While some curial asset managers have begun to show modest-to-moderate returns in recent years, donations remain down and the Vatican is still operating with a runaway budget deficit.
So how bad is the financial weather over Rome and what, if anything, is being done to turn things around?
And what happens if the Vatican actually goes broke — is that even possible?
According to some people who’ve spent years working in Vatican finances, those are questions that need to start being asked, sooner rather than later.
How bad is it?
The factors weighing on the Vatican’s finances are well known to most observers.
Years of financial scandals and diminished global offerings have left the Holy See struggling to balance its books for many years.
Added to this have been acute shocks to its financial system, most notably the coronavirus pandemic, which essentially shuttered Vatican City to visitors for a year, choking off revenue from museums and shops, to say nothing of votive offerings in major churches like St. Peter’s Basilica.
In May 2020, the Secretariat for the Economy predicted a 2021 drop in Vatican income of anywhere between 30% and 80% because of the pandemic, even after a 21% drop in 2020.
Less than a year later, the secretariat announced a 49.7 million euro shortfall for the Vatican’s annual budget for 2021 — the lowest possible revenue drop (30%) within it’s prediction band. But the deficit was actually closer to 80 million, the secretariat’s statement noted, once money from Peter’s Pence and other restricted funds was factored out.
But by 2022, the Vatican’s financial secretariat was painting a far rosier picture. The then-prefect, Juan Antonio Guerrero Alves, SJ, touted a new budgetary and accounting process, taking into account a far broader swath of curial institutions, and claimed a better than expected operating deficit of 77 million euros.
Things were, Guerrero said, headed in the right direction. Until suddenly they weren’t.
Later that year, Guerrero resigned, citing health reasons, and was replaced by his departmental number two, the layman Maximino Caballero Ledo.
By 2023, Caballero Ledo was clearly less bullish than his former boss had been. While the secretariat did not publish its budget for the year, as it had in 2021 and 2022, the mood music coming from the department has been bleak.
Early in 2023, Pope Francis announced that he would end the practice of offering subsidized Vatican accommodation to senior curial officials, citing “a context economic crisis such as the current one, which is particularly serious,” which the pope said highlighted “the need for everyone to make an extraordinary sacrifice.”
Cutting costs
As part of Pope Francis’ efforts to bring financial reforms to the Vatican, a curia-wide pay and hiring freeze has been in place for nearly a decade — though 2021 budget reports show salaries remain the curia’s biggest single expense line at 139.5 million euros, so Francis instituted senior level pay cuts for clerical employees, which did not touch lay staff.
But while the cuts have bitten deep for personnel, they have not closed the budget gap. And curial sources quietly say that salary and hiring restrictions are unsustainable. Officials at several departments told The Pillar that requiring more work from fewer people across departments is taking a toll on morale as well as productivity.
“The workload isn’t just increasing for officials,” one clerical staffer told The Pillar, “it’s increasing for whole offices too, especially after Vos estis lux mundi. More and more cases and questions are coming into all the departments, about clergy [mis]conduct, episcopal governance, liturgy, and a whole bunch of other stuff,” the official said.
“The global Church isn’t shrinking, it’s growing, and so is the work. But the offices aren’t getting any bigger, just the piles on our desks.”
Officials in several Vatican departments also complained that while some departments are on a budgetary “starvation diet,” other curial departments seem comparably well funded.
“It says a lot,” one official close to the Secretariat of State said, “that the Dicastery for Communications costs nearly as much as a worldwide network of nunciatures.”
According to the Secretariat for the Economy’s 2022 Mission Budget Statement, the Dicastery for Communications has expenses budgeted at 38 million euros.
By comparison, expenses for the Secretariat of State’s embassy network were budgeted at 41 million, the entire Dicastery for the Evangelization was slated to spend 21 million, and the Dicastery for the Doctrine of the Faith had a budget of 2 million euros.
Questions about departmental budget allocations to one side, Pope Francis has continued to authorize a slew of financial reforms aimed at tightening central oversight of major expenditures and encouraging curial departments to work together to share the costs of external purchasing and contractors.
But, as Maximino Caballero Ledo has acknowledged, cost cutting and budget tightening cannot be expected to close the budget gap.
In October last, Caballero Ledo gave an indication of the scale of the “crisis” when said that the Holy See had a structural budget deficit of “between 50 and 60 million euros a year.”
The prefect put this relative size of this ongoing shortfall in stark perspective, noting that “If we were to cover this deficit only by cutting expenses, we would close 43 of the 53 entities that belong to the Roman Curia, and this is not possible.”
“So, we have to work hard to increase revenues,” Caballero Ledo said.
But how, exactly, does the Vatican go about doing that?
Making money
The Holy See has three main revenue streams, none of which appear to hold out an obvious or easy solution to the ongoing financial crisis.
Global donations from the faithful and from dioceses around the world, including via the annual Peter’s Pence collection, make up about 30% of Holy See income annually — though with significant amounts of that money ring-fenced for charitable work.
While the hope in Vatican financial circles is that donations will rise after years of significant downturn following the pandemic, long term the signs are not good.
Meanwhile, major donations from individuals, most often from the United States, the top contributing nation to Holy See coffers, have also taken a hit in recent years, with sources close to Vatican financial departments blaming a variety of factors including the ongoing clerical abuse crisis, Vatican financial scandals, and even a perceived hostility to the Church in the United States by Pope Francis.
Some direct income generated by Vatican City’s governorate through museums and the operating profits of the Institute for Works of Religion (IOR), the Vatican’s commercial and retail bank account for only 5% of Holy See income.
While the Vatican is most definitely not a business, the bulk of its income (about 65%) is derived commercially, from returns on assets and investments, including its sizable real estate portfolio, both in the city of Rome and worldwide.
But despite being a considerable landowner, as of 2022, only about a fifth of the Vatican’s property portfolio was actually available for generating revenue. The majority of its holdings are dedicated either directly to worship — including dozens of churches and basilicas, which have never been profit centers, even in good years for donations — or to other ecclesiastical works, such as hospitals and universities.
The need to squeeze as much from its commercial properties as possible was the motivating force behind last year’s controversial announcement that curial cardinals and other ranking clerics would have to start paying full market rates for their Vatican apartments.
But, while that policy has generated some headlines and notable individual cases, there’s little evidence it has been universally or even broadly applied.
Of course, questions of special treatment to one side, the Vatican rent hikes were never likely to be easy to implement — many of the properties are within the territory of Vatican City itself, or in buildings with extra-territorial diplomatic status, raising a host of potential security issues — nor are they ever likely to generate a significant enough return to make much of a dent in a eight-figure annual deficit.
Rather, it is the Vatican’s other assets and investments which need to perform better in order to avoid the “not possible” scenario of closing actual departments. In that direction, some progress has been made.
The Vatican real estate portfolio is managed by APSA, the body which until recently functioned as the Holy See’s hybrid commercial landlord, sovereign wealth manager, and paymaster general.
In 2022, APSA reported a profit of some 32 million euros — all of which went to the Vatican’s operating expenses.
In particular, APSA’s commercial property management appeared to be doing well, accounting for almost exactly the same increase in return: 32 million.
However, its management of other Vatican assets was far from strong. Its securities management portfolio shrank by 26.5 million euros versus its 2021 results, and posted losses of nearly 7 million. At the same time, the department’s operating costs rose by nearly a third, soaking up an additional 3 million euros of its income.
These results came just as Francis was ordering the centralization of all curial assets, investments, and cash into APSA and under its management, ending the longstanding practice of individual dicasteries, especially large and influential bodies like the Secretariat of State, having control over their own proper funds.
The centralization of asset management was geared to improving oversight and performance, but sources close to the Secretariat for the Economy told The Pillar at the time that an even more urgent concern was “onshoring” all Vatican liquidity into APSA to prevent a cash crunch.
But the underperformance of APSA with its non-real estate portfolio led the pope to make a juddering U-turn in his own curial reforms halfway through that same year.
In a re-interpretation of the provisions of his own newly promulgated constitution on the curia, Praedicate Evangelium, Francis directed that all curia assets, investments, and liquidity apart from real estate holdings should be moved to the IOR, the Vatican’s commercial bank, instead of to APSA.
While the bank has been at the center of some of the more lurid financial scandals in recent Vatican history, since 2014, it has been the subject of several financial reforming efforts, with hundreds of accounts closed and charges filed against former officials at the bank.
Last year, the bank issued its audited financial report for 2022 showing increased profits and financial stability for the bank, even while its customer base shrank. With 5.2 billion euros worth of assets under management, the IOR reported a profit of more than 29 million euros for 2022, up 63% from 18 million euros the previous year.
But even assuming the IOR can absorb management of all the curial assets and investments newly assigned to it by Pope Francis while maintaining its profitability, it is unlikely to be able to erase on its own the structural deficit being carried by the curia.
While the official line from the Holy See is that progress is being made towards a balanced budget, one senior official close to the Secretariat for the Economy told The Pillar that “there’s a fine line between having faith and wishful thinking” when it comes to getting the Vatican back in the black.
“Our Lord guaranteed the Church will never fail, but that guarantee didn’t come with an annuity,” he said. “There’s no magic money tree in the Vatican gardens.”
“There are still a lot of underperforming assets that need to be identified and maximized,” said the official, “but even that goes only so far. We are talking about very large operating losses every year bleeding away reserves.”
“Everyone likes to cheer the small victories, chipping away here and there at an unsustainable situation, but there’s no big picture thinking. Past a certain point, you’re just trimming the catering budget on the Titanic — sure you’re making savings, but what you need is a total change of course.”
Even with curial liquidity centralized in the IOR, Vatican reserves are not infinite. Another senior Vatican financial expert predicted to The Pillar that a curial cash crunch looked increasingly unavoidable in the medium term “I would say in five years, maybe.”
“People like to imagine the Vatican is ‘too big to fail,’ especially people in the Vatican,” he said. “But if the deficit is totally unsustainable, and shuttering whole departments is unthinkable, what is the plan, exactly? I don’t think there is one.”
Sources close to the Secretariat for the Economy told The Pillar that in the early years of Francis’ reforming efforts, under the leadership of Cardinal George Pell, drew up plans for generating new and more reliable long term income streams for the Holy See by identifying land and buildings otherwise not being used.
Plans included the large-scale development of sites for industrial, residential, or mixed use but would be contingent on securing external partnerships to develop sites and land while signing long-term leasehold agreements stretching out for decades. Such projects would also take years to come online and likely entail significant upfront expenses.
The same sources said that while the potential for new, significant, long term revenue generation was there, curial will outside the Secretariat for the Economy was not.
“The pushback from APSA, from the Secretariat of State, from people around Number 1 [Pope Francis] was total — it was absolute,” he recalled to The Pillar. “We were called alarmists, radicals, and so nothing got approved and everything went in a drawer.”
Now, the window for bringing such projects to fruition is closing fast, if it is not already closed.
All sources agreed that a medium-term Vatican liquidity crisis was now at least as likely as not. “When that happens,” the Secretariat for the Economy official said, “options are limited and very bad things can start happening.”
While the IOR could act as a lender to the Holy See to meet immediate needs, all agreed this was not a sustainable prospect as it would destabilize the bank — whose customers include curial employees and religious communities and dioceses in developing parts of the world — and could even trigger regulatory issues with European financial inspectors if the bank’s owner (the Holy See) became its major lendee.
“After that stops working choices become very dark,” said one source close to Vatican financial planning, “either people stop getting paid, or assets start getting sold off, then you come dangerously close to a slow burning fire sale which can become a financial death-spiral.”
“People need to start thinking and talking about this now,” he warned, “because the alternative is everything is handled in a reactionary panic, and that only makes things worse.”
That conversation may be uncomfortable for the Vatican to have in public, but it may be necessary.
While Pope Francis shows no signs of slowing the train of reforms he has overseen, the reality is, at 87, he is unlikely to see a balanced Vatican budget in his lifetime. In that case, it will be his successor who will inherit the final act of the current financial crisis.
The litany of hot-button issues likely to dominate deliberations of a future conclave continues to grow — clerical abuse, episcopal accountability, synodality, liturgy, and the fallout of Fiducia supplicans are all on the list.
But creative financial thinking and bold administrative competence may need to move up the cardinals’ eventual criteria for papal candidates.
The choice of next pope could determine if the Vatican faces a crunch, or a crash.