Revised midterm plan caps spending

The revised Medium Term Fiscal Framework submitted on Friday in Parliament provides for a strict cap on the expenditure of ministries, state bodies and local authorities, while revising the target for the 2013 budget to a primary surplus of 0.3 percent of gross domestic product.

The plan, which is one of the so-called prior actions the government must complete before it receives the February bailout tranche of 2.4 billion euros, includes spending caps that are binding for 2013 and 2014. For most ministries, expenditure will gradually be reduced up to 2016: For example, the Health Ministry will see a reduction from 5.1 billion euros to 4.3 billion in 2016, while the Defense Ministry will be granted 2.88 billion in 2016 compared to 3.4 billion euros this year, and the Education Ministry will see its allowance cut by 781 million within three years.

The 0.3 percent primary surplus targeted for this year is a marked improvement from the zero primary surplus that the previous midterm plan had provided for in October, but it is much closer to the budget’s estimate for 0.4 percent. There is an overoptimistic target for 2014 of 2.4 percent of GDP, from an original 1.5 percent, while the 2016 surplus has been revised from 4.5 percent down to 3.2 percent.

One of the key changes to the revised plan is the significant reduction in state expenditure, thanks to last December’s bond buyback program, which will save the government about 2.3 billion euros this year. That will help to cut the country’s deficit from 5.3 percent to 4.3 percent of GDP.

The revised plan takes into account three main factors: the adjusted estimate regarding the yield of certain measures in the October plan and the new tax law; the revised calculation of spending on interest after the bond buyback and the decisions by the Eurogroup on the reduction of the bailout interest rate, the extension of loan repayment deadlines and the return to Greece of profits from the European Central Bank’s and national central banks’ Greek bond holdings; and the renewed calculation of the public debt after the buyback of bonds worth 31.9 billion euros.

The plan submitted makes no reference to new measures, but hints that additional adjustments may be required for 2015 and 2016.

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