T-bills provide a lifeline until October

State cash reserves will last until the middle of October, according to the Finance Ministry?s latest projections. This is apparently why Prime Minister Antonis Samaras admitted in a recent interview that if the next bailout installment of 31.5 billion euros is not forthcoming, the country will find itself facing a liquidity problem.

The troika?s report, on which the disbursement mainly hinges, is expected by early October. This means that the country?s ability to cover domestic and foreign financial liabilities depends on the issuance of treasury bills.

In order to be able to continue paying salaries and pensions until the installment is disbursed, the government is putting a series of other payments due on hold, exacerbating the lack of liquidity in the market and hampering the operation of public departments. Since the beginning of the year, overdue payments to suppliers to the public sector have grown by about 900 million euros, while the government has frozen tax rebates and significantly cut primary expenses to offset a revenue shortfall.

It has also used up about 3 billion euros of the Financial Stability Fund. Such moves, however, do not offer any prospect of extricating the economy from the vicious spiral of recession. The 31.5-billion-euro installment would be a potent liquidity booster that would enable the payment of outstanding liabilities and reduce the large amounts which commercial banks devote to covering the T-bill issues.

The lenders have done so since the beginning of the crisis, thereby depriving businesses and households of desperately needed operating capital. This month alone, the government has borrowed 6 billion euros through T-bills. The liquidity problem is exacerbated by the slack in revenue collection, the shortfall being 2.2 billion euros at the end of July.