Malta likely to reach euro targets - EU

Malta is likely to be in a position to adopt the euro by its target date of the start of 2008, European Economic and Monetary Affairs Commissioner Joaquin Almunia said yesterday following the release of a positive European Commission report on Malta's economic and fiscal performance.

Mr Almunia told a press conference in Brussels that on the basis of the report's forecasts, Malta, along with Cyprus, will meet the criteria for inflation, debt and deficit.

"...It seems Malta will be likely to meet the convergence criteria and join the eurozone on January 1, 2008.

"As you know, however, we have to look also at the sustainability of the criteria and we also have to receive an application from the member states. The Commission will be ready to give its recommendation by April."

The EU's six-monthly forecast on its member states names Malta as one of only two EU countries that have managed to reach their targets on correcting the deficit.

It also says that by all economic indicators, the island is registering a modest economic recovery.

Malta's economy is seen growing at a rate of more than two per cent per annum during 2007-2008, the public deficit continuing to be restrained, public debt continuing to decline and inflation falling to about 2.4 per cent in 2008.

The report also points out that employment should continue to grow at a modest rate of about one per cent per annum, exports should increase and tourism get a little better. The forecasts, which go on EU economic models, take into account the budget estimates for 2007.

Mr Almunia said Malta and the UK were the only EU countries to achieve their deficit-correction targets.

This, he said, should lead the Commission to propose the withdrawal of the excessive deficit procedure against Malta, although a formal decision on when this should be done is still to be taken.

The Commission described Malta's economic activity this year as one "of continued growth at a sustained pace" in the first half, on the back of higher domestic demand, in particular more consumption.

"Gross Domestic Product (GDP) is projected to grow by around 2.3 per cent in 2006 in real terms.

"Maintaining the momentum registered in the first half of the year, private consumption is projected to grow by around 2.3 per cent, helped by employment creation and a continued expansion in consumer credit," the Commission said.

Export activity should also be better in the coming two years following a contraction in nominal terms in the first half of this year.

"Exports are projected to accelerate in 2007 and in 2008, supported mainly by a better outlook for the semiconductors sector and by an expansion in the pharmaceutical industry. Tourism activity is also expected to register some gains."

Confirming that for the first time in many years Malta's structural deficit will this year fall to under the three per cent of GDP benchmark, the Commission's report indicates that the trend will be sustained even over the coming two years.

"Taking into account the 2007 draft budget, the deficit for 2007 is projected at around 2.7 per cent of GDP (2.9 in 2006), including 0.25 per cent of GDP in deficit reducing one-offs.

"This outcome is a result of projected higher revenues of around 0.25 per cent mainly due to taxes on production and imports on the back of higher private consumption.

"For 2008, under the no-policy change scenario, which takes into account changes in interest payments but excludes one-off operations (consisting of sale of land), the deficit is expected to be slightly below 3 per cent of GDP".

The Commission also forecasts that the general government debt will fall to 68.5 per cent of GDP in 2008 against the current level of 69.5 per cent.