IMF Greece Update: Zero 2014 primary surplus, €5b of new arrears

Back in February, I published a very wonky blog post, which to my surprise has proven to be my most popular post by far: Greece’s Primary Surplus Was Smaller Than Reported. In it I explained why Greek data purporting to show the government ran a primary surplus of 1% of GDP in 2014 was phony. The data wrongly counted privatization revenues and refunds of interest previously paid as primary income. Those were worth a combined 0.5% of GDP.

I also explained that the Greek data referred only to the state budget (the core central government) and can’t be directly compared to the primary surplus benchmark used by Greece’s creditors, which refers to the general government (the whole public sector, except state-owned businesses).

And I explained that although Greece publishes general government budget results that can be used to estimate its primary surplus (I came up with 0.7% of GDP for 2014), the EU and IMF apply very different accounting rules from Greece when they calculate the primary surplus of a country. So we wouldn’t know what Greece’s 2014 primary surplus really was by EU or IMF standards until one of them counted and published it.

Today that happened (see page 19), and here’s the answer: Zero. Greece had no primary surplus at all in 2014, by the IMF’s calculation.

That came after a 1% of GDP primary surplus in 2013, by the IMF’s count. So the Greek primary surplus actually deteriorated in 2014, when according to Greece’s adjustment program, it was supposed to improve, to 1.5% of GDP.

Another €5b of arrears

I’m not really surprised, nor am I by this: according to the report, the Greek government has run up an additional “about €5b” of arrears since the IMF’s previous review, published in May 2014. That underscores the severity of what I have been calling “ad hoc austerity”: the ostensibly temporary withholding of budgeted expenditures, in order conserve scarce cash.

The IMF doesn’t give any details of exactly how or when “about €5b” of arrears piled up since May 2014, but probably most of it built up since February. The report includes this interesting comment: “Cross-country experience suggests that unreported arrears may be significant under tight financing conditions because agencies may not report all invoices received in such a constrained budgetary situation. This would impart an upside risk to the estimate.”

Here’s an update of Greece’s state budget expenditures. It shows how the core central government spent €2.6b less than it was budgeted to spend in February through May. That’s almost 16% of budgeted expenditures other than interest that weren’t paid, and more than 4% of the period’s GDP. It doesn’t include local governments and some central government bodies.

Withholding 4% of GDP worth of budgeted expenditures is a whole lot harsher than anything the Troika of Greece’s official creditors asked for, even at the beginning of talks in February. If all of the roughly €5b of new arrears were run up in February-June, that would be more than 6.5% of that period’s GDP.

And now, with access to euro banknotes restricted and many businesses accepting nothing else, austerity just got a great deal harsher still. I have trouble understanding how limiting bank deposit withdrawals to €60 per day can be sold to the public as throwing off austerity. I guess we’ll see soon enough in Sunday’s poll.

But Tsipras wasn’t bad at collecting taxes

What puzzles me most about Tsipras’ move is that he put such effort into avoiding default all the way through the end of June. As the next table shows, his government’s tax-collection performance in February through April was actually right on target and significantly better than the Samaras administration’s average last year.



Even after poor performance in May – possibly related to taxpayers being on the wrong side of those arrears – the four-month average was still not too shabby, by Greece standards.

That €50b is proposed new lending, not debt relief  

This, by the way, is the same IMF report that’s being widely misreported in the news as calling for €50b of debt relief for Greece. Actually the report says Greece would borrow €50.2b more from the EU and IMF over the next three years under the Troika’s new bailout offer.

Of that, €29.8b would merely roll over maturing debts. The other €20.4b plus the government’s projected €11.4b of primary surpluses and privatization proceeds would pay for €13b of interest payments (net of refunds), clear €7b of arrears, rebuild €7.7b of run-down public sector cash balances, and put €5.9b into the government’s bank bailout fund (see page 7, table 1).