Overcoming the fear

The budget debate is now in full swing, with the reply to the budget of the Leader of the Opposition last Monday and the Prime Minister's reply to the Leader of the Opposition on Wednesday. It seems to be like a ritual that we need to go through year after year, leaving us wondering whether as a country we get a benefit out of all this. In my opinion such a debate is critical not only to the democratic process but also for the economy. The date after the budget was business as usual, and this is the way it should be.

Not only was it business as usual, but we also have a situation where the budget was overshadowed by an event that occurred just days before the budget speech - the announcement of the new water and electricity charges. This is not the way it should be, especially since we have had protest marches against these new rates, but nothing against the budget. Thus it seems that the budget is acceptable but the new water and electricity charges are not. However, we still need to be in a position where as a country we can evaluate the thrust of economic policy of the government and the alternative policy options being offered by the Opposition.

This is particularly relevant for a number of reasons. First, the international economic situation that has been in a turmoil for the last 12 to 18 months, with the increase in the price of oil, commodities and cereals (and therefore foodstuffs) leading to an increase in inflation, then the systemic failure (let us call a spade a shovel) of the financial markets and then the onset of a recession. This week's news is that the oil price continued to tumble because of the widespread fear that the world economy is slowing more than it was expected to, bringing down with it also commodity prices, and a number of currencies (mainly the sterling and the Russian rouble) are under severe strain.

The second reason is the confirmation of the Gonzi government at the general elections last March. This was not just a simple election win, but a confirmation of the economic policies that we have had over the last four years, characterised by fiscal prudence, tax cuts, a reduction of the role of the state in the operation of the economy, and increased investment in the services sector. The third reason is the historical fact that Malta is now an integral part of the EU, having become member in 2004, obtained extensive funding from the EU and adopted the euro last January.

These developments force us to look at the future and not the past. I would not like to look at the past because I dread to think what will have happened to the value of the Maltese lira and our foreign reserves, and subsequently to our economy, had we not adopted the euro 11 months ago. Discussing what could or could not have been becomes totally irrelevant as our current economic situation, against the current scenario of the world economy, is a novel one and requires proactive positive thinking and not a reactive critical approach. Some economists in Europe are claiming that today we are living in a new era that is different to that of just six months ago and which, in any case, could not have been foreseen six months ago.

It is an era that is very much characterised by uncertainty and by fear. Thanks to the modern forms of communication, in Malta we are fully aware of the developments in the Asian economies and the US economy, concurrently. And, because we are witnessing these developments in the comfort of our homes, we have started to believe that they are happening next door to us. In fact they are happening very far away. Because we are still at the stage where we cannot be certain of the entity of the negative impact of these developments on our economy, we have started to fear the worst.

This uncertainty and fear have started to play a nasty joke on us. We need to be realistic about our expectations for the economy; but this realism is slowly but steadily turning into pessimism because of the fear that exists within the Maltese consumers and the Maltese business sector. This fear is creating the risk of a recession in our economy when an objective assessment would show that there should not be a recession, but only a slowdown.

This fear needs to be overcome, but we need to appreciate that it can only be overcome if we can evaluate the thrust of economic policy of the government and the alternative policy options being offered by the Opposition.

There has to be a life next year and beyond for our economy and we need to assess what strategic decisions need to be taken to ensure that the economy is strengthened and not weakened. Once the business sector and the public at large are convinced that this assessment is taking place in earnest, the fear that seems to have overwhelmed us would start to evaporate.