ECONOMY

Gov’t hopes to restore public finances after the Olympics

The government expects to tame the country’s fiscal deficit and public debt in 2004, and unemployment to fall, despite a slowdown in the economic growth rate, according to its six-monthly report, presented by Economy and Finance Minister Giorgos Alogoskoufis yesterday. The report revises downward the growth rate to 3.7 percent from December’s official forecast by the previous government of 4.2 percent, and compared to 4.3 percent for 2003. The general government deficit is seen falling below the European Union prescribed ceiling of 3 percent of gross domestic product (GDP) to 2.9 percent and public debt to 101.8 percent of GDP, against Eurostat’s recently revised respective figures of 3.2 percent and 103.1 percent for 2003. Alogoskoufis said bringing the public deficit below 3 percent would be difficult, mainly due to extraordinary expenses for Olympic projects, but the target was certain to be attained as of next year. He said the end of Olympics-related spending will mean savings representing up to 1 percent of GDP. The report, which takes into account an anticipated recovery in world trade and the rising price of oil, forecasts unemployment to decline from 9.5 percent last year to 8.6 percent, while total employment is seen growing by 1.8 percent. The average gross wage is projected to rise 6.5 percent at current prices and the average disposable income in the private sector 8.0 percent. Exports of goods are forecast to increase by 4.8 percent compared to 5.8 percent, and exports of services at 4 percent, lower than last year’s estimated growth of 8 percent. Total investment is seen going 4.4 percent higher, but a 6 percent drop is expected in real estate. The rise in private consumption is projected to slow down to 3.2 percent from 3.5 percent in 2003, and public consumption to rise by 1.5 percent. Inflation is projected to remain stubbornly high at 3.4 percent, against 3.5 percent last year, due to high fuel prices, the danger of price hikes during the Olympic Games, the economy’s structural weaknesses and rising domestic demand. The Bank of Greece foresees a gloomier, 3.7-3.8 percent inflation rate. The ministry proposes seven structural reforms, namely: bolstering the flexibility of product, labor and capital markets; reducing administrative impediments to business; strengthening competition; establishing stable regulations for private enterprises; improving efficiency in the public sector; reducing state interventionism; and eliminating disincentives to investment. Accounting difficulties Alogoskoufis repeated that the government’s ongoing stocktaking of the economy was meeting difficulties in accurately estimating the size of public debt, as sums owed and accumulated by public organizations were not recognized by the previous government. He said there were huge «hidden» debts, particularly those of hospitals – estimated at 2 billion euros and not appearing in the public accounts – and in defense procurements. A European Commission report on the Greek economy, expected to be released today as part of cautionary procedures after the 2003 public deficit was revised above the 3 percent ceiling, lists three main areas of irregularities in public accounting: defense spending, surpluses recorded for social security organizations, and EU investment subsidies, where Athens has reputedly booked larger payments than those actually effected by the Commission.