By Sotiris Nikas
The budget deficit this year will be greater than the Greek government has forecast, according to a report published on Tuesday by the International Monetary Fund, which also stresses the need for additional spending cuts of at least 15 billion euros (7.7 percent of gross domestic product) between now and 2017.
The IMF expects the deficit to end the year at 7.2 percent of GDP, up from a forecast for 6.7 percent as seen in the supplementary budget passed by the government in February. The Washington-based Fund’s report that accompanied the new memorandum Athens signed with its creditors in March had forecast a deficit of 7.3 percent.
The new government to emerge from the May 6 elections will have to decide on measures amounting to 11.6 billion euros for 2013 and 2014. However, yesterday’s report seems to suggest that the fiscal adjustment will continue well beyond 2014 and will have to rely almost exclusively on spending containment: From 48.9 percent of GDP, spending will have to go down to 41.2 percent of GDP by end-2017.
Cutting expenditure seems to be the only way for Greece to improve its finances as general government revenues will continue to drop as a GDP ratio for the coming years: GDP is expected to grow after 2013, but the revenues will remain the same, sending their ratio to GDP lower. Therefore, in order for Greece to obtain primary budget surpluses, it will have to rein in spending.
All this will have to happen in a financial environment that will take long to recover, as the IMF is now expecting zero growth for 2013 and a 19.4 percent unemployment rate for this year and next.
The report further sees the country’s public debt dropping to 136.8 percent of GDP in 2017, from 153.2 percent this year and 160.9 percent in 2013, when its gradual decline will begin.
The recession will continue this year at the economy-stifling rate of 4.7 percent, with the only good news being that the IMF is expecting deflation of 0.5 percent this year and 0.3 percent in 2013, meaning retail prices will go down for two consecutive years.