ROME (Reuters) - Italy's caretaker cabinet on Saturday approved a decree to pay some 40 billion euros (S$64 billion) of debts owed by the state to private companies over the next 12 months.

The decree is intended to provide vital liquidity to cash-strapped firms and help tackle a deep recession.

The government said it was committed to not breaching the European Union's deficit ceiling of 3 per cent of gross domestic product.

It said it would monitor the situation 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 per cent.