Higher-than-expected costs of hosting the Olympic Games in Athens is highlighting the need for Greece to get its fiscal house in order, according to credit ratings agency Standard & Poor’s.

“In a bid to finish on time for the opening ceremony, many of the construction works for the Games are consuming more cash than expected. Demands from civil servants and security forces to be given an ‘Olympics bonus’ also contribute to the mounting cost,” S&P says. “As a result, the initial price tag for the Games of 4.6 billion euros has already been hiked to an estimated 6.1 billion euros (3.7% of GDP), and is still climbing.”

Most of the financial burden will be carried by the government, S&P predicts. As a result, it has increased its estimates for the sovereign’s borrowing plan for 2004 to 40 billion euros, from the 26.3 billion euros originally budgeted by the previous government, partly due to the Olympics cost overruns. These overruns could hinder efforts to bring down the general government debt-to-GDP ratio in Greece from its current level of 103%, it notes.

“The post-Olympics tasks facing the government are related to a stubbornly high public debt ratio, lack of budgetary transparency, weak expenditure discipline, and adverse demographics,” said Standard & Poor’s credit analyst Eileen Zhang. “All of these issues look set to be compounded by a more subdued prospect for economic growth, especially in the domestic demand components, once the Olympics stimulus fades.”

Fiscal improvements will have to come from a much more disciplined approach toward government spending, the rating agency counsels. “The challenges faced in preparing for the Olympics have at least served to raise awareness of the need for fiscal reform,” said Zhang. “Nevertheless, the magnitude of the task required is still sobering and strongly suggests that there is no time to waste if the buildup of an unsustainable imbalance in Greek public finances over the longer term is to be avoided. Correcting this disequilibrium will make the post-Olympics fiscal clean-up more like a marathon than a 100-meter dash.”