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Annex II: factors that will impact on budgetary outcomes in future.

Factors that will impact on budgetary outcomes in future

Better economic performance

Future developments in public expenditures in Greece will depend on a number of economic and political factors, as well as on the constraints set by the membership of the EU and the euro zone.

The basic scenario, contained in the 2001 Update of the Stability and Growth Program 2001-2004, submitted by the Greek government to the European Council in December 2001, assumes an average real GDP growth rate of 3.9 per cent, together with an alternative less optimistic scenario based on a poorer export performance and a weaker domestic demand and an average rate of 3.3 per cent real GDP growth. All international Organisations (EU, IMF and OECD) share the view that Greek economic performance will be above the Euro-area and the OECD countries average, thereby closing a part of the existing gap in per capita GDP. An average growth rate of above 4 per cent for the next 4-5 years is an achievable goal and would permit allocation of more resources to important goals (e.g. education, health) while reducing debt levels.

Privatisation

The Greek public enterprise sector is comparatively large, and makes losses. (1) Privatisation would permit lower expenditure on both subsidies and debt servicing freeing up resources for spending in areas yielding higher social and economic returns. A number of public enterprises in the banking and utilities sectors are now in the process of privatisation and the economic liberalisation that accompanied it (see Chapter IV) . In the banking sector, privatisations have progressed with an offering of 13 per cent of the Agricultural Bank share capital on the Athens Stock Exchange (ASE), in December 2000. In October 2001, the Hellenic Bank for Industrial Development (ETBA) was privatised through its acquisition by the Bank of Piraeus. The Public Power Corporation has been partly privatised, via a public offering in the ASE. A further 10 per cent the Hellenic Telecommunications Organisation has been offered in mid-2001, through the issue of an exchangable bond, while a strategic ally is sought for the privatisati on of the postal services, with the main task of developing the express delivery mail services, via a 15-25 per cent offering. A strategic investor is sought for the Olympic Airways, via an offering of 51 per cent of its shares (the latest attempt to find such an investor finally failed) and a strategic partner for Hellenic Petroleum. A 25 per cent holding plus the management of Hellexpo has been offered to a strategic partner. The concession contract for the Corinth Canal was signed in May 2001. The Salonica Port Authorities, as well as the Football Prognostics Organisation have already been partly privatised. The Piraeus Port Authority is also in the process of privatisation.

Co-financing

By contrast, the absorption of the third Community Support Framework will lead to an increase in Government expenditure, especially on investment, both because most of these funds are spent by the government and also because new expenditures will be needed to co-finance the various projects. Over the 5-year period 200 1-2005, Greece will receive about [euro] 26 billion at 2000 prices, or as much as 30 per cent of GDP, while co-financing expenditures will reach [euro] 12.5 billion or about 10 per cent of GDP.

Social programmes

Social expenditures, even excluding spending on public pensions are also expected to rise faster than GDP in order for the government to satisfy the rising demand for expansion and quality improvement in social services. An ageing population will put additional pressures for increases in social expenditures but a radical reform of social security, including a substantial improvement in its efficiency and effectiveness, which is now under consideration will be restraining factors. As noted, reforms to the public pension system are urgent and need to be comprehensive in scope, and large in size.

Education

The quality of public provision of education needs to improve, including at tertiary levels. This could entail higher spending 1 per student, although efficiency gains are possible. Demographic factors will play a major offsetting role, as the size of the school-age population is small and expected to fall. Between 1995 and 2010, the percentage of the population in the 5-14 age group, will fall by 12 per cent, that in 15-19 age group by 23 per cent and that in the 20-29 age group by 19 per cent (OECD, 2001]. Despite the fall in the numbers of the youth population at the age of tertiary education however, pressure on expenditure at this level will likely remain high and rising. Demand for improved provision is likely to rise with income, as the benefits of longer and better quality formal education become more evident.

Re-orienting spending

The 2001 Updated Stability Programme (2) (see also Chapter II) plan submitted by the government to the European Council provides for a restraint in the overall size and a considerable restructuring of government spending towards more growth-enhancing activities. Government consumption is planned to increase by an average rate of around 0.7 per cent in the basic scenario (3.9 per cent real GDP growth] and 0.4 per cent in the alternative scenario (3.3 per cent GDP growth) and to fall from 13.6 per cent to 12.2 per cent of GDP at constant 1995 prices, over the period 2001-2004. General government investment expenditure (at constant 1995 prices) is projected to increase at an average rate of 7.7 percent. Social transfers are planned to increase at an average rate of around 8 per cent, whereas interest payments are projected to fall at an average rate of 1.1 per cent, as a result of both falling interest rates and public debt size. (3)

Notes

(1.) In 2001, central government's operating subsidies to public enterprises amounted to 2.4 per cent of GDP and are estimated to increase to 2.7 per cent of GDP in the year 2002.

(2.) Incorporating subsequent revisions made by the Ministry of National Economy in the December 2001 version of the updated Stability and Growth Programme in light of revisions to data for the years 2000 and 2001.

(3.) The latter is planned to fall from 99.7 per cent of GDP in 200! to 90 per cent in 2004.
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Publication:OECD Economic Surveys - Greece
Article Type:Brief Article
Geographic Code:4EU
Date:Jul 1, 2002
Words:1045
Previous Article:Annex I: supporting tables for Chapter III.
Next Article:Annex III: the main features of the law on the liberalisation of the electricity market.
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