The ABC behind the figures
by Martin Debattista

In 2003, Malta registered the second highest government deficit, relative to the Gross Domestic Product. According to Eurostat, Czech Republic registered the highest deficit (12.6 per cent) followed by Malta (6.4 per cent). The government deficit of all European Union countries worsened in 2003, it increased from 2.3 per cent to 2.8 per cent of GDP compared with the previous year.

During 2003, recurrent revenue amounted to Lm739.2 million, and made up 95.9 per cent of the budget forecast for the year. Compared to the previous year, recurrent revenue increased by Lm19.4 million, or 2.7 per cent. Total expenditure for 2003 (excluding contributions to the sinking fund and direct loan repayments) amounted to Lm844.7 million, an increase of Lm37.2 million or 4.6 per cent over the Lm807.5 million expended in 2002.

During the same year the shortfall between recurrent revenue and total expenditure amounted to Lm105.4 million, an increase of Lm17.8 million or 20.3 per cent from a shortfall of Lm87.7 million one year earlier.

In April it was announced that the European Commission excused Poland and five other countries for breaching the European Union's deficit limit last year due to the "special circumstance" of their joining the bloc, an EU official said. Malta is one of these six countries, with the second-highest deficit among them.

Three months later, the Convergence Programme for 2004-2007 proposed by the Maltese Government was approved during the Council of Economics and Finance Ministers (ECOFIN) in Brussels. The plan provides a framework for the consolidation of annual fiscal imbalances and for the containment and gradual reversal in the growth in debt levels for the period ending 2007

In August Prime Minister Dr Lawrence Gonzi met with the chairpersons and chief executive officers (CEOs) of Governmental entities and agencies and other Government major subsidiaries at Castille to discuss will be the financial aims of the Government and the increase of accountability in its entities. During this meeting, the Prime Minister explained how a unit within the Ministry of Finances will be set up in order to monitor the finances allocated to government CEOs and chairpersons, finances which derive from public funding.

Also in summer Prime Minister Gonzi reassured that the Maltese economic trends show that the country's economy is recovering and the Maltese and Gozitans are showing confidence in the market. Amongst other important factors that testify this, the foreign investment during the first three months of the year has increased by 19 million when compared to the same period the previous year.

During a news conference in late October, Malta Labour Party (MLP) deputy leader Dr Charles Mangion announced that the party will be presenting a proposal which will call on the government to create an economy plan. This plan is aimed at establishing Malta’s economical direction for the future and insuring social safeguarding.

According to the Convergence Report 2004 adopted by the European Commission in November, Malta is not ready for ‘euro’ membership. Malta did not fulfil all conditions for adopting the ‘euro’ at this stage. The report shows that neither Sweden nor the other nine European countries that joined the EU on 1st May 2004 managed to meet the five convergence criteria.

In the meantime Parliamentary secretary in the Ministry of Finance Tonio Fenech declared that joining the Euro currency is not optional, adding that adopting the currency is mainly a question of by when Malta will be able to satisfy the membership entry conditions to form part of the Euro zone.

As the Budget date neared several instituted bodies issues their proposals.

Alternattiva Demokratika (AD) called on the government to set its priorities right and to assume political responsibility for the dire state of the country's finances. AD's spokesperson on finances, the economy and tourism, Edward Fenech, insisted that the reduction of the deficit should be the main fiscal priority.

The Malta Federation of Industry’s (FOI) Budget 2005 recommendations are set in the context of Malta’s current economic and social model that has not succeeded in raising the country’s growth performance and job creating capacity to the required level. The FOI insisted that the greatest danger facing the economy now is the pressure on competitiveness resulting from forces that are complacent with inefficiency.

Speaking at the Institute of Financial Services Annual Dinner on November 11, just a few days before the Budget 2005 speech, the Governor of the Central Bank of Malta, Michael C. Bonello had this warning to make: “In the current circumstances, sitting on the fence is not a responsible option. Not only does it become an uncomfortable position to maintain, but it also becomes less credible with time. There is indeed the danger that anybody who is not willing to be part of the solution will be perceived to be part of the problem. I, therefore, feel obliged to call on all the social partners to adopt a long-term perspective and sign up to a substantial reform package which would lay the foundations for renewed growth and sustainable development. A thriving economy is the best social policy.”

The latest official figures issued by the National Statistics Office (NSO) on the state of public finances reveal that during the first nine months of 2004 the structural deficit between recurrent revenue and total expenditure amounted to Lm109.9 million, compared to a shortfall of Lm135.8 million reported for January – September 2003.

Yet the government is ambitious. According to Parliamentary Secretary Tonio Fenech it is determined that 2005’s deficit will be Lm75 million, hence Lm 20 million less than that of 2004 which stands at Lm 95 million.