Greece Macro Flash: Significant fiscal overperformance in 2021 leads to a marked reduction in the debt-to-GDP ratio

General Government primary deficit in 2021 is expected to outperform the Budget targets by 1.5% to 2.0% of GDP, which should lead to a marked reduction in the debt-to-GDP ratio to near 183% in 2022 from 206% in 2020


The latest data on the implementation of General Government Budget in 12M:2021 suggest that the overperformance has been even more pronounced than previously thought due to the overperformance of the economy’s activity.

Indeed, General Government primary deficit (on a modified cash basis) contracted by almost 40% y-o-y (or by €4.6 bn) to 4.2% of GDP in 2021 compared with 7.3% of GDP in 2020. 

Fiscal trends improved rapidly in H2:2021 – following almost 1½ year of substantial fiscal expansion – supported by the strong improvement in cyclical conditions in the economy, with the General Government primary deficit (modified cash basis) turning to a surplus of €1.5 bn (0.8% of GDP) in H2:2021 from a deficit of about 5% of GDP (€9.0 bn) in H1:2021.

A €4.9 bn increase in tax revenue (+11.4% y-o-y), 0.7% of GDP above the 2022 Budget target, lowered the primary deficit by 0.5% of GDP on an annual basis with VAT and corporate income tax revenue accounting for the most part of the improvement.

On the expenditure side, the gradual unwinding of support measures in the second half of 2021 and favorable cyclical conditions led to better-than-expected outturn in primary expenditure that declined by 3.2% of GDP, on an annual basis, remaining broadly flat in nominal terms.

NBG estimates that the General Government primary deficit in 2021, according to the Enhanced Surveillance definition that applies additional adjustments to the cash data, will decrease to 5.5-6.0% of GDP compared with 7.9% in 2020.

Most importantly, the more favorable starting point is expected to bolster the fiscal adjustment effort in 2022, with the primary government budget returning to a broadly balanced position in 2022 – compared with a deficit of 1.2% of GDP estimated in the Budget – assuming a gradual easing of fiscal pressure related to the energy crisis over the course of the year.

General government debt is projected to fall to 192% of GDP in 2021 (from 206% in 2020) and to below 183% in 2022; significantly lower than the Budget 2022 estimates of 197% and 190% respectively, due to the fiscal overperformance in 2021 and highly supportive cyclical conditions.

This performance is expected to support the effort to regain the investment grade status while bolstering credibility in a period of increasing sovereign yields, due to the gradual normalization of monetary policy.

Greece Macro Flash: Significant fiscal overperformance in 2021 leads to a marked reduction in the debt-to-GDP ratio