Front-loaded plan banking on extension from creditors

The midterm fiscal plan for 2013-16 tabled in Parliament by Finance Minister Yannis Stournaras on Wednesday provides for austerity measures worth 18.8 billion euros and will be put to the vote next week.

The first two years (2013 and 2014) will witness the implementation of measures amounting to 14.2 billion, which will be followed by unidentified measures totaling 1.9 billion in 2015 and 2.7 billion in 2016. The program was drafted under the assumption that Greece will secure a two-year extension to streamline its finances.

Two-thirds of the plan?s measures concern expenditure cuts, mostly in salaries, pensions and social benefits. Notably, the program provides for the state?s salary spending in 2016 to drop to levels unseen since 2000, i.e. 14.6 billion euros, down from 31 billion euros in 2009, according to European Commission data. The number of civil servants is seen being reduced by 80,905 by 2016 with the application of the rule for one hiring for every five departures. Additional tax measures to bring in revenues of 3.89 billion euros are planned for the four years of the program?s duration.

According to the plan, the general government deficit will end up at 5.5 percent of gross domestic product next year, dropping to 3.8 percent in 2014, rising again to 4.4 percent in 2015 and settling at 3.2 percent in 2016.

Unlike the budget, which foresees a primary surplus of 0.4 percent of GDP for next year, the midterm plan anticipates a primary balance at zero, with a surplus coming from 2014, at 1.5 percent of GDP. It will then climb to 3 percent in 2015 and 4.5 percent in 2016.

The plan is so front-loaded that almost half of the 18.8 billion euros in savings for the whole of the four years is expected in 2013 (9.3 billion euros), with another 4.1 billion in 2014. The Public Investment Program will shrink to 6.8 billion euros next year and 6.7 billion per year thereafter.

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