In the September budget execution bulletin, MoF revised FY’12 – and accordingly monthly – budget targets incorporating its latest forecasts included in the 2013 draft budget tabled to parliament on October 1. In particular, net revenues were revised downwards by €2.5bn to €49.0bn, expenditure by €1.1bn to €61.9bn, while budget deficit is now targeted at €15.5bn, €1.3bn above previous estimate and primary deficit at €3.7bn, €2.6bn higher than initial forecast.

According to MoF preliminary data on September budget execution, revenues (excl. tax refunds) resumed a negative trend in September significantly dropping by 23.6% y-o-y, after an exceptionally good performance in August (up 24.7%), reflecting (among others) the extension given to taxpayers to pay September tax obligations in October. As a result, revenue drop accelerated in 9M’12 to 5.7% y-o-y, from 3.1% in 8M’12, to €36.7bn. Despite the target revision, 9M’12 revenues continued falling short of targets by €0.7bn (from €1.45bn in 8M’12 under the previous targets).

Primary expenditure continued heading south for eighth month in a row, yet at a decelerating pace, easing by 6.1% in September following a drop of 14.7% in August and 17.4% in July, bringing the 9-month figure down 9.0% y-o-y to €34.4bn in line with (revised) target.

Interest payments dropped to €10.65bn down 24.1% y-o-y (FY’12 target: -28.2%), in line with target. It is reminded that a large portion of 9M’12 interest payments (€6.1bn) was recorded in March and was related to the implementation of the PSI agreement.

Overall, 9-month budget deficit slipped 37.1% y-o-y (the highest drop so far in 2012) to €12.6bn. It is also noteworthy that bottom-line was supported by the significant positive contribution of Public Investment Budget (PIB), which exhibited a deficit of €0.23bn in 9M’12 from €1.66bn last year. Furthermore, 9-month reported figure bettered 9-month (revised) target by €0.9bn or 6.4%, compared to a €2.7bn or 18.0% outperformance in 8M’12 under the previous target. Despite the softer performance in September, 9M’12 bottom-line still provides a cushion for the fiscal adjustment efforts in the last quarter of the year.

Primary balance turned negative in September with primary deficit at €0.6bn, following an exceptionally strong performance in August, when primary balance recorded a surplus of €1.7bn. Furthermore, 9-month primary deficit stood at €2.0bn, down 67.1% y-o-y, beating 9-month (revised) target by €0.9bn or 30.1%.

Over the last six months, bottom-line maintained a constantly improving trend, with signs of stabilisation in September: 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 a surplus of €0.7bn in August and reversing to a small deficit of €0.2bn in September. Primary balance performance followed a similar, yet more volatile, trend, with primary deficit slipping from €1.4bn in April to €0.6bn in May and €1.0bn in June, turning to a surplus of €0.2bn in July and €1.7bn in August and reversing to a deficit of €0.6bn in September. Bottom-line evolution reflects an outperformance of expenditure more than offsetting revenue shortfall,  both in absolute numbers and relative to targets, and shrinking PIB.