The European Commission and the European Central Bank's convergence reports, issued last month, highlighted important achievements Malta has registered in the area of controlling of the budget deficit.
The excessive deficit procedure our country was facing is being lifted as Malta recorded a fiscal deficit of 2.6 per cent of GDP in 2006, i.e. below the Maastricht criterion reference value of three per cent.
Temporary fiscal policy measures had a deficit-reducing effect of 0.7 per cent of GDP in 2006 such as the sale of public assets. Without these measures, the 2006 deficit would have amounted to 3.3 per cent of GDP. A decrease in the deficit to 2.1 per cent of GDP is forecast by the European Commission for 2007.
The government needs to ensure that its revenue generation capacities are strengthened in order to maintain the long term sustainability of its finances.
According to Malta's medium-term fiscal strategy, the government intends to proceed with its consolidation course, targeting a fiscal surplus of 0.10 per cent of GDP in 2009. The strategy is based on a significant reduction of capital spending, social transfers and public consumption.
The attainment of a balanced budget followed by a budget surplus is certainly an important turning point in the management of government finances.
Surplus budgets are an important prerequisite to further decrease our €3.1 billion national debt. A preliminary assessment by the European Commission suggests that the pension reform, which was passed by the Maltese Parliament, has not improved the prospects for the long-term sustainability of public finances. Getting government finances in order is important to ensure that the pension time bomb can be mastered without putting excessive pressure on the economy.
Malta is expected to experience an increase of 2.2 percentage points of GDP in age-related public expenditure in the years to 2020, which then declines to an increase of 0.3 percentage points by 2050. Certainly, pension reform needs to be further strengthened with the rolling out of the second and third pillars.
Within the current parameters, it is understandable that the government is taking a phased approach to pension reform thereby not placing excessive pressure on the Maltese productive sector which is passing through a positive turnaround. The general government debt-to-GDP ratio declined to 66.5 per cent in 2006, down from 72.40 per cent in 2005, but still remaining above the 60 per cent Maastricht reference value. The strong decline in the debt ratio was mainly due to large privatisation proceeds. Further consolidation is required if Malta is to comply with the medium term objective specified in the Stability and Growth Pact, which is quantified in the convergence programme of December 2006 as a balanced budget in cyclically adjusted terms and net of temporary measures.
This year, the general government debt ratio is projected to decline slightly to 65.9 per cent. The continuation of fiscal consolidation is certainly the way forward to secure further economic growth and financial stability.
• John Cassar Torreggiani is the executive head responsible for the euro changeover programme at Bank of Valletta.
The excessive deficit procedure our country was facing is being lifted as Malta recorded a fiscal deficit of 2.6 per cent of GDP in 2006, i.e. below the Maastricht criterion reference value of three per cent.
Temporary fiscal policy measures had a deficit-reducing effect of 0.7 per cent of GDP in 2006 such as the sale of public assets. Without these measures, the 2006 deficit would have amounted to 3.3 per cent of GDP. A decrease in the deficit to 2.1 per cent of GDP is forecast by the European Commission for 2007.
The government needs to ensure that its revenue generation capacities are strengthened in order to maintain the long term sustainability of its finances.
According to Malta's medium-term fiscal strategy, the government intends to proceed with its consolidation course, targeting a fiscal surplus of 0.10 per cent of GDP in 2009. The strategy is based on a significant reduction of capital spending, social transfers and public consumption.
The attainment of a balanced budget followed by a budget surplus is certainly an important turning point in the management of government finances.
Surplus budgets are an important prerequisite to further decrease our €3.1 billion national debt. A preliminary assessment by the European Commission suggests that the pension reform, which was passed by the Maltese Parliament, has not improved the prospects for the long-term sustainability of public finances. Getting government finances in order is important to ensure that the pension time bomb can be mastered without putting excessive pressure on the economy.
Malta is expected to experience an increase of 2.2 percentage points of GDP in age-related public expenditure in the years to 2020, which then declines to an increase of 0.3 percentage points by 2050. Certainly, pension reform needs to be further strengthened with the rolling out of the second and third pillars.
Within the current parameters, it is understandable that the government is taking a phased approach to pension reform thereby not placing excessive pressure on the Maltese productive sector which is passing through a positive turnaround. The general government debt-to-GDP ratio declined to 66.5 per cent in 2006, down from 72.40 per cent in 2005, but still remaining above the 60 per cent Maastricht reference value. The strong decline in the debt ratio was mainly due to large privatisation proceeds. Further consolidation is required if Malta is to comply with the medium term objective specified in the Stability and Growth Pact, which is quantified in the convergence programme of December 2006 as a balanced budget in cyclically adjusted terms and net of temporary measures.
This year, the general government debt ratio is projected to decline slightly to 65.9 per cent. The continuation of fiscal consolidation is certainly the way forward to secure further economic growth and financial stability.
• John Cassar Torreggiani is the executive head responsible for the euro changeover programme at Bank of Valletta.