Finance Min. sources on third post-programme report: Primary surplus for 2019 on target

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The primary surplus for the general government in 2019 will reach 4.1 pct of the GDP, Finance Ministry sources reiterated on Wednesday, in response to the third report on Greece by its creditors released the same day.

• The report, following a review in Athens by the institutions, is part of the EU’s enhanced surveillance programme following Greece’s latest fiscal adjustment programme in August 2018. In it, the institutions warned that reform efforts have slowed down in recent months and expressed concern about the future rate of their implementation.
  In a response, FinMin sources said that the primary surplus for the general government in 2019 will exceed the target by 0.6 pct and create a fiscal breathing space. As the relief measures voted recently in parliament have been costed at 0.6 pct of GDP, they said, it was certain that the 2019 target will be met.

The same sources pointed out that the European Commission has frequently in the past expressed concern about Greece’s meeting of its fiscal targets, but these concerns have not materialised. The Commission, they said, also plans to review data againin the autumn.

In addition, although there are a few policy areas where reform implementation continues (e.g. some issues related to the cadastre, and Hellinikon’s development), the report added, it also noted a risk that most of the 15 specific commitments for mid-2019 will not be completed on schedule.

EU Commission report
Greece has made a reasonable start in the post-programme period but its reform effort has slowed in the last few months, the European Commission said in its third report for Greece under the Enhanced Surveillance framework that was put in place following the conclusion of the European Stability Mechanism stability support programme.

• The report notes that Greece has made a reasonable start to the post programme environment since August 2018, but finds that reform implementation in Greece has slowed in recent months, and that the consistency of some measures with commitments given to European partners is not assured and poses risks to the achievement of agreed fiscal targets. However, it noted that the “extent of the risk will depend on the implementation of new schemes on debt repayment in instalments and its impact on existing debt.”

The European Commission said it expected an economic recovery to continue in 2019, with GDP growth estimated at 2.2 pct in 2019 and 2010, from 1.9 pct in 2018, based mostly on domestic demand. A strong export performance was a key growth factor in 2018, but it is expected to moderate in 2019, the Commission noted, estimating that exports will rise by around 5.0 pct in 2019 and almost 4.0 pct in 2020 in real terms.

• The report said that the government has over-achieved its goal for a primary surplus of 3.5 pct for three years in a row, although it noted a reduction in public investments. The labor market shows further improvement although the unemployment rate froze to 18.6 pct from October 2018 to February 2019, it said. Commenting on an increase in the minimum wage in Greece, the Commission said its impact will be assessed in a later stage, although it acknowledged that employment in the private sector rose strongly in the February-April period.

“Real growth and job creation were preserved and Greece once more exceeded its main target on budget surplus in 2018,” the report said, adding that, although with some delay, completion of specific reform commitments in the end of 2018 allowed for additional debt measures worth 970 million euros in April 2019. It noted that Greece has begun regaining access to capital markets and has benefited from upgrades by credit rating agencies.

The report said that although the financial sector continues facing problems, liquidity in the banking sector has further improved while efforts were currently underway to combat non-performing loans – although at a slower that expected rate. The European Commission sees “risks” in the short- and long-term from a slowdown in reforms and a reversal of some reforms. “The most significant consequences of the impact remain, such as high levels of public debt, non-performing loans and unemployment. Reducing these imbalances will need several years of continuous implementation of institutional and structural reforms to modernize and economy and the state along with several years of economic growth,” the report said.

• The Commission noted that forecasts made by European institutional agencies showed that following approval of fiscal measures in May 2019 there are risks to achieving an agreed primary surplus target of 3.5 pct of GDP in 2019 and adhering to a medium-term fiscal framework in 2020. It stressed that “the quality of recent fiscal measures is a cause of concern, given the fact of the target to turn public finances more friendly to growth and to channel a biggest part of social spending to groups more threatened by poverty.”

The Commission recommends that Greek authorities should achieve a sustainable economic recovery and tackle the excessive macroeconomic imbalances by continuing and completing reforms in line with the post-programme commitments given at the Eurogroup of June 22, 2018. Focus should be on investment-related economic policy on sustainable transport and logistics, environmental protection, energy efficiency, renewable energy and interconnection projects, digital technologies, research and development, education, skills, employability, health, and the renewal of urban areas, taking into account regional disparities and the need to ensure social inclusion.

Source: ANA-MPA

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