Eurobank Research: High, but better than expected, budget deficit in 2021

The budget deficit in 2021 was high, but better than expected, as noted by Eurobank Research in the latest issue of “7 Days Economy” published today, while emphasizing that the fiscal adjustment is necessary to cultivate positive expectations.

According to Eurobank Research, “according to the 1st notification of ELSTAT for the financial data of the year 2021, the The general government deficit fell to 7.4% of GDP from 10.2% in 2020 (see Figure 1A).

This improvement came from the expenditure side, as they shrank to 56.9% of GDP in 2021 from 59.9% in 2020, while revenues fell marginally to 49.4% of GDP in 2021 from 49.8% in 2020. The primary balance, ie the difference between revenues and expenditures excluding interest payments, amounted to a deficit of 5.0% of GDP, down by 2.2 percentage points compared to 2020.

Finally, the public debtdespite the relatively high deficit in the primary balance, decreased by 13.1 percentage points of GDP, ie from 206.3% in 2020 to 193.3% in 2021 (see Figure 1B), due to the large difference between the average interest rate of government debt (approximately 1.3%) and the growth rate of nominal GDP (10.6% = 8.3% real growth rate + 2.1% deflator, approximate).

Above mentioned budget results turned out better than expected. In the Budget Report 2022 (November 2021), estimates for general government deficit, primary balance deficit and public debt were 9.6%, 7.0% and 197.1% of GDP, respectively. ie higher by 2.0, 2.2 and 3.8 percentage points respectively compared to the realized quantities.

To this positive development are added:
1st is the upgrade of the debt of the Greek economy from the credit rating agencies S&P Global Ratings and DBRS Morningstar by one tier (in BB + and BB (high) respectively from BB) with a stable outlook, ie one step below the investment tier,

2nd the second exit in the markets in 2022 and the raising of € 1.5 billion through the reissue of the 7-year bond maturing in April 2027, with a higher return compared to the initial issue (2.366% vs 2.04%) and

3rd the excess of the net revenues of the state budget in the 3 months January-March 2022 by € 369 million or 2.8% compared to the target. This result comes after excluding the amount of € 1,718 billion, ie the first installment for 2022 from the Recovery and Sustainability Fund, which while the target of the 2022 Budget Report was included in the March 2022 revenue, was finally collected on 9 April 2022.

As in 2020, so in 2021, the Greek economy recorded the second highest budget deficit among the EU-27 countries (see Figure 2). In first place was Malta with 8.0%, followed by: Greece 7.4%, Latvia 7.3%, Italy 7.2%, Romania 7.1%, Spain 6.9%, Hungary 6.8%, France 6.5%, Slovakia 6.2%, Czech Republic 5.9%, Austria 5.9%, Belgium 5.5%, Slovenia 5.2%, Eurozone 5.1%, EU-27 4.7 %, Bulgaria 4.1%, Germany 3.7%, Croatia 2.9%, Portugal 2.8%, Finland 2.6%, Netherlands 2.5%, Estonia 2.4%, Ireland 1.9%, Poland 1.9%, Cyprus 1.7%, Lithuania 1.0% and Sweden 0.2%. Luxembourg and Denmark were the only EU-27 countries with a budget surplus in 2021 of 0.9% and 2.3% respectively.

In terms of primary deficit, the Greek economy had the fifth highest among the EU-27 countries in 2020 (7.2% of GDP vs 5.4% in the EU-27 and 5.6% in the Eurozone) and the seventh highest in 2021 (5.0% of GDP vs 3.3% in the EU-27 and 3.6% in the Eurozone). According to the stability and development program of the Greek government, the forecast for 2022 is for a primary deficit of 2.0% of GDP and primary surpluses of 1.1%, 2.1% and 2.3% of GDP for the years 2023, 2024 and 2025 respectively.

Despite the unfavorable international environment and the needs created by the energy crisis, fiscal adjustment is necessary to cultivate positive expectations for the medium-term course of the Greek economy. Attracting long-term investors is linked to creating a climate of fiscal stability and growth.

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