MoF final data on July budget execution released today confirmed preliminary figures announced on August 10. In particular, after a temporary rebound in June, revenues (excl. tax refunds) resumed their downward trend easing by 18.7% y-o-y in July and bringing the 7-month figure down 7.0% y-o-y to €27.9bn. Furthermore, 7M’12 revenues continued falling short of targets at an accelerating pace (by €2.2bn in 7M’12 compared to €1.0bn in 6M’12), mainly reflecting lower-than-anticipated income tax revenues, due to the extension given to income tax declarations, and -to a lesser extent- transactions taxes, also attributed, in my view, to the 2-month election period.

On the positive side, primary expenditure continued heading south for sixth month in a row easing by an impressive 17.4% in July, following a drop of 14.1% in June and 16.6% in May, bringing the 7-month figure down 8.6% y-o-y to €27.6bn and beating 7-month target by €2.0bn or 6.7%. Cost evolution reflects a cut in salaries & pensions and grants to social security sector (both accounting for 81% of primary expenditure) by 7.4% and 5.6% respectively.

Interest payments dropped 0.8% y-o-y (for the first time so far in 2012) to €10.1bn. It is noteworthy that the bulk of 7M’12 interest payments (€6.1bn) was recorded in March and related to the implementation of PSI, while July figure stood at €1.0bn, down 69.7% y-o-y.

Overall, 7-month deficit slipped 17.3% y-o-y (for the first time a double-digit drop so far in 2012) to €13.2bn. I also point out that bottom-line was supported by the significant positive contribution of Public Investment Budget (PIB), which exhibited a deficit of €0.5bn in 7M’12 from €1.4bn last year. Nevertheless, even excluding PIB, deficit would have fallen 12.5% y-o-y to €12.7bn. Furthermore, 7-month reported figure bettered 7-month target by €1.6bn or 11.0%, a softer performance compared to 6M’12, when bottom-line was €2.4bn better-than-expected, yet still providing a cushion for the fiscal adjustment efforts in the coming months.

Primary balance turned positive in July (for the first time since February) with primary surplus reaching €0.23bn in July from deficit of €0.97bn in June and €0.62bn in May. Furthermore, 7-month primary deficit stood at €3.1bn, down 46.5% y-o-y, significantly beating 7-month target by €1.45bn or 32.0%, still continuing to surprise on the upside.

It is noteworthy that bottom-line retains a constantly improving trend over the last four months: Budget deficit, which stood at €1.9bn in April, gradually eased to €1.7bn in May, €1.6bn in June and €0.7bn in July. Primary balance performance followed a similar pattern with primary deficit slipping from €1.4bn in April to €0.6bn in May and to €1.0bn in June turning to surplus of €0.25bn in July. Bottom-line evolution reflects a better -in absolute numbers and relative to targets- performance of expenditure more than offsetting lower than anticipated revenues.