EU sees "risks" to Malta's 2010 balanced budget plan

The European Commission said today that there are risks to Malta achieving its target of a balanced budget in 2010 due to the reliance on volatile tax revenue items in 2008; the recent decision to subsidise energy prices without compensating measures; the macroeconomic outlook after 2008 and the lack of information about the underlying measures, especially as regards the envisaged continued restraint in the public wage bill.

The assessment was issued after the Commission examined Malta's financial stability programme, as well as those of Austria, Cyprus, Portugal and Slovenia.

The Commission said that with regard to long-term sustainability of public finances, Portugal and Malta were seen as being at medium risk, while Cyprus and Slovenia were at high risk. Only Austria was considered to be at low risk.

In its report on Malta the commission said:

“The stability programme envisages continued progress towards the Medium Term Objective (MTO) of a balanced budget, which Malta plans to achieve in 2010 through a combination of expenditure restraint and sustained economic growth.

“However, there are risks to the achievement of the budgetary targets, in particular due to the reliance on volatile tax revenue items in 2008; the recent decision to subsidise energy prices without compensating measures; the macroeconomic outlook after 2008; and the lack of information about the underlying measures, especially as regards the envisaged continued restraint in the public wage bill.

“These may hinder the achievement of the MTO by the target year 2010. In addition, Malta's competitiveness within the euro area may be at risk in the event of a departure from wage moderation in the public sector, which may spill over to the private sector.

“The reduction of the general government gross debt is planned to proceed at a satisfactory pace and is expected to fall below the 60% of GDP reference value by 2009. In terms of the long-term sustainability of public finances, Malta is at medium risk.

“In view of the Commission assessment, Malta is invited to: (i) pursue further fiscal consolidation as envisaged in the programme so as to reach the MTO by 2010 and ensure that the debt-to-GDP ratio is reduced accordingly, by spelling out the measures supporting the planned consolidation, especially on the expenditure side; and (ii) enhance the efficiency and flexibility of public spending, including by accelerating the design and implementation of a comprehensive healthcare reform.”