EU assessment on 2006 economic performance

Malta comes a long way, EU commissioner says Malta was in for praise yesterday by the European Commission for continuing to come in line with the EU's financial and economic rules and for cutting its structural deficit and its gross debt levels.

Speaking after the publication in Brussels of the European Commission's assessment of Malta's updated convergence programme for the years 2006-2009, submitted by the government last December following the announcement of its 2007 budget, European Economic and Monetary Affairs Commissioner Joachim Almunia commended Malta for the results obtained.

"Malta comes a long way since its deficit stood at 10 per cent only four years ago. After the 2006 correction, which we expect to see confirmed soon, the challenge is to continue on a virtuous path and reduce the deficit and the debt to more sustainable levels," he said.

Commission sources told The Times this positive assessment is a confirmation that Malta is on the right track towards reaching its objective of joining the euro in 2008. The sources said that as soon as the island submits its final notification of last year's financial results, expected by the end of March, the Commission will recommend the closure of its excessive deficit procedure against Malta.

In its opinion to the EU Council, the EU's Executive said that Malta presented a convergence programme that expects a correction of the deficit to well below three per cent in 2006 and a progression towards balance and a debt below 60 per cent of GDP in 2009.

"Overall, the programme seems consistent with the correction of the excessive deficit by 2006 and the debt ratio seems to be diminishing at a satisfactory pace," the Commission said.

At the same time, the Commission warned that Malta's future projections may be based "on growth expectations that are on the optimistic side". It invited the government to spell out its budgetary expenditure control strategy and progress further on the road of healthcare reform.

"The risks to the budgetary projections in the programme appear broadly balanced for 2007 but the budgetary outcomes could be worse than projected in the programme thereafter. This is due to favourable GDP growth projected for 2007 and a markedly favourable macroeconomic scenario in 2008-9 underlying the update's projections."

The Commission also commented that no details were given by Malta on the adjustment strategy and which increases the risks attached to the planned fiscal consolidation.

At the same time, the Commission said that, in view of the risk assessment, the budgetary stance in the programme seems consistent with the correction of the excessive deficit by 2006 as recommended by the Council.

"In addition, it seems to provide a sufficient safety margin against breaching the three per cent of GDP threshold with normal macroeconomic fluctuations from 2008 onwards."

Before its final approval, the Commission recommendation will now have to be discussed by the EU finance ministers during their Ecofin Council meeting next month.