By Tasos Dasopoulos
The 2022 budget that will be submitted at the end of April in Brussels by the Ministry of Finance through the revised Stability and Development Program (PSA) 2022 -2025 will be completely changed.
But before the completion of the new stability program, YPOIK will make the first move next week, expanding the spending budget, mainly to cover the increased value of oil and gas imports and less for new support measures. The only sure new support measure incorporating the increase in spending is the extension of reduced VAT rates to restaurants, tourism, transport, theaters and cinemas (ending in June) by the end of the year, at a cost of € 250 million. Also, in the supplementary budget, there is a provision for the coming months, part of the subsidies for gas and electricity tariffs, to be covered by the budget.
The overall picture of the changes for this year’s budget will be finalized in the third ten days of April. According to information, the first major change is the growth rate of the economy, which is limited to 3.3-3.5% from 4.5%, which was the last official forecast in the text of this year’s budget. Deputy Finance Minister Theodoros Skylakakis has announced the change, saying that inflation will cost us at least one unit of GDP. In essence, the alternative scenario incorporated in the budget text is becoming basic, with 1-1.2% of growth being lost to the economy due to inflation, energy and food.
According to current planning, despite the huge uncertainty due to the current situation created by high inflation and the war in Ukraine, there is not expected to be an unfavorable scenario with even lower growth for this year. Besides, if there is a need, there is a chance to incorporate a second unfavorable scenario in the revised Medium Term Fiscal Strategy Program (MTEF) 2023 – 2026, which will be submitted by the end of May.
Plus for deficits minus for debt
In the scenario now being worked out in the ministry, in addition to growth, high inflation will also have an impact on fiscal figures. In particular, the loss of 1% of growth is expected to increase the budget deficit to 4.5% of GDP, from 4% of GDP projected in the budget, while the primary deficit is expected to reach 1.9% of GDP from 1, 4%, provided for in the budget voted last December.
On the contrary, high inflation will benefit the effort to de-escalate the debt, which in real terms will be lower. Based on the text of the budget, the debt as a percentage of GDP was estimated to decrease from 195.1% that closed in 2021 due to the higher growth, to 187.5% this year. Now, “deflated” the public debt will be expected to decrease this year, in the area of ​​185% of GDP.
Inflation
The biggest revision is expected to be the size of inflation, which is reflected in terms of a harmonized index of consumer prices. The 2022 budget had a forecast for inflation of 0.8% which now seems completely obsolete. The plan that existed from the beginning of the year, before the war broke out in Ukraine, was to be revised to an average annual level of 3%. Now the size of inflation in 2022 is still being traded. But surely the new forecast will be in the range of 5%.
Source: Capital
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