Medium Term Fiscal Strategy 2012-2015

Short Presentation on Budget of 2011

As a response to the current fiscal requirements, a radical change is demanded in the way fiscal administration is executed.

A major structural reform towards this direction is this of budget’s formulation, execution and monitoring.

Due to the current adverse fiscal period, the strict assessment of public expenditures on a zero basis and of the way public resources are allocated and administrated, is more intensively required.

Program budgeting will expose governmental priorities on the basic policy areas, will improve the information being used for public resources and will be the basis of an efficient state action’s measurement system creation.

Public funding accommodates a spectrum of social needs such as the dire necessity to support financially feeble people, to promote public investments and to finance critical areas such as education, health and environment. In this context the Program Budgeting’s introduction will be a basic tool of rationalization and redistribution of expenditures. Towards the same direction, the Ministry of Finance will begin immediately with the preparation of the medium term (three years) fiscal planning under the scope of the optimal development of public resources.

Through those reforms, the following goals are targeted:

- Enhancement of responsibility and accountability of the administrators of public resources.

- Clear depiction of the agency’s activity, through a budget that will be compatible to its strategic plan.

- Realistic, transparent and reliable expenditures’ Programming

During the next two fiscal years Ministry of Finance and the other agencies’ actions will be extremely intensive in order to formulate the necessary context.

Program budgeting will be implemented to central administration’s agencies in 2012.

The constant progress in the field of public finance management, on the European and global level, make the adoption of modern fiscal tools necessary for countries. The difficult present international economic situation makes the need for fiscal information of high quality even more intense and a prerequisite for the efficient and effective management of the limited available resources.

One of the main priorities for the Greek Ministry of Economy and Finance is the alignment of fiscal management with international practices, through the procedure of the State’s Budget system reform and the modernization of the accounting system of central government (ministries and regions). A basic target of this reform is the rationalization of public expenditure and the minimization of those with low efficiency, with simultaneous improvement of the quality and quantity of products and services, which are offered to the citizens.

In this context and following last year’s work, a special edition “Program Budgeting 2009”, which accompanies the Budget of the same year, is presented.

The advantages from the introduction of the new fiscal tool, program - performance budgeting, are presented in this special edition and the main goal of the fiscal reformthe evaluation of state actions’ performance - is highlighted.

Moreover, there is an initial presentation of the modernization of the accounting system of central government, which will contribute to the transparency of public finance, to the accountability of the agencies, to the empowerment of decision making in order to take full advantage of the available resources and control public management effectively.

The Ministry of Economy and Finance, in cooperation with all the involved parties, aims at the formulation of the appropriate framework, in order for the program - performance budgeting to be implemented for the central government (ministries and regions) in 2012.

The Ministry of Economy and Finance corresponding to the requirement of the citizens for more effective and transparent management of state resources, moved towards the planning and implementation of important reforms for the modernization of fiscal management, aiming at the improvement of the quality of public goods and services provided. Part of the reforms refers to the change in formulating, implementing, monitoring, and evaluating the State Budget, by adopting the system of program budgeting. Through program budgeting, the recording and control of the efficiency of public expenditure, the control of the effectiveness of various actions and the cost of each program, multiyear planning and the transparency in public finance are facilitated.

Program budgeting does not only constitute a different way of presenting the State Budget. It involves a totally different philosophy regarding fiscal management and the overall operation of the public sector. The main parameter for its successful introduction is the strong will and the largest possible consensus for the required reforms. In this framework, the Ministry of Economy and Finance presents the special edition "Program Budgeting 2008", which accompanies the State Budget of the same year.

The target of the Ministry of Economy and Finance is, that, this special edition will be the basis in 2008 for:

• the communication of the changes related to the new way of formulating, implementing, monitoring and evaluating the budget,

• the decision-making for corrections in the existing system of preparation and monitoring the ordinary budget, the public investment budget, as well as in the way off-budget accounts are treated, so that problems are minimised during the transition period and

• the dialogue with the line ministries and other spending agencies for the improvement and further analysis of the National Plan of Programs that is presented here.

Over the last two and a half years, the new government implemented structural reforms through all sectors of the Greek economy. In 2006, these reforms started to bear the expected results.

In particular:

• The tax reform, mainly through the gradual reduction in corporate income tax rates, en-couraged entrepreneurship, enhanced private sector investment initiatives and facilitated the attraction of foreign direct investment.

• The new investment law offered strong incentives for undertaking new private investment projects, accelerating regional convergence and promoting the business model of small and medium sized companies.

• The public-private partnerships (PPPs) created a new legal and business framework of co-operation and collaboration between the public and the private sector that develops the country’s infrastructure and improves the quality of public services.

• The pension reform regarding bank employees secured the smooth functioning of the Greek banking system.

• The new legal framework regarding the functioning of public entities and enterprises con-tributes to their reform effort and the enhancement of their competitive position.

• The newly adopted exports policy promotes the competitiveness of Greek products and services. Enterprises are becoming increasingly outward looking. Exports are currently in-creasing by two-digit numbers thus contributing to the rapid and sustainable growth of the Greek economy.

2005 was a fiscal turning point for the Greek economy, since it was the fiscal year during which the government tried to increase domestic demand to sustainable levels of growth, especially after the elimination of outlays associated with the Olympic Games which had a positive impact on domestic economic activity over the previous years.

The ongoing curtailment of public expenditure aims at the further reduction of government deficit, which leads to deceleration of domestic demand. The aforementioned economic policy mix contrasts the expansionary fiscal policy of previous years, resulting in increased government deficits and debt.

In addition, economic growth of 2005 is negatively influenced by external factors such as the unexpected increase in oil prices and the erosion of the positive economic impact of interest rate decrease over previous years.

Despite the above-mentioned impacts, the Greek economy has maintained a robust growth of 3.6% which is substantially higher than the average growth rate of the Eurozone.

This evolution confirms the correctness of the recent change in the economic policy mix, which targets the long-term fiscal consolidation, the confrontation of long-term structural economic weaknesses, the improvement of competitiveness, the enhancement of private sector investment initiatives and the simplification of the tax system and other market regulations.

This satisfactory rate of growth, currently supported by the positive contribution of the foreign balance of payments regarding products and services, is expected to be further bolstered, when all of the ongoing economic reforms begin to yield the expected benefits.

Structural economic reforms in all sectors of the economy (labor market, public administration, taxation, investment motivation) are necessary in order to increase the productivity of the Greek economy, to improve its competitiveness and enhance employment. Such reforms are necessary for the achievement of rapid and sustainable economic growth.