Greece’s primary surplus in 2016 higher than forecast, says EU official


Eurozone lenders estimate Greece had a primary surplus between 2 and 3 percent of its gross domestic product last year, much higher than the target set under its bailout program and more than previously forecast, an EU official told Reuters on Friday.

Better-than-expected figures could smooth bailout talks, which have stalled for months over fiscal targets and the pension and labor market reforms required by creditors in exchange for the disbursement of loans to pay debt due in July.

Under Greece's 86 billion euro ($92.9 billion) bailout program, the third since 2010, Athens was supposed to reach a primary surplus – the budget balance before debt-servicing costs – of 0.5 percent of GDP last year.

The EU official said the Greek authorities estimate now that last year's primary surplus will be “around 3.5 percent of GDP,” although the final figures will be known only in April. This would be already in line with Greece's target for 2018, when the program ends.

“The Commission and the institutions are still assessing the data and have so far given a more cautious estimate of between 2 percent and 3 percent of GDP,” the official said, noting this would still be “a massive overachievement.”

In its last economic forecasts released in February, the European Commission had estimated a primary surplus for 2016 of 2 percent.

The size of the primary surplus is a source of contention between eurozone governments and the International Monetary Fund, which believes the surplus in 2016 was only 0.9 percent.

The EU executive, which together with the European Central Bank and the European Stability Mechanism represents euro zone lenders in Greek bailout talks, has also already said it saw Greece reaching its fiscal targets this year and in 2018, which are set respectively at 1.8 percent and 3.5 percent of GDP.

The IMF, which Germany wants to participate to the bailout program to guarantee more discipline, has much lower projections. In February it estimated Greece to reach a primary surplus of 1 percent this year and 1.5 percent in 2018.

“The reason for the discrepancy with EU estimates relates to the use of overly conservative assumptions by the Fund on both the revenue and the expenditure side,” the EU official said, noting that the Fund has been also “very slow” in updating its projections after actual data are released.

The IMF's less optimistic view leads it to believe Greece needs new debt relief measures to have a sustainable economy in coming years. The fund's participation to the bailout program is linked to a deal on debt relief granted by lenders or on new austerity measures imposed on Greece.
Greece has said it will support a declaration marking the EU's 60th birthday but needs the bloc's backing against IMF demands on labor reforms.

The EU official also said the proceeds from Greek privatizations, including the port of Thessaloniki and Athens international airport, were expected to reach 2.4 billion euros this year and 1.9 billion euros in 2018. The Greek government had expected revenues of 2.7 billion euros this year.

Pension reforms already enacted by the Greek government are also expected to generate savings of 1.5 percent of GDP by 2018 and 2.5 percent of GDP by 2025, the official said.
The official was also supportive of Greek banks' plans to reduce their bad loans by 40 billion euros by the end of 2019. This would bring down the ratio of so-called non-performing loans to overall loans to 34 percent from more than 47 percent last year.