Greece strongly outperformed its fiscal targets for 2022 capitalizing on solid efficiency gains and strong economic growth with positive carryover effects for 2023

Greece’s General Government budget recorded a small primary surplus of 0.1% in 2022 – a year earlier than planned – against a Budget estimate for a primary deficit of 1.6% of GDP.

▪ The 2022 fiscal adjustment was the fastest among euro area countries, as the annual improvement in Greece’s primary fiscal position reached 4.8% of GDP, compared with a euro area average of 1.9% (c. 2.0% and 0.5% respectively in cyclically adjusted terms). The cumulative adjustment, from the Covid-19 related primary deficit spike in 2020, was 6.8% of GDP (-€11.4 bn).

▪ Fiscal trends in 2022 have been reinforced by strong economic activity, which bolstered revenue and reduced the need for counter-cyclical primary spending (excluding measures related to the energy/inflation crisis).

▪ Accordingly, Greece was among the few countries in the euro area where tax revenue increased as per cent of GDP, to 28.6% in 2022 from 26.8% in 2021, and despite the activation of c. €4 bn of tax relief measures in 2021 and 2022.

▪ In fact, tax revenue growth (+22% or +€11 bn y-o-y) exceeded by nearly €1.0 bn the upwardly revised Budget target, attaining a tax revenue elasticity to economic growth of 1.5, three times higher than the average of 0.5 over the period 2002-2019.

▪ An additional factor supporting revenue growth was the rapid rise in cashless transactions, enhancing the elasticity of tax revenue to GDP growth especially as regards VAT and CIT. Such transactions increased by 500% over the past 7 years with their value surpassing the euro area average.

▪ Primary expenditure was up by c. 4% y-o-y or €3.8 bn in 2022, mainly due to the increased energy-related support to households and firms, as well as, a large increase in fixed investment and investment grants (which reached their highest level since 2009); however, its share in GDP dropped by c. 5 pps, to 50% of GDP.

▪ NBG Research estimates that the strong carryover effects on major tax components and efficiency improvements should lead to a primary surplus of 3% of GDP versus a Stability Program for 2023-26 (SP2023) estimate of 2% in 2023-2026 -- despite the implementation of further support measures and increases in government investment (+2% of GDP) -- though policy changes such as even larger than projected tax-rate cuts would likely be implemented, so as to maintain the primary surplus target of the SP2003.

▪ The positive developments are already evident in 2023, with Q1:2023 fiscal performance already c. 1% of GDP above Budget targets.

▪ Greece also recorded the largest improvement among euro area countries, regarding the annual pace of decline of public debt -- 23.3% of GDP in 2022 compared with 4% of GDP for the euro area. Greece’s gross public debt was reduced decisively to 171.3% in 2022, from 194.6% in 2021 and 206.3% in 2020, to the lowest point (as % of GDP) since 2012.

▪ The Greek SP2023 projects that the debt-to-GDP ratio will decrease further to 163% of GDP in 2023 and to 135% by 2026; to below the forecasted ratio for Italy in this year.

▪ This fiscal performance is expected to support Greece’s effort to regain investment grade status during 2023.

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