International Monetary Fund revises estimates for Greek primary surplus upwards

The IMF has revised its forecasts for Greece’s primary surplus in 2017 and 2018. In its Fiscal Monitor report presented by the IMF’s Fiscal Affairs Director Vitor Gaspar, the Fund has improved its forecasts for the country’s primary surplus to 3.7 pct in 2017 and 2.9 pct in 2018, leading to estimates that this revision diminishes the possibilities for additional fiscal measures.

Replying to a question on Greece, Gaspar said the upward revision was the result of improving economic conditions in the country, while repeating IMF positions on the need for structural reforms and debt relief.

“First, the recent trends in the Greek economy have been favourable. The general situation and prospects have improved in Greece. The IMF’s position regarding the policies that Greece needs in order to go forward have not changed…we insist on the necessary balance between policies in Greece and the easing of debt and on a combination of fiscal adjustment, structural reforms and debt relief that is of fundamental importance, in our opinion, in order to support Greece on a sustainable growth course,” he said.

According to analysts, the revision of primary surpluses for Greece makes the propect of additional fiscal measures less likely. The fact that the IMF forecasts that Greece’s surplus will be 2.9 pct of GDP rather than ESM target of 3.5 pct of GDP in 2018 will not have any impact since it more than covers the 2.2 pct IMF target already set last year in July, in agreement with Greek authorities.

The IMF more than doubled its forecasts for the primary surplus (excluding interest payments) in 2017, to 3.7 pct of GDP, sharply up from a previous forecasts of 1.7 pct. The IMF is also revising upwards its forecast for 2018 to 2.9 pct, up from an initial forecast of 2.2 pct. This forecast falls short of the 3.5 pct target set by ESM but it is fully consistent with the IMF’s targets. More specifically, the report said that the primary surplus will fall from 3.7 pct of GDP in 2017 to 2.9 pct in 2018 and will remain steadily at 3.5 pct of GDP in the period from 2019 to 2022. The Fund expects the Greek primary surplus to be around 1.5 pct of GDP in 2023. Including interest payment, the IMF said the Greek budget was balanced in 2017 and expects a slight fiscal deficit of 0.1 pct this year and a returned to balance in 2019. The country will present a fiscal surplus in 2020 (0.1 pct) up to 2021 (0.2 pct), but in the 2022-2023 period it expects a fiscal deficit of 0.2 pct and 0.4 pct, respectively.

The IMF said Greece is global champion in the developed world in the structural primary surplus in 2018 and sees a gradual reduction of the general government debt, by an accumulated 26.2 pct of GDP in the period 2018-2023. However, its forecasts for the Greek public debt are more conservative compared with European forecasts, resulting to a gap of 18.3 pct between them.