Debt reduction goal
Greece is counting on solid economic growth and asset sales to take some stress off its budget while it strives to start shrinking its debt mountain as a percentage of national wealth. Over this year and next, Greece aims to chop four percentage points off its debt as a proportion of gross domestic product (GDP) which was the highest in the European Union last year at 109.3 percent. Analysts say the EU’s 60 percent debt-to-GDP threshold is feasible in 20 years’ time, under favorable macroeconomic conditions. The economy’s expansion rate and primary surpluses generated along the way will be the key determinants. «To reduce debt in the years ahead at a satisfactory pace, Greece will need strong growth, significant primary surpluses annually and minimal stock flow adjustments,» said EFG Eurobank economist Platon Monokroussos. Stock flow adjustments refer to items that inflate the debt stock without being accounted for as expenditure in the budget accounts, also known as «below-the-line» items. Piling on debt to plug successive budget holes and to host the 2004 Olympics sent Greece’s debt-to-GDP load ballooning to a level even surpassing Italy’s 106.5 percent. It is a heavy credit card bill for the country’s strained public finances, as the government struggles to bring the fiscal gap back below the EU’s 3 percent cap. Last year Greece spent 5.7 percent of its GDP on interest payments to service its debt. Based on next year’s draft budget, the projected drop in the debt-to-GDP ratio to 105.2 percent in 2006 will not be due exclusively to the economy’s high expansion rate. It will also result from slower growth in absolute debt. Greece expects to borrow about 27 billion euros next year, less than this year’s estimated 35 billion. It projects that debt-servicing costs will fall to 5 percent of GDP, helped by low interest rates, healthier public finances and privatizations. Proceeds from state divestments this year exceeded the government’s goal by 30 percent, reaching 2.15 billion euros or 1.3 percent of annual output. Officials have not specified a target for 2006 but plans include the flotation of Athens airport and the Postal Savings Bank.
