Budget full of uncertainties

Numerous unknown factors in first draft, with growth projected at 2.1% for next year

The Finance Ministry tabled a draft budget of great uncertainties in Parliament on Monday, due to the energy crisis, geopolitical instability and the possible recession in Europe, balancing between the need to continue supporting households and businesses and the goal of returning to primary surpluses. The elections in the first half of 2023 also add to the uncertainty. The draft foresees a primary surplus of 0.7% of gross domestic product for 2023, slightly lower than the 1.1% of GDP forecast in the Stability Program. This lowering of the bar secures space for expenditure of 1 billion euros in order to continue subsidizing electricity rates in 2023 – that was not foreseen in the Stability Program in April.

In contrast, 2022 is projected to close with a primary deficit of 1.7% of GDP, lower than the 2% of GDP projected in the Stability Program. The government wants to send a message to Brussels and the markets that the overall size of the adjustment over the two years remains the same and therefore Athens is not backing down on its fiscal stability goals. After all, the stake, which is securing investment grade, is too great to risk. As Finance Minister Christos Staikouras and his Alternater Thodoros Skylakakis observed, “meeting realistic fiscal targets is the passport for accessing markets, ensuring debt sustainability and achieving investment grade, so as to maintain the positive economic growth perspective of the country for the coming years.”

The growth rate is of course the deciding factor in the budget’s challenge. The government forecasts GDP growth of 5.3% this year and 2.1% in 2023. For this year, tourism (with exports of goods and services expected to increase by 10.3%) and consumption (seen rising 7.2%) play a decisive role. For 2023, the star in the government forecasts is investment, which are projected to jump 16%, compared to 10% this year, with the help of course from the Recovery Fund. Specifically, €8.3 billion is expected from the Public Investment Program and €5.6 billion from the Recovery Fund.