Greece sees lower budget deficit in 2013, fiscal gap in 2016

Greece expects to cut its budget deficit to 4.3 percent of GDP this year, lower than previously forecast following debt relief measures, but faces a smaller primary surplus in 2016 than agreed with its lenders, new budget projections show.

The deficit target for this year, unveiled in an updated 2013-16 medium-term budget plan on Friday, is smaller than an estimate of 5.5 percent of GDP in the previous mid-term plan drafted in October.

The government updated its 2013-16 projections to include debt relief measures agreed with Greece's lenders in December and set binding spending limits, a key condition for the continued flow of bailout funding by its euro zone partners and the International Monetary Fund.

In the latest plan, submitted to parliament for approval, Athens also projected a smaller primary budget surplus - which excludes debt payments - for 2016 at 3.2 percent of GDP. That is lower than the 4.5 percent of GDP target agreed with lenders, meaning a 2.5 billion euro gap that will need to be bridged.

"The government believes ... that with the emphasis it will place on structural measures and growth initiatives, it will cover the small fiscal adjustment that might result in 2015-16," the plan said.

The updated plan is based on unchanged growth assumptions, forecasting a 4.5 percent GDP contraction this year and taking into account new tax measures passed by parliament last month.

The plan assumes the economy will return to growth in 2014 after six years of recession, although it will only expand by 0.2 percent next year. It expects growth to accelerate to 2.5 percent in 2015 and 3.5 percent in 2016.

(Reporting by Harry Papachristou and George Georgiopoulos; Editing by Susan Fenton)