MoF preliminary data on August budget execution depict a rebound of revenues (excl. tax refunds), which soared 19.3% in August, primarily due to the payment of (part of) the personal income tax, following the extension that had been given for the submission of income tax declarations, bringing the 8-month figure down 3.8% y-o-y (7M’12: -7.0%) to €32.8bn. Furthermore, 8M’12 revenues continued falling short of targets yet at a decelerating pace (by €1.7bn in 8M’12 from €2.2bn in 7M’12), mainly reflecting lower-than-anticipated income tax revenues, due to the extension given to corporations for submitting their income tax declarations and the delay in the collection of real estate property levy for 2012.

Primary expenditure continued heading south for seventh month in a row easing by 17.8% in August, following a drop of 17.4% in July and 14.1% in June, bringing the 8-month figure down 9.7% y-o-y and beating 8-month target by €2.4bn or 7.2%.

Interest payments retreated by 13.2% y-o-y (for the first time a double-digit drop so far in 2012) to €11.1bn. It is noteworthy that the bulk of 8M’12 interest payments (€6.1bn) was recorded in March and related to the implementation of PSI, while August figure stood at €0.9bn, down 63.0% y-o-y.

Overall, 8-month deficit slipped 33.8% y-o-y (the highest drop so far in 2012) to €12.4bn. I also point out that bottom-line was supported by the significant positive contribution of Public Investment Budget (PIB), which exhibited a deficit of €0.15bn in 8M’12 from €1.4bn last year. Nevertheless, even excluding PIB, deficit would have fallen 29.4% y-o-y to €12.2bn. What is more important is that 8-month reported figure materially bettered 8-month target by €2.8bn or 18.7%, a significantly improved performance compared to 7M’12, when bottom-line was €1.6bn better-than-expected, still providing a cushion for the fiscal adjustment efforts in the coming months.

Primary balance remained positive for second consecutive month in August with primary surplus soaring to €1.8bn from €0.2bn in July and deficit of €1.0bn in June. Furthermore, 8-month primary deficit stood at €1.3bn (down 78.1% y-o-y) substantially beating 8-month target by €2.9bn or 69.2%, still continuing to surprise on the upside.

Over the last five months, bottom-line retains a constantly improving trend: Budget deficit, which stood at €1.9bn in April, gradually eased to €1.7bn in May, €1.6bn in June, €0.7bn in July turning to surplus of €0.85bn in August. Primary balance performance followed a similar trend with primary deficit slipping from €1.4bn in April to €0.6bn in May and to €1.0bn in June turning to surplus of €0.2bn in July and €1.8bn in August. Bottom-line evolution reflects a better – both in absolute numbers and relative to targets – performance of expenditure more than offsetting revenue shortfall and – to a lesser extent – shrinking PIB.