News Analysis: Greece's poor public finances due to "deficit" in reforms implementation?

Greece's public finances in 2014 were worse than initial forecasts had predicted, the Hellenic Statistical Authority (ELSTAT) said on Wednesday amid the possibility of a looming Greek default this spring should Athens fail to reach a deal with lenders on further financing soon.

Local financial analysts attributed the poor result to the political and economic uncertainty of the last few months but mainly to the "steady deficit" in the implementation of the needed structural reforms to support the stability and recovery of the ailing economy.

The debt-laden country's general government's deficit reached 6.4 billion euros (about 6.8 billion U.S. dollars) or 3.5 percent of gross domestic product (GDP) last year, according to the latest ELSTAT figures.

It was more than double the initial forecasts of the previous conservative-led government: 1.3 percent, and the European Commission: 1.6 percent.

Fiscal consolidation over the past four years has been considerable, as the general government balance deficit gradually dropped from 10.2 percent of GDP in 2011, but Greece's international creditors had put pressure on the country to pick up the pace to pull it out of a crisis.

In addition to the wide gap in public finances, the new data showed that Greek public debt reached 317.1 billion euros, or 177 percent of GDP. By comparison, it stood at 319.178 billion euros (175 percent of GDP) in 2013, but was at only 355.977 billion euros (171.3 percent of GDP) in 2010 when the debt crisis started.

Meanwhile, Greece's GDP has shrunk in recent years from 207.75 billion euros at the end of 2010 to 179.081 billion euros in 2014, according to the latest official estimates by ELSTAT.

According to ELSTAT's announcement, primary budget surplus in 2014 also missed initial goals. It was estimated at 630 million euros or 0.4 percent of GDP. Greece exited a painful six-year recession last year, but did not meet the 1.5 percent target initially set by the previous administration.

The Left-led, anti-austerity government which was elected in January this year has underlined its commitment to cutting deficits and boosting growth.

After the revelation on the 2014 worse starting point "it will be extremely difficult to achieve a 1.5-percent-of-GDP primary surplus in 2015 without additional measures," financial analyst Sotiris Nikas commented on Wednesday.

The new government has ruled out the implementation of new painful and unpopular austerity policies, instead proposing an alternative economic policy in negotiations with lenders regarding post-bailout collaboration. However, room to maneuver was limited, analysts noted, in particular as Greece posted non-satisfactory results.

Greek officials have, in most cases of worse-than-expected results, put the blame on recession fuelled by past austerity policies.

Experts insist that the key cause was Greece's chronic shortage of structural reforms needed to overcome the "obstacles to productivity and competitiveness which weigh on the region's medium-term growth potential."

That was the closing remark in the International Monetary Fund's (IMF) World Economic Outlook report released earlier this week in regards to Greece.

Greek financial analysts, such as Babis Papadimitriou, shared the opinion. Greece's worst deficit, according to analysts and the IMF, was not a fiscal deficit or a liquidity shortage, but a shortage of reforms needed to change the country's production model.

Prolonged uncertainty regarding resolve to address challenges with steep changes was likely to deteriorate the prospects of Greece's economy in coming months, IMF analysts warned.

Greek experts noted that for several months ahead of January's national elections and change of government this year, the real economy, entrepreneurs and taxpayers held a wait-and-see stance until the new government agrees on the way forward with creditors. Meanwhile, tax revenues have collapsed and capital has fled the local banks.

After official data showed that Greece fell well short of budget deficit reduction goals again, analysts in Athens expected the country's negotiating position might weaken in ongoing talks with creditors. Lenders will most likely increase pressure for more fiscal adjustment efforts during the upcoming Eurogroup meeting in Riga on April 24 before clearing the way for the disbursement of further aid to Athens so that Greece will not run out of cash in coming weeks. Enditem