Back to the drawing board for the 2021 budget

Back to the drawing board for the 2021 budget

The budget figures are in for a significant deterioration compared to October’s first draft, as government measures to stop the spread of the coronavirus have led to expenditure soaring, tax revenues shrinking and a further reduction of gross domestic product.

The ink had hardly dried on the measures incorporated into the Finance Ministry’s calculations last week, and Thursday’s expected announcements will force its officials to go back to square one. Ahead of the countrywide lockdown, the State General Accounting Office was working feverishly on Wednesday night to draw up new scenarios on this and next year’s recession and deficit. “It’s like a moving target,” ministry officials commented.

Therefore the final draft of the 2021 budget, to be tabled on November 21, will not have been finalized until just two or three days earlier, ministry officials conceded. The expected lockdown will bring what the government wished to avoid: a contraction of 10% or more.

Minister Christos Staikouras has repeatedly said that a month-long lockdown costs 2.5%-3% of GDP. Therefore, if a one-month lockdown is imposed, it will signify that the contraction target of 8.3% for 2020, included in the 2021 budget, will be replaced by a figure closer to 11%.

The uncertainty is even greater for next year, with the original target for a zero or almost zero primary deficit being abandoned. The new conditions bring to the fore the adverse scenario for a primary deficit of 3% of GDP. This scenario is based on the assumption the pandemic will continue at a moderate intensity through the second quarter of 2021.

The adverse scenario had also provided for a 4.5%-5% economic rebound in 2021, with the baseline scenario for 7.5% growth considered far too optimistic. At the moment analysts consider even that adverse scenario as quite optimistic for next year.

There are also questions about the resources to come from Brussels, mainly from the Next Generation EU fund that the budget had expected to contribute 5.5 billion euros next year. More realistic estimates foresee €3 billion.

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