Deficit slashed by nearly half

Budget figures released yesterday show that the Greek government is on course to meet its ambitious 2010 fiscal goals, and slash the deficit by 40 percent in just one year, but below-target revenue growth reflects the country’s deepening recessionary woes. The budget deficit in the first half of the year fell 46 percent on an annual basis to 9.6 billion euros, according to Finance Ministry data. The drop outpaces the targeted 40 percent reduction for 2010, raising hopes that the shortfall will drop to 8.1 percent of gross domestic product, from 13.6 percent in 2009, as agreed to in the memorandum signed with the European Union and the International Monetary Fund. However, on the revenues front, the government appears to be struggling as net income rose 7.2 percent between January to June, falling well short of the 13.7 percent target. Economists said the pace of revenue growth reflects plunging consumption and investment as the economy slides deeper into recession in the second and third quarters of the year after contracting by 2.5 percent between January and March. «Seasonal factors also play a large role in shaping state revenues. Income figures could change in just a few months,» said an economist from an Athens-based bank. Austerity measures announced in May and March, which included cuts to civil servants’ pay and pensions and two consecutive value-added tax hikes, along with a massive reduction in the public investment program, have resulted in budget expenditures falling by 12.8 percent to 30.1 billion euros, easily beating the 5.5 percent target. «One area I am concerned about is whether the government has the will power to keep up with the clampdown on expenditures,» the economist added. News of the country’s budgetary progress comes a day before Greece returns to capital markets to borrow money for the first time since signing up for the EU-IMF 110-billion-euro rescue plan. The government will seek to borrow 1.25 billion euros today by issuing 26-week treasury bills. Bloomberg cited Padhraic Garvey, a fixed-income strategist at ING Groep NV, as saying that he believes Greece may sell the debt to local banks at a rate close to 5 percent, the level the EU charged in its portion of the rescue package. About 4.5 billion euros of short-term securities expire in July and their rollover isn’t fully funded by the EU-IMF deal. [email protected]

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