When exactly will the budget hit

of Tasos Dasopoulos

Despite the very positive prospects of the economy at the beginning of the year, the result of 2022 will be judged by how much the basic scenario for the course of energy prices will be implemented, as this year the baton of damage caused to the economy by the coronavirus takes the gas and electricity.

Things will go well and the growth rate of the economy can reach and exceed 5% of GDP for this year if the prices, mainly of gas, but also of electricity, start to have points of permanent de-escalation in the second half of the year.

Sources in the Ministry of Finance say that until then the price increases of energy products will be able to be financed even marginally from the revenues that the State has from the auctions of pollution rights, which is an account outside the Budget, so it does not affect the deficit.

If high prices persist for the second half of the year, then the polluter bill will not be enough to cover the subsidies.

Then either the subsidies should be significantly reduced (which would create a huge social and economic problem) or money from the Budget should be used to cover the subsidies against the high fuel prices.

It goes without saying that the tension in Ukraine-Russia relations is anything but helpful, as it keeps the price of gas at 75 euros per MWh, six times higher than it was a year ago.

An escalation of the intensity will result in a new surge in the price of gas, since Russia, as is well known, covers 40% of Europe’s needs and 35% of Greece’s gas needs.

In any case, even with the two countries pointing their weapons at each other, Greece has losses, since, as the finance ministers have repeatedly said, any increase of 10 euros per megawatt hour from natural gas costs € 600 million in GDP.

The double loss

To the burden brought at this time mainly the import of expensive natural gas, if prices remain high in the second half of the year, will be added a loss of 300-500 million euros from the subsidies of revaluations that should to be financed by the Budget.

Consequently, the monthly cost will jump to 1 billion euros, taking on the characteristics of the pandemic period, when the economy also lost revenue, as many activities were suspended by government decisions, but also by the support measures it was obliged to implements the Ministry of Finance to support, as now, employment and business.

An additional difficulty this year will be the cost of borrowing. Greece borrowed about 37.5 billion euros from the markets to cover most of the 43.8 billion euro support measures for the two years 2020-2021. It did, however, with historically low interest rates.

Today, due to the concern about the change of monetary policy, Greece is facing borrowing costs increased by about 200% compared to last summer, with the Greek ten-year bond trading from the beginning of the year with yields at 2.5 % -2.6%, compared to a yield of 0.8% in July 2021.

The fiscal target for 2023

However, apart from the increased borrowing costs, Greece will have to “keep” strength in 2022 in order to be able to cope with the more difficult fiscal conditions that will come next year.

The field with the new fiscal rules and the goal that Greece should achieve is not clear. Talks on changes to the fiscal rules will officially begin in March, but will not take place until mid-year.

Optimists hope that the changes will be agreed by September, to be implemented for the first time in the 2023 budgets.

Unless an agreement is reached, however, no one knows whether the current “hard” rules will continue to apply with some differences or another way of financial control will be chosen for the Member States.

Positive prospects

At the moment the financial staff stays in the positive prospects that exist for the economy. The positive messages that exist for tourism want the most profitable from the sectors of the economy to succeed this year in recovering 100% of the revenues, amounting to 18 billion euros, which it had in 2019.

The Ministry of Finance, however, remains on the conservative forecast for the recovery of 83% of revenues in 2019. Positive developments are also from the disbursements of the Recovery Fund, which are expected to go better than forecast for 2022.

Positive prospects with double-digit growth rates are expected from the field of construction and real estate in general, as well as manufacturing. Double-digit increases are also expected from exports and investments, which for this year will have a solid base of 11 billion of the Public Investment Program.

Nevertheless, with the current data in the Stability and Growth Program, which is expected to be submitted by the end of March, we will not have a change in the forecast for this year’s growth, which will remain at 4.5%, thus trying to cover and the loss that will occur from inflation.

However there will be an improved picture for sizes such as deficit and debt. In particular, in the primary budget balance, due to the better course of revenues in 2021 (they were increased by about 1.4 billion from the budget targets), the primary deficit is expected to fall below the 7.3% of GDP projected 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% -6.7% of GDP. For 2022, the deficit target of 1.4% of GDP will remain.

At the critical level of General Government debt, as a percentage of GDP, the more growth is revised upwards, the lower it decreases as a percentage of GDP.

With this given, if the estimates for growth above 9% are confirmed, the debt, from 197.1% of GDP provided by the Budget, will be revised to 189.5% of GDP.

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 Budget forecasts, is expected to fall to 184% of GDP.