2004 deficit may exceed 5.3 percent

The budget deficit in the first eight months of the year (January-August) rose to 11.1 billion euros, from 8.1 billion euros the previous year, data released yesterday by the General Accounting Office show. In order for the 2004 budget deficit to close at a level equivalent to 5.3 percent of Greece’s gross domestic product (GDP), the deficit, according to figures released on Wednesday by Economy and Finance Minister Giorgos Alogoskoufis, must be no higher than 11.267 billion euros. In other words, during the remaining four months of the year, the deficit must be less than 1.2 million euros. Achieving this goal will be extremely difficult, as the final months of the year are burdened with cost overruns, since many state agencies ask for more monies, claiming that allocated funds do not suffice. In drawing up the 2004 budget, Alogoskoufis’s predecessor, Nikos Christodoulakis, had allocated 16.4 billion euros for public sector wages. At current estimates, the final amount required will be 17.3 billion, a difference of 900 million euros. The initial budget deficit was projected, by Christodoulakis, to equal 1.2 percent of GDP. This has led the current conservative government to accuse its socialist predecessor of deliberately underestimating expenditures so as to present a rosier picture of Greece’s fiscal position. Now, it is the turn of Alogoskoufis to be attacked over what some call overoptimistic forecasts of revenues for the 2005 budget. Further criticism has greeted the draft budget’s assumption that the GDP growth rate will accelerate to 3.9 percent in 2004 from 3.7 percent this year. This despite repeated warnings that the growth rate will decline after the Olympics and the fact that the rate for 2004 itself was revised downward by half a percentage point from its initial 4.2 percent estimate. If the country could not achieve 4 percent growth in a year when there was still plenty of extra economic activity, especially in the construction sector, it will be most difficult to approach this figure in a post-Olympic year, the criticism goes. Signs that construction activity – a major boost to the economy in previous years – is shrinking have already appeared. A higher growth figure would help government revenues and help reduce the deficit and debt to the levels forecast by Alogoskoufis (and promised to the European Union last month). There is, however, the worry that more window-dressing for the benefit of the EU lies ahead, an assertion that the present government forcefully denies.