The government is expected to send an update of its convergence programme to the European Commission in Brussels by the end of this month.

The update should include a revised deficit target for next year that is slightly different from the target given to Brussels in the original convergence programme.

According to an announcement in the budget speech for next year, Malta will be reducing its deficit to 2.8 per cent of GDP instead of 2.3 per cent, as declared in its original convergence plan.

Sources close to the Commission told The Times that the EU should not object to this change as Malta would still have reached its target of reducing its deficit to under three per cent of its GDP by the 2006 fiscal year.

Officially, the European Commission does not wish to comment on the latest developments in Malta's government finances and prefers to wait for more information. The Commission spokesman for economic and monetary affairs declined comment for the time being.

"Malta is included in the excessive deficit procedure and was recommended to correct its deficit by the 2006 fiscal year. One key step for the evaluation of budgetary developments in all member states will be the presentation of the Commission's autumn economic forecasts later on this year. The examination of the updated convergence programmes (called stability programmes for euro zone members) is the second step," he said.

This year Malta continued to lower its structural deficit to 3.9 per cent, the lowest level in the past 10 years. However, it is still considered by the EU to have an excessive deficit and thus the legal procedure started against Malta in 2004 still stands.

The procedure requires a member state to submit a convergence programme with a plan on how to come into line with EU economic policy regarding levels of deficit, public debt, inflation and other important criteria.

According to EU rules, a member state should not exceed the three per cent deficit mark in its government finances.