Malta is delivering, EU says

The policies and reforms being adopted by the Maltese government are delivering results and are consistent with EU policies.

That is the opinion of the European Commission following an analysis of the update stability and convergence programme submitted by Malta at the end of last year.

According to EU rules, member states are obliged to submit to the Council and to the Commission stability and convergence updates highlighting their medium-term objectives for the budgetary position and set out the policy measures to achieve and maintain it, including the accompanying economic assumptions.

Following its detailed analysis, the Commission concluded that during this year, Malta should be able to correct its structural deficit to under the three per cent of GDP mark allowed by the EU and, thus, allowing the Commission to withdraw the excessive deficit procedure initiated against Malta in 2004 because of its large structural deficit.

The report forecasts an improvement in a number of other important economic and financial indicators including the lowering of debt levels and inflation.

During a press conference in Brussels, Economic and Monetary Affairs Commissioner Joachim Almunia lauded Malta's progress.

"Malta has set medium-term objectives for their public finances that are in line with the revised Stability and Growth Pact. It is also encouraging that Malta would be reaching these targets by the end of this programme period. Budgetary strategies in line with the pact not only produce sound fiscal policies over the economic cycle but are also a necessary pre-condition for stronger growth in Europe."

The Commission's report says Malta's programme for the next three years ending 2008 is overall consistent with the correction of the excess deficit by 2006. In its suggestions to the Council, the Commission recommends that it would be appropriate for Malta to ensure that the debt ratio is declining towards the 60 per cent of GDP treaty reference value at a satisfactory pace from 2006 onwards and to improve the long-term sustainability of the public finances by making further progress in the design and implementation of the pension and health care reforms.

The report says that over the last years Malta made big strides forward to reduce its structural deficit.

From a peak of 10.3 per cent of GDP reached in 2003, Malta this year would be reducing its deficit to 2.7 per cent and is estimating to cut it further to just 1.2 per cent by 2008.

"Assuming that the 2006 budget is fully implemented and the macroeconomic risks are duly addressed, the budgetary stance in the programme seems consistent with a correction of the excessive deficit by the deadline indicated by the Council."

The budgetary strategy outlined in Malta's programme seems sufficient to ensure that the programme's medium term objective of a balanced budget will be broadly achieved by 2008, the report adds.

Improvements are also expected in the national gross debt figures. Last year's gross debt is estimated at 76.7 per cent of GDP, substantially above the 60 per cent of GDP allowed by the EU.

"Starting this year, the debt ratio was expected to gradually fall, reaching 67.3 per cent by the end of 2008. This improvement is expected to be achieved through privatisation proceeds especially this year, while in the remaining years an increase in surplus in the primary balance will act as the main driver of a lower debt to GDP ratio."

According to the EU's assessment, the economy is also set to recuperate over the next three years and, in fact, the update foresees a gradual pick-up in economic activity until the end of 2008.

"From 0.9 in 2005, GDP growth is forecast to strengthen to 1.1 per cent and 1.2 per cent in 2006 and 2007 respectively. The update foresees a further acceleration of growth to 2 per cent in 2008."

The Commission said that, overall, the programme growth assumptions appear to be plausible, except for the relatively quick recovery projected in 2006.

The Commission's report will be discussed by EU finance ministers next month before being officially adopted by the Economic and Finance Council.