Greece Macro Flash: Fiscal Surplus in 2018 & Developments in 2019

New fiscal overperformance, based on expenditure restraint and a sustainable surplus in the social security system

The primary surplus in General Government increased to a historical high of 4.3% of GDP in 2018 (from 4.1% in 2017), surpassing, for a third consecutive year, the Enhanced Surveillance Framework's maximum target for a surplus of 3.5% of GDP. The fiscal overperformance reached 0.8% of GDP (€1.5 bn), exceeding the cost of expansionary measures included in the Budget for 2019 (0.5% of GDP or €0.9 bn).

The key drivers of the overperformance in 2018 were similar to those during the period 2016-2017, underpinning the sustainability of the adjustments achieved in previous years. In particular, the decrease in General Government primary expenditure (by 0.8% of GDP on an annual basis) offset the small decline in total revenue (by 0.25% of GDP), mainly due to the overperformance in the social security budget.

Regarding the structure of the fiscal balance, the Central Government primary surplus increased to 2.3% of GDP in 2018 from 2.0% in 2017, while the surplus of the Social Security System reached 1.8% of GDP (€3.3bn) – against initial estimates for a surplus of 1.2% of GDP (€2.2bn) in the 2019 Budget – mainly through the reduction in pension expenditure by 0.7% of GDP.

A key finding for the sustainability of a high primary surplus in the medium term is efficient primary spending control, i.e., maintaining a slower pace of the increase in primary spending compared with nominal GDP growth.

Gross public debt in Greece increased to 181.1% of GDP in 2018 from 176.2% in 2017. However, excluding €14.4bn of external funding for building part of the cash buffer in 2018, debt would have declined by 2.9 pps compared with 2017.