ECONOMY

Investment set to boost growth

Greece will count on higher investment spending and structural reforms next year to override the impact of the slowing global economy, National Economy and Finance Minister Nikos Christodoulakis said yesterday at the presentation of the 2002 budget. Boosters such as these will be required to sustain a projected growth rate of 3.8 percent in 2002 which is still twice that of the eurozone average even after two downward revisions, he said. Calling the budget a document for «growth, employment and social cohesion,» Christodoulakis said the government has laid out a strategy to enhance Greek competitiveness, bring about regional convergence and ensure a more equitable income distribution system. The current global uncertainty resulted in a slew of more realistic economic projections for next year, notably the budget surplus, which is now estimated at 0.1 percent of Gross Domestic Product, down from an ambitious 0.5 percent, and the debt to GDP ratio, modified to 97.3 percent from 95.2 percent. The fiscal improvement is expected to come from reduced operational expenditure and lower interest payments. The 2002 budget sees general government revenues growing by 5 percent, down from 7.9 percent this year. The slowing revenue growth comes as a number of corporate and individual tax incentives come into play next year which will deprive the state coffers of 230 billion drachmas. Current revenues are forecast to increase by 6.1 percent against 7.1 percent this year. Of this figure, direct tax revenues are due to rise by 7.2 percent, indirect tax levies by 5.3 percent and non-tax revenues by 6.3 percent. «Next year’s revenue growth will come principally from increased national output and improved tax collection efforts,» Christodoulakis said. The 2002 budget forecasts a 5.6-percent rise in current primary expenditure. Operating expenditure is due to slow to 4.3 percent from 8.7 percent this year while wages are projected to rise by 6.5 percent from 6.9 percent. Underscoring the spate of European Union-funded projects currently under way and works related to the 2004 Olympic Games, the public investment program is due to see a 9.7-percent jump in expenses. Revenues are expected to go up by 6.7 percent. The 2002 budget foresees debt-servicing costs declining to 6.4 percent of GDP against 7.4 percent. The government has steadfastly maintained that bringing down public debt constitutes a central plank of its economic policy as it serves to enhance Greek competitiveness and free up funds for social purposes. While the 2002 budget is built on a more pragmatic GDP growth rate, the economy faces a number of downside risks, Schroder Salomon Smith Barney economist Miranda Xafa pointed out. «The 3.8-percent growth estimated for next year is at the high end of expectations,» she cautioned. Xafa said the budget showed that primary expenditure is not declining as expected, reflecting the government’s failure to cut expenses. More importantly there is a large discrepancy in the debt burden between 2000 and 2001. Xafa also pointed to the limitations of the corporate tax breaks due to be introduced next year. She said the proposed tax cuts are minor compared with Germany and Ireland, which launched bolder reductions while the linkage of the incentives to job creation could «create scope for corruption.»