Saturday, September 11, 2010

Greek Budget Review: August 2010

The Ministry of Finance has published its monthly Budget Execution report with data to August. The report shows that while the government is making better than expected progress in slashing expenditures, it is having much less success with boosting revenue. The result is that, for the first time in 2010, the government’s deficit reduction goal is short of what has been achieved so far in the year. 

By August 2010, the government had succeeded in lowering expenditures by 7.7% relative to 2009. Not only is this considerably above the 5.5% expected by the government, but it is above the 2.8%, 3.5%, and 4.8% targets that the government has formulated throughout 2010. At the same time, however, the 7.7% reduction is the worst performance since March 2010, meaning that while the government remains on track to exceed its target, it is less than at any point since March 2010. 

On the revenue side, the results are uniformly grim. Against a 13.7% increase target, the government has shown a 3.3% gain. Not only that, but the fiscal gains are getting progressively worse and the gap between target and reality is widening month by month. Similar to spending, the August 2010 cumulative gain is the lowest registered since the IMF-EC-ECB package was announced.

The result is that the Greek budget remains on a haphazard path towards meeting its targets. For the first time in August 2010, however, the year-to-date record falls short of what needs to be achieved for 2010. Against a 39.5% reduction, the government has achieved just 32.2%.

It should be noted, however, that the budget is not linear, and there is considerable variation from month to month. According to the government’s numbers, its budget deficit reduction schedule is ahead of plans by €700 million. Even so, the trajectory of the budget is worrisome.

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