Budget deficit continues to widen, latest data show

As the debate on the 2004 budget began in Parliament yesterday, data on the implementation of the 2003 budget, released by the General Accounting Office, confirmed that the deficit will rise steeply this year. The data showed that over the first 10 months of the year the deficit has increased 150 percent, compared to the same period in 2002. Spending growth is overshooting the end-year target by over 50 percent, while spending on servicing the country’s massive debt was double the amount initially envisaged. The data has been released with a delay of over two weeks and, reading the fine print, it is evident there had been some effort to make it appear less alarming than it actually is. Specifically, budget revenues over the 10-month period were 33.1 billion euros, compared to 31.48 billion during the same period last year. The 5.2 percent rise is in line with the budget’s target of a 5.1 percent revenue growth over the whole year. A significant rise in VAT revenue (11.1 percent) has helped the State achieve its overall target. According to the government’s estimates, revenues over the whole year were supposed to rise to 41.05 billion euros. The estimates, however, include 300 million euros for the renewal of the license to sell the «Xysto» scratch card game. This has not been achieved and the government will have a hard time compensating for that lost revenue. Things are a bit murkier on the expenditure side. According to the released data, expenditures rose to 33.1 billion euros in the 10 months, compared to 30.25 billion over the same period in 2002. The rise, 9.7 percent, is far higher than the budget’s target of 6.4 percent. At the same time, primary spending – that is, spending on all other items except on debt servicing – has risen 11.6 percent. The most recent target, an upward revision of original budget estimates, was 7.6 percent. Primary spending includes a new item, not-so-imaginatively labeled as «new primary spending.» Delay in EU inflows There are severe problems with the Public Investment Program (PIP), caused with delays in inflows from the EU. In the first 10 months of 2003, EU inflows amounted to 958 million euros, a 57.2 percent decline compared to the same period last year, when 2.23 billion euros in EU aid arrived. The problem largely has to do with the complex accounting and monitoring procedures of the Third Community Support Framework (CSFIII), which were designed to ensure that the money allocated was actually spent on the projects for which it was intended. The procedures impose an advance payment of projects from the state budget, while payment from the EU is made only when invoices and other paperwork proving the allocation of money are sent to Brussels. On the other hand, PIP spending increased 29.2 percent, to 6.06 billion euros, from 4.7 billion in the first 10 months of 2002. The increase reflects the need to cover expenditures for Olympics-related projects. Even with the added hurdle of cumbersome EU procedures, the delays in absorbing funds intended for CSFIII projects reflect a distressing inability on the part of the state administration to move quickly on the design and implementation of the projects. Under the pressure of the increasing deficit, the State took the extraordinary step of reopening a three-year bond in December, a month when most financial organizations are closing their books, in order to borrow an additional 1.2 billion euros.