Greece’s Medium-Term Program 2024-2027: The messages to reduce spending and the forecasts for growth-inflation

The government plans to submit a four-year program with growth and primary surpluses to the Commission, is reflected in the latest circular of Deputy Finance Minister Theodoros Skylakakis.

It is worth noting that the obligation to draw up and submit a Medium-Term Program 2024-2027 returned this year for Greece and all eurozone countries. The obligation to comply with fiscal targets and rules also returns.

The above is a reminder to the Ministry of Finance and to all ministries and public bodies, to which it has sent an instruction to “put a brake on” their needs and to send their forecasts and commitments by March 6, for the spending limits within which they can move .

The circular

The circular of the Ministry of Finance is signed by the deputy minister Theodoros Skylakakis and gives priority to expenses, which are subject to upper limits in order to achieve their drastic compression, with an emphasis on the evolution of the wage costs of each institution. It asks them to submit the estimate of the specific expenditure, without incorporating the assumption of staff increase due to new hires, transfers, etc.

At the same time, the government is looking for fiscal space for benefits, tax reductions, hiring and increases in the public sector, during the next four years.

The Medium-Term Program sets specific goals, schedules and implementation indicators in the effort to rationalize and control expenses and achieve the respective fiscal goals.

At the same time, it sets the upper spending limits for the entire period for the ministries, as well as the balance targets for the other bodies of the General Government.

The escape clause does not apply from 2024

Mr. Skylakakis emphasizes that “from the year 2024, the “general escape clause” of the Stability and Growth Pact that allowed the temporary deviation from the fiscal rules in the previous years 2020-2023 will not be in force. Therefore, our country, like the rest of the EU member countries, will recommit to the application of fiscal rules and the achievement of specific fiscal goals for the period 2024-2027″, as Mr. Skylakakis emphasizes.

For the 2023-2027 revenue and expenditure trajectory of supervised entities, the data should be adjusted to incorporate the 2023-2027 projections. For this purpose, the Deputy Minister of Finance lists the provisional macroeconomic forecasts for the preparation of the revenue and expenditure estimates.

The basic scenario

The basic scenario of the Medium-term Fiscal Strategy Program foresees the achievement of primary surpluses “without additional fiscal interventions and new policies, beyond those already instituted to date”.

However, the current economic climate leads to capture any new data that could create changes in fiscal targets, such as the reduction of the target of primary surpluses to 2% from 2.2% of GDP.

The forecasts

According to the circular, the growth rate of the economy at current prices (including inflation) will reach 6.6% in 2023, 5.9% in 2024, 4.9% in 2025, 4, 1% in 2026 and will decline significantly to 2.7% in 2027, when the Recovery and Resilience Fund will be completed. Inflation, from the 5% it will reach this year, will decline to 2% from 2024 to 2027, a level which is compatible with continued growth and, consequently, rising incomes.

In the budget figures for the next four years, it is reflected that the total expenditure of the budget will remain at the level of 70 billion euros, with the exception of 2027, when the expenditure will fall to 65.6 billion euros since there will be no need to finance the projects of the Recovery and Competitiveness Fund.

Interest payments

Interest payments will reach 5.85 billion euros this year, rising to 6.2 billion euros in 2024 and 2025, 6.3 billion in 2026 and 6.45 billion in 2027. indirectly recording the expansion of the Greek bond market.

At the same time, the employee benefits fund from 13.68 billion expected to reach this year, is reduced to 13.4 billion euros in 2024 and then to 13.3 billion euros for the years from 2025 to 2027, despite the fact that Prime Minister Kyriakos Mitsotakis announced a new salary scale

The public investment program, after peaking at 8.3 billion euros for this year, falls to 8 billion in 2024 and to 7.8 billion euros for the years from 2025 to 2027. Absorptions from the Recovery and Resilience Fund will reach 3.65 billion euros for this year, 3.46 billion euros in 2024 , the 3.64 billion euros in 2025 and the last 3.46 billion euros will be absorbed until the middle of 2026.