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Rule-based surcharge mechanism suggested
By MaltaMedia News
Aug 17, 2008 - 12:58:12 PM
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The International Monetary Fund (IMF) has recommended the government to introduce a rule-based mechanism for determining the fuel surcharge and also to drop the cost of living adjustment (COLA).
The Malta Independent on Sunday reported that in the IMF's meetings with the Maltese authorities during its latest mission to Malta which wrapped up in May, staff also recommended removing the Consumer and Competition Division from under the wing of the finance ministry and to proceed with the stalled Bank of Valletta privatisation process. Malta’s slowing housing market was discussed too.
In a report published this week, the IMF noted that Maltese authorities are increasing the pass-through of fuel prices “to avoid derailing budget plans and prevent distortions while exploring means to shield vulnerable groups”. The government aims to reach a budget surplus by 2010.
The IMF notes how the price of electricity had, through a revision of the surcharge, been increased in July, but that “a significant gap relative to costs remains”. While noting that the government has raised electricity prices by about one-third since the discussions in May, the IMF estimates prices still remain some 25 per cent below recovery,
The Malta Independent on Sunday reported.
The IMF also observes how the government plans introducing a water and electricity tariff reform by autumn, which would aim to continue protecting low-income households while at the same time progressing toward the recommended full cost recovery.
IMF staff advocated “the introduction of rule-based mechanisms to regularly update administered prices – according to market conditions and aiming to reach cost recovery over a reasonable period. This would avoid the need for discretionary government decisions, which have often been protracted and unnecessarily controversial.”
On COLA, announced in the annual budget, the IMF felt the bonus “may hinder productivity-based wage increases and help entrench inflation”. With reference to COLA and the Consumer and Competition Division, IMF staff said that this agenda “could usefully be extended to competition policy and wage indexation.
The Maltese authorities, according to the IMF report, dismissed the cost of living adjustment suggestion on the basis that the adjustment’s “impact was limited and facilitated consensus in wage negotiations,” the newspaper said.
With regards to the granting of institutional independence to the Consumer and Competition Division, the Maltese authorities were of the opinion that such a move would be “premature” but agreed that it would be crucial.
On the stalled privatisation process of Bank of Valletta for which the government remains the main shareholder with its 25 per cent stake, the IMF report noted that Maltese authorities still favoured the privatisation route, but had no immediate plans to privatise the bank owing to current unfavourable market conditions.
While IMF staff agreed with the assessment put forward by the Maltese authorities, they “argued for a more active search of a suitable strategic investor as the sale would crowd in FDI and have positive spillovers within the financial system”.
The IMF welcomed the elimination, in 2009, of shipyard and bread subsidies as well as continuing to reduce Malta’s still high levels of public employment.
Source:
The Malta Independent on Sunday
© Copyright 2008 by MaltaMedia.com
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Aug 18, 2008 - 8:23:48 PM CET
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