Greece Macro Flash: Draft Government Budget 2018 & Fiscal Trends

​Fiscal policy continues towards ambitious targets

The draft government budget for 2018 foresees a primary surplus (programme definition) of 2.2% and 3.6% of GDP, respectively, in 2017 and 2018, above programme targets of 1.75% and 3.5% of GDP.

The prospective overperformance in 2017 compared with programme targets is estimated to reflect an improvement of 1.1% of GDP in the State balance, mainly through expenditure reduction.

For 2018, the draft Budget aims at an increase in the primary surplus by an additional 1.4% of GDP, which will bring the surplus slightly above the programme target of 3.5% of GDP. The adjustment in 2018 is skewed towards revenue.

Specifically, ordinary budget (net) revenue in 2018 is projected to increase by 0.6% of GDP, buoyed by the implementation of about 0.3% of GDP of new revenue measures, with the residual improvement expected from supportive efficiency gains and cyclical effects.

A reduction in primary spending of 0.3% of GDP, along with an improvement in the fiscal position of other general government entities (by 0.5% of GDP), on the back of an increase in the surplus of the social security funds, will comprise the remainder of the adjustment effort.

The implied fiscal drag related to the 1.4 pp adjustment in the primary surplus in 2018 is estimated by NBG at 0.7% of GDP, creating limited downside risks for economic activity.