Jan 14 (Reuters) - Below is a summary of Greece’s stability and growth programme, as provided by the Greek finance ministry on Thursday ahead of the publication of the full plan:
Greece’s Stability and Growth Programme (SGP) represents the government’s response to the challenges that country faces: consolidate the country’s fiscal position through effective fiscal and structural policies aimed at drastically reducing the large budget deficit and lowering the public debt to GDP ratio;
In contrast to the recent past record, growth should be driven by investment and exports in areas where the country has a comparative advantage, thus ensuring its successful development in an environmentally sustainable way. The current stability, growth and reconstruction programme provides the framework for mobilising resources to successfully address this challenge.
The deficit is projected to follow a downward path from 12.7% of GDP in 2009, to 8.7% of GDP in 2010, 5.6% in 2011, 2.8%, in 2012 and 2% in 2013. This gives rise to a frontloaded fiscal adjustment path in the deficit as a share of GDP, with the fiscal adjustment corresponding to 4% of GDP in 2010, 3.1% in 2011, 2.8% in 2012 and 0.8% in 2013. Debt is forecast for 2010 at 120.4 % of GDP and is projected to peak in 2011 at 120.6% and gradually decline to 117.7% and 113.4% in 2012 and 2013.
The adjustment will be achieved through a mix of revenue and expenditure measures which are quantified and presented along with implementation information in the SGP, in particular, the measures to achieve the front-loaded deficit reduction in 2010. On the expenditure side the expected evolution of total resources as a share of GDP follows a downward trend from an estimated 52% of GDP in 2009 to 47.7% in 2013. On the revenue side total revenues as a share of GDP follow an upward trend from 39.3% of GDP in 2009 to 45.7% in 2013.
FISCAL STRATEGY AND REFORMS
Restore credibility in statistics by making the National Statistics Service an independent legal entity and phasing in, during the first quarter of 2010, all the necessary checks and balances that will improve accuracy and reporting of fiscal statistics.
Improve transparency in fiscal management, by changing the process of budgeting, monitoring and evaluating its implementation, and moving towards a programme-based budget.
Reform the tax system in order to make it simple, stable, transparent and fair, and to effectively fight tax evasion by improving auditing activities and exchanging of information between auditing agencies.
Achieve control of primary expenditures by containing personnel and other current outlays and reallocating expenditures more effectively.
Implement the necessary structural reforms to enhance competitiveness and the efficient functioning of the economy, foster private sector development, and create a more transparent and effective public administration.
ADDRESSING ISSUE OF CREDIBILITY
Of paramount importance is the restoration of trust in the government’s ability to manage its finances and more generally be held accountable for its actions. A component of this effort concerns credibility in Greece’s statistics. Legislation in the first quarter of 2010 will render the National Statistics Service independent of the policy process and safeguard the compilation of reliable data and their wide and timely dissemination.
In parallel it will phase-in all the necessary checks and balances that will improve the accuracy and reporting of fiscal statistics and improve fiscal management. To this end a Parliamentary Budget Office will be created while “fiscal rules” will be designed to ensure the effective medium-term execution of the budget and anchor the expectations of stakeholders, including holders of government debt, regarding the conduct of fiscal policy, with legislation by mid-2010.
REFORMING BUDGET PROCESS, MONITORING
Reforms to strengthen the monitoring of the budget implementation and introduce a fundamental change in the budget process include: legislation in 2010 to set specific monthly reporting requirements for all line ministries; online access to the evolution of the budget execution to increase transparency and public accountability; bilateral inter-ministerial working groups between Ministry of Finance officials and all line ministries to follow and enforce budget targets; utilising a “zero basis” methodology for the 2011 budget process , and introducing elements of programme budgeting in the preparation of the 2011 budget, with the aim of moving fully to programme budgeting in the following year.
EXPENDITURE SIDE REFORMS
Expenditure side reforms include among other: setting up a 10% contingency reserve to assist in the cost-reduction efforts of the government in 2010; a reduction in civil service employment through a hiring freeze in 2010 and a 5:1 rule from 2011 onwards (one new hire for every five retirements); a 10% cut in salary entitlements coupled with no nominal wage increases for monthly salaries exceeding 2000 Euro in the public sector for 2010; a 10% reduction in operating expenditures in line ministries for 2010; the requirement for line ministries to submit by end-January three-year budgets incorporating expenditure reductions; a significant consolidation in public sector institutions; the operation of a Single Payment Authority, through which all public servants will be paid; and an improved public procurement system which increases transparency and cuts down costs.
LONG RUN SUSTAINABILITY OF PUBLIC FINANCES
Improved fiscal management will be complemented by actions to safeguard the long run sustainability of public finances, most notably in the critical areas of health expenditures and, especially, pension reform. Health expenditures will be contained through the re-introduction of restrictions in the list of medicines provided by the health care branches of the social insurance funds and through wider reforms in the operation of the NHS which strengthen public regulation and reinforce accountability. They involve asking providers, including hospitals, to operate under fixed budgets; setting overall cash limits and allocating resources in a transparent fashion, consistent with objective criteria; and reorganizing public procurement.
The Greek government intends to tackle the issue of today’s unsustainable pension spending through two kinds of measures: policies which rationalize expenditure and increase the revenue base, such as containing social security contributions evasion; and an institutional reform of the pension system, involving inter alia the restoration of the link between the level of pensions and of accumulated social security contributions. The ongoing public consultation process on pension reform will be completed in April 2010.
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