How everybody was taken for a ride!

It was August 2002 when the Ministry of Finance presented the constituted bodies with a Pre-Budget Consultation Document which was also meant to serve as a medium-term economic framework for the EU Commission in Brussels.

In an introduction to the document, Finance Minister John Dalli described it as an assessment of macro-economic and financial sector developments in Malta that was being referred to the Malta Council for Economic and Social Development as part of "a regular in-depth dialogue on a large spectrum of macroeconomic policy and financial stability issues".

The minister guardedly stated that only short-term projections were being provided as the outcome of negotiations with the EU Commission, as part of the accession process, was then not yet fully known. Hence, no reference was made in this document in those projections to the net balances for Malta of the outflows and inflows of EU funds on accession.

The document was described in the minister's own words as a "snapshot of the current situation and a review of short to medium-term projections of macro-economic and fiscal developments that Government perceives, as of then, to emerge..."

While promising a holistic change in our approach to doing things the minister boasted that we will only then be able to maximise the application of our resources towards more efficiency, effectiveness and sustainability.

It was against this background that the minister called on the Council members - the participating social partners - to seek a fair balance between sectoral and national interests in their analysis of the situation and in their contributions to specific issues as they may arise.

In its executive summary the report stated that while medium term projections show that after recovering in 2002, growth in output was expected to decline slightly in 2003, it will rebound in the subsequent years reaching 3.8% by 2005.

Rather than forecasting the rise in expenditure that has materialised since then, the report predicted that government consumption growth in real terms was expected to slow down during the forecast period, reflecting Government's commitment to rein in expenditure.

While most economic analysts have been complaining of the dearth of foreign direct investment that the country has experienced in recent months, the ministry had led us to believe in August 2002 that it expected investment growth in the medium term to pick up as a result of a number of infrastructural projects and the effects of the external recovery.

The recent spate of job-shedding, particularly in the manufacturing sector, which has translated in a sharp upturn in unemployment figures, contrasts sharply with the report's prediction that the outlook for unemployment is promising since although initially a slight increase is expected - mainly due to the lagged effects of the 2001 events - the jobless rate will start to fall in 2003 and is expected to reach 4.3% by 2005.

But brace yourselves for the cheekiest part of the report. The segment concerning public finances.

While the recent figures for January-July 2003 published by the NSO speak for themselves in outlining the sharp deterioration in government finances, the executive summary of the pre-Budget consultation document predicted:

"In line with Government's policy to contain the level of fiscal imbalance, the budget balance is expected to decline in the medium-term framework, after remaining relatively stable in 2001. This gradual reduction in the budget deficits in the 2002-2005 period will contribute to attain levels of public debt which grow slower than the rate of economic growth..."

Government actually went on record pompously declaring that "Government remains committed to implement policy measures towards achieving targets that meet these projections".

Among the challenges which Government claimed to be addressing then (August 2002), one finds "the high level of public sector employment, and the need to have a more skilled and qualified workforce. Focus has increasingly been on active policies aimed at reducing long-term unemployment."

The same rosy optimism was shown regarding Malta shipyards.

In August last year, the Finance Ministry stated: "A restructuring plan for the Malta shipyards had been adopted, with the objective of attaining commercial viability for the yards. In addition, a business plan was drawn up outlining practices designed to enhance productivity.

"It was also envisaged that to attain these objectives the labour compliment should be gradually reduced, while the 'yard should invest in new technology and in ensuring environmentally-clean processes."

Government's major deviation from its medium-term economic framework objectives can be found on page 12 of the document under the heading "2.1 Main Objectives of Macro-economic policy" which stated:

"Government's main medium-term macroeconomic objectives remain (among others):

"The restoration of public finances to a sustainable path projected to reach a structural deficit to GDP ratio of around 2% in the medium term."

The Finance Ministry had then felt so confident that it would attain such an objective that it predicted self-confidently that this would be accomplished within the framework of the medium-term financial programme originally announced in the 1999 Budget and subsequently revised to reflect improvements in the fiscal position.

This deficit reduction plan underscores Government's commitment to adopt a stance that will unwind the fiscal imbalances that were registered in the past years.

While a certain leeway is always expected or permitted between certain projections and actual targets met, in the light of such major deviations from the whole thrust of the Pre-Budget Consultation Document the minister concerned should not only stand up to be counted.

He should resign after having taken everybody - except the Opposition - for a ride!

leo.brincat@gov.mt

A former finance minister, Leo Brincat is the Opposition's main spokesman on foreign affairs and IT.