Tim is a Fellow at the Adam Smith Institute in London. One of the global experts on the metal scandium, one of the rare earths. He has written for The Times, Daily Telegraph, Express, Independent, Wall Street Journal, Philadelphia Inquirer and online for the Spectator, The Guardian, and other publications and on line journals.
This article was published in Forbes on May 16, 2015
A tale is going around that the Greek government has actually managed to produce a budget surplus for the first few months of this year. As I remarked yesterday this would be, to put it mildly, something of a surprise for an economy that has fallen back into recession. A very large surprise, even if we are to maintain that speaking mildly pose.
The answer seems to be that they’re not in fact running a budget surplus, in the manner that either most of us or most government accounts would describe a budget surplus.
There’s a couple of inklings of this in the press today:
Athens has also called for its embassies and consulates to forward any cash reserves in an effort to avoid running out of funds before a deal with creditors is reached. But it ran into a setback when the parliamentary speaker refused to transfer Hellenic parliament cash to the state.
That’s not really the action of a government that has a surplus of cash incoming over cash outgoing. Yes, there are debt repayments to be made but it’s still rather extreme. And we also have:
More than a 1,000 local authorities have been forced by presidential decree to transfer their excess cash reserves to the central bank to allow the state to keep its head above water.
In its latest ploy to raise cash, Athens has requested its foreign embassies and consulates also hand over their spare funds to the government.
Delayed payment to contractors has allowed the treasury to boast a surplus over the first four months of the year. Figures from the central bank showed Athens’ primary budget surplus was €1.05bn in April.
And from the Central Bank itself:
The lower expenditures are mainly due to the rearrangement of the cash payments projection, according to the prevailing conditions. It is estimated that after the stabilization of the conditions, expenditure will revert to the levels of budget targets.
The underlying point here is that Greece, as I pointed out yesterday, prepares its government accounts on a cash basis, not an accruals one. So, cash received, from any source (and whatever the accompanying repayment terms or none) is counted as revenue. And spending is only spending when cash is paid out, not when a debt that must be paid out in the future is incurred. And that’s what they’re doing. They’re delaying payment to all and any that they can possibly delay payment to. On an accruals basis this would show up as a rise in debt. On a cash basis it’s just a reduction in spending. Similarly, all that cash being sucked in, on an accruals basis, would show up as an increase in debt (by the central state to the embassies, local authorities and so on). On a cash basis it shows up as an increase in revenues: or even as an increase in taxes being collected.
It’s really most, most, unlikely that Greece really is running a primary budget surplus at present. It’s very likely indeed that the reported numbers are simply the result of the cash accounting system.
The really important question about all of this is, well, are the creditors, the IMF , the Eurogroup, going to take notice of this fact or not? That there is a reported surplus provides the smokescreen to disburse the final tranche of the current bailout. But it’s also a fairly transparent smokescreen. So, what are they going to do? Believe the reported numbers or look at the accounting treatment? Sadly, your guess is as good as mine on that.
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