italy “has done and needed to do to put its public accounts on a safe basis and launch incisive reforms.”

While encouraged, the IMF mission concluded that Italy needs to do more to promote growth. The IMF urged accelerating plans to spin off the gas distribution network from the Eni oil company, speeding the opening of professions like accountants and pushing for more privatisations of such things as local utilities.

Labour market reforms and liberalisation of the service sector could increase Italian growth by 6 per cent, the IMF said. Labour market reforms, including measures to make it easier to fire workers as well as discouraging short-term contracts, are being debated in Parliament

“It will help to create jobs and the sooner it is implemented, the quicker that process can start,” Moghadam said.

The mission also said that Italy’s banks, which are heavily exposed to sovereign debt, need to raise their capital, by raising equity or disposing noncore assets — not by cutting loans. Moody’s ratings agency this week downgraded 26 Italian banks.

The government expects the economy to contract by 1.2 per cent this year. The Italian statistics agency this week confirmed a third straight quarter of contraction as the country’s recession deepens.