The good and bad news from the budget review

By Tasos Dasopoulos

The 2022 budget is being revised, as the situation has changed significantly for the better since November when inflation was drafted, with the exception of inflation.

In the revised stability program that is expected to be submitted in April, many of the sizes of the 2022 budget, which was made public last November, will have changed. The first is the appreciation for growth. For 2021, it is almost certain that the ELSTAT data that will be published on March 4, will raise the growth of the previous year from 6.9% provided by the budget, over 9%, a development which is also supported by the BoG forecasts. which predicts growth of up to 9.5%. For 2022, information wants a conservative revision of the growth rate of the economy from 4.5% provided by the budget to 5%, as much as the BoG predicts. The review will be based on the large increase in summer bookings from foreign travel agencies. The increase in tourist traffic is estimated to increase the tourism turnover even above the levels of 2019. Of course, the budget revenues will increase accordingly, but not the expenses, since for the current year, the acceleration of the fiscal adjustment will be a priority. .

A second measure that will be good news will be the primary budget balance. Due to the better course of revenues in 2021 (they were increased by about 1.5 billion from the budget targets) the primary deficit is expected to fall below the 7.3% of GDP projected in the budget. The Ministry of Finance estimates that the primary surplus will be over 6% of GDP, while the Bank of Greece predicts that it will eventually close at 6.5% of GDP.

At the critical level of General Government debt, as a percentage of GDP as growth is revised upwards it decreases as a percentage of GDP. Given this, if growth estimates of more than 9% are confirmed, the debt from the 197.1% of GDP projected in the budget will be revised to 189.5%. For 2022 due to the lower base from which the debt calculation will start and given that the fiscal adjustment target will be achieved, we will have another significant debt reduction by the end of 2022. From 189.6% of GDP forecast the budget is expected to fall to 184% of GDP.

The unbalanced factor of inflation

Negative budget revision is the magnitude of inflation that develops into a headache. This is because it affects all the figures of 2022 and no one can confirm that the revision that will take place will be the last.

In its winter estimates, the European Commission forecasts inflation for Greece at 3.1% this year, from 1% it forecast last November. The Ministry of Finance is expected to revise the size of inflation from the 1% projected in the 2022 budget to 2 or 2.5% based on the fact that the basic scenario predicts that inflation will peak by the end of the year. first quarter and will be followed by stabilization and then slow de-escalation of prices.

Relatively high inflation erodes the growth rate and revenues which are lower in deflated prices. At the same time, however, the debt and deficit figures are smaller.