Utilizing extra fiscal space

The Finance Ministry wants any additional fiscal space that may emerge before the submission of the final draft of the 2023 budget to enter the reserve funds, currently at 1 billion euros, provided for by the first draft and concerning extra support for households next year.

Since this area concerns this year, thanks to the better course of gross domestic product, it is possible that the support measures will be expanded, depending on the needs, although for the time being there is no specific planning for new measures, ministry officials explain. They note that different measures will be required, for example if the price of diesel goes down or not, or if food prices come under additional pressure etc.

At a recent conference in Athens, Eurobank Managing Director Fokion Karavias spoke in favor of using any additional space this year to further reduce the primary deficit and thus give a positive signal to the markets, in view of the country’s pursuit of attaining investment grade.

In the government, however, they are already looking ahead to the 2023 elections and, without forgetting the markets – which, after all, would be disastrous for the elections as well – they are trying to strike a balance between fiscal consolidation and the continuation of supporting households and businesses. “And this should not be left to anyone,” says a ministry official meaningfully.

After all, it was decided in the draft budget to lower the threshold for the primary surplus of 2023 (to 0.7% of GDP instead of 1.1%), in order to ensure support measures for electricity tariffs of €1 billion, but also to reduce the primary deficit this year (from 2% to 1.7%).

Although it is still too early to draw any firm conclusions about growth, analysts speculate that its rate could be closer to 6% instead of the 5.3% foreseen in the draft budget. The IMF estimated it will be 5.2%.

A rise in the growth rate to 6% could secure fiscal space of €400-500 million for 2022. If this amount is not allocated for additional support measures, it could reduce the primary deficit to 1.4-1.5% of GDP in 2023.