Uncertainty results in big contraction of public revenues

By Prokopis Hatzinikolaou

Political uncertainty is now hurting public revenues too, as in the days following the election they have declined by 28 percent compared to the level registered in the first week of May, and by 38 percent compared to the same period in May 2011.

Both individuals and enterprises appear very reserved about settling their tax affairs, which is having a direct impact on the state?s cash inflows. Therefore after the country?s creditors suddenly decided to slash the 5.2-billion-euro tranche expected yesterday -- which will affect the rate at which the state will service its current needs -- the Finance Ministry now has an additional worry.

On Thursday the European Financial Stability Facility disbursed 4.2 billion euros for Greece, which went straight into the escrow account with the Bank of Greece that serves to repay the country?s debts to its official creditors. The remaining 1 billion euros from the tranche will possibly be disbursed by June, the EFSF announced on Wednesday.

The problem with the revenues is greater given that already in April they had registered a 13.4 percent decline year-on-year. These developments, along with the election results, led a top official at the Finance Ministry to warn that unless a government is formed to negotiate with the country?s creditors, there will be a serious cash problem from the end of June.

Officials at the State General Accounting Office estimate that by just paying salaries and pensions (as the government had done last October), cash reserves will only last until the end of July, and that is provided that revenues dol not crumble and spending is contained.