With Malta’s inflation rate on the rise, ratings agency Fitch has revised the forecasted euro adoption date from 2008 to 2009. According to Edward Parker, head of Fitch's Emerging Europe Sovereign Group in London, Malta’s inflation must decrease “very rapidly”, if Malta wishes to meet the required criteria for joining the European Union’s common currency.
In turn, in a statement on Friday, the Chamber for Small and Medium Enterprises also warned of the possibility of Malta not acceding to the euro currency by the set target date.
Malta's Harmonised Index of Consumer Prices increased last month to 3.1 per cent, standing at 0.3 of a percentage point above the current limit set by the EU for a member state to join the currency.
According to The Times of Malta Malta's inflation rate has exceeded the required criteria in the recent months. Mr. Parker said that radical improvement is needed prior to the final evaluation due in April 2007.
The report published by the agency on Thursday is entitled EMU Convergence Report: 2006 and provides its latest assessment of when the 10 new EU member states are likely to adopt the euro. It also sets out the rating implications of their convergence path towards European Economic and Monetary Union.
Although the agency maintained a positive outlook on Malta's foreign currency ratings saying that a potential upgrade should be just within the outlook horizon, any slippage on planned fiscal consolidation could threaten the euro timetable and the rating outlook.
Mr, Parker stated that Malta's target date to accede to the euro currency, set for the 1st January 2008, is not an impossible goal. However he added that Malta's debt to Gross Domestic Product (GDP) ration, well over 60 per cent remains an issue of concern despite registered improvements in the government’s finances.
On a general note, Fitch said there has been a significant systemic setback to the prospects of euro adoption across central Europe over the past 12 months.
Parliamentary Secretary Tonio Fenech is still cautiously optimistic that Malta will overcome the toughest hurdle, blaming the fuel surcharge for high inflation rates. He added that a number of factors can statistically bring down inflation. "Once we get to October and November, the impact will taper off and inflation will come down. We're not worried, as long as the surcharge level remains as it is," said the Parliamentary Secretary, while speaking to The Times of Malta.
In turn, in a statement on Friday, the Chamber for Small and Medium Enterprises (GRTU) also warned of the possibility of Malta not acceding to the euro currency by the set target date.
The Chamber stated that in the recent months it has often warned the government that Malta might not manage to accede to the European Union currency on the indicated date. The GRTU added that this is mainly down to the government’s strategy to keep inflation under control.
It added that the introduction of surcharge on electricity and water bills is proving to be detrimental for medium and small enterprises. The GRTU also said that the euro Changeover system is adding to already high cost of living.
While saying that the National Euro Changeover Committee (NECC) is creating euro related costs which will have a negative effect on inflation, the GRTU insisted that it holds its Directive to members that they are not to incur any costs in relation to the Euro until Government has a proper planned and consultative approach. Restate a position it took on Monday, it also said that all communication from NECC should be ignored.
According to the GRTU, the euro changeover system and the surcharge are the main cause of increasing inflation rates.
While urging the government to remedy the situation the GRTU insisted that the more inflation increases, the further Malta will get from introducing the euro currency on the set target date.
See also:
GRTU concerned about NECC pricing attitude
By MaltaMedia News
Aug 29, 2006, 16:06 CET
Malta only Euro-hopeful not yet in line
By Giselle Borg Olivier
May 6, 2006, 12:41 CET
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