Budget surplus forecast lifts Greece debt relief plan again

Athens forecast a Greece budget surplus of 0.6% of GDP in 2026, extending its fiscal buffer as growth holds near 2% next year.

The projection, set out in a draft fiscal plan submitted to parliament on Monday, is above the target Greece laid out earlier this year. The government also expects the budget balance to remain above zero in 2027, with a surplus of 0.3% of GDP.

Surplus beats the earlier target

The draft marks a continuation of Greece’s post-crisis fiscal repair, with 2026 set to be the third consecutive year of a positive budget balance. The government’s primary surplus, which excludes interest payments, is forecast at 3.6% of GDP in 2026 and 3.3% in 2027.

The submission says only four European countries are expected to post a budget surplus this year, placing Greece inside a small fiscal group. That comparison matters for a country whose public finances were the center of Europe’s sovereign debt crisis more than a decade ago.

Ratings agencies have also shifted their stance on Greece. Moody’s Ratings changed its outlook for the country to positive in September, while Scope Ratings raised Greece’s sovereign grade to one notch below A status.

Debt ratio moves lower

The government says the improved fiscal position gives Athens room to repay almost €13 billion ($14.6 billion) of debt obligations ahead of schedule. The plan links that repayment path to a decline in public debt to 136.7% of GDP this year.

The debt ratio is forecast to fall again to 128.8% of GDP in 2027, according to the draft budget. Athens says that would leave Italy as Europe’s most indebted country, a reversal from the years when Greece carried the region’s most strained sovereign balance sheet.

Lower debt ratios can affect the sovereign bond market through two channels: reduced refinancing needs and a smaller risk premium demanded by investors. For Greek banks and domestic borrowers, any sustained decline in sovereign yields can also feed into funding costs, although the draft does not quantify that pass-through.

Growth carries the fiscal path

The fiscal plan assumes economic growth of 2% in 2026 and 2.3% in 2027. Greek GDP is forecast at €274.6 billion in 2027, according to the government’s draft.

Labor market assumptions also support the revenue outlook. The unemployment rate is forecast at 8.4% in 2026, before falling to 7.9% in 2027.

Inflation remains part of the constraint on households and policy. Harmonized inflation is projected at 3.6% in 2026, then 2.4% in 2027, leaving the government’s real growth and wage assumptions important for the budget arithmetic.

Investment is expected to rise by 7.7% in 2026 and 7.9% in 2027, according to the draft. Exports are forecast to increase by 2.9% next year and 3.1% in 2027, while imports are projected to grow faster, at 4.4% in 2026 and 4% the following year.

Three paths for Athens

If growth holds near the government’s 2% to 2.3% path, Greece would have a wider buffer to reduce debt while keeping market access steady. The effect on the euro-area macro picture would be modest but favorable: one highly indebted member would be adding fiscal restraint rather than stress.

If inflation falls toward 2.4% in 2027 while investment keeps rising above 7%, Greece’s debt dynamics would improve through higher nominal output and lower refinancing pressure. That path would support Athens directly and could strengthen investor appetite for southern European sovereign debt more broadly.

If growth disappoints or import growth continues to outpace exports, the surplus target would face pressure through weaker revenue or a wider external drag. The main open question is whether Greece can keep the primary surplus above 3% of GDP while unemployment falls and price pressures ease.