Reaction to Fitch report on Malta

The update report on Malta released by international ratings agency Fitch was confirmation of the "unsustainable" core policies adopted by the Labour Party, Finance Minister John Dalli said yesterday.

It also confirmed that the government was moving in the right direction, both economically and in its foreign policy, the minister said.

However, the Labour Party interpreted the Fitch report differently, and insisted that the agency had shown that the island could survive on its own, irrespective of EU membership.

On Thursday, Fitch affirmed Malta's ratings at their previous levels but warned that the country could damage its credit worthiness if it chose not to join the European Union.

Government intervention and monopolistic and protectionist measures that hampered growth were being removed and the need to strengthen the fiscal position had become more apparent, the agency said.

Fitch said that opting out of the EU would damage Malta's creditworthiness unless a new government was clearly determined to retain and develop the parts of the EU acquis that were starting to enhance the efficiency and competitiveness of the economy.

Mr Dalli said Fitch had stressed that Malta would only survive economically outside the EU if it strictly reformed its economy - a process kick-started by the government.

"We all know the MLP is against EU membership. But what are they offering in return?

"They oppose the opening of the market, they oppose the removal of protectionism, they oppose schemes which guarantee a level playing field - and in the process they are drawing up unsustainable plans. They are in a right state of indiscipline," Mr Dalli said.

He said rating agencies were putting a lot of emphasis on EU membership because such blocs guaranteed sustainability, support and the necessary help to carry out certain infrastructural projects.

"It is for this reason that Fitch has joined (rating agencies) Moody's and Standard & Poor's in a chorus of approval for the government's EU policy," Mr Dalli said.

He said that Fitch had taken note of the steps taken by the government to modernise its economy, a factor which had strengthened competitiveness.

He insisted the government was doing its utmost to curtail the deficit and control the national debt and defended Fitch's criticism of the slow privatisation process by saying that the government was being cautious in order to obtain the best deal.

Labour finance spokesman Leo Brincat said the Fitch report showed that with self-discipline, Malta was capable of benefiting from the advantages of membership without joining the EU.

Mr Brincat said it did not make sense to say the creditworthiness would be affected if the island opted out of the EU, especially when one considered that Switzerland and Norway had high creditworthiness.

He also disagreed with Fitch's assessment that Malta no longer played an important strategic role, saying it was a known fact that the EU was interested in having Malta as a member because of its geo-strategic importance.

Mr Brincat said that the Fitch report pointed to a number of negative factors, including that:

¤ The deficit and the national debt were higher than originally planned;

¤ The process of privatisation had stalled in the past year;

¤ The national debt which had been forecast to go down to 59 per cent of GDP was up to 65 per cent in 2001;

¤ The progress in a number of sectors was slow.

"This all proves that any successes or failures in future are directly related to how capable, disciplined and determined the government of the day is. Only a Labour government can guarantee such a commitment," Mr Brincat said.