MoF preliminary data (on a modified cash basis) on Greek budget execution showed a budget and primary surplus in January, despite the leaked revenue shortfall last week predisposing a worse performance at bottom-line.

Revenues (excl. tax refunds) retained a negative trend for third consecutive month retreating by 11.5% y-o-y in January after dropping 13.6% in December and 7.6% in November. Reported figure stood at €4,374m falling short of 1-month target by €241m or 5.2%.

According to MoF, revenue underperformance is attributed to lower-than-expected revenues from VAT (€161m), consumption taxes (€153m) and vehicle circulation fees (€134m), while revenues from personal income and property taxes outperformed targets by €22m and €108m respectively. Tax refunds were contained at lower levels at €45m from €163m last year resulting in a relatively better performance of net revenues, which fell 9.2% y-o-y to €4,374m.

Primary expenditure slipped 18.8% y-o-y to €3,932m, €679m or 14.7% better than 1-month target, while interest payments also dropped by 47.7% y-o-y to €239m. As a result, expenditure exhibited an impressive performance easing by 21.1% y-o-y to €4,192m €918m or 18% better than target.

Although not disclosed, a large part of the primary expenditure reduction is attributed to the recent cuts in pensions (effective as of January 1, with January payments most likely including two-month cuts, since pensions are prepaid) and public sector special payroll accounts (effective as of August 1, ’12 with the retroactive cut split into equal instalments).

Overall, 1-month state budget balance exhibited a surplus of €159m from deficit of €490m last year, significantly beating 1-month target, calling for a deficit of €873m, by €1,032m. Furthermore, primary balance also showed a surplus of €398m, from deficit of €33m last year, substantially beating 1-month target calling for a deficit of €413m by €811m.

Despite the positive surprise at the bottom-line, it is too early to draw a conclusion and we should wait to incorporate at least 3-4 months’ data to better assess current year’s fiscal performance. Key catalyst going forward would be the revenue evolution with the government reportedly planning to proceed to a settlement of last year’s unpaid tax bills which amounted to €13bn aiming to boost top-line amid a recessionary domestic environment.