Whither Malta?

Over the last three years, the state of the Maltese economy kept showing telltale signs of malaise. The government, as usual, doctored the numbers in a bid to hide reality. Initially there was nothing so alarming. The dip in our economic outlook was not startling. Our economy was still relatively strong, having been steadily carved out by John Dalli when he was Minister for Finance. All it needed was modest tuning. That seemed easier said than done, apparently, especially for the new regime that took over at the helm thereafter.

What was a tad need of an adjustment in 2006 gradually grew to a change in direction the next year as the ship's captain did not mull the signs and did not forecast properly. Into 2007, the Exchequer lost his plot. It was so late in the day and, with the need to join the eurozone, the Gonzi Administration became more focused on a deadline and panicked, morphing numbers to suit its needs.

They received orders from their public relations gurus that Malta's biggest cash sucker - Mater Dei Hospital - had to be completed. To add to their miseries, the general election was looming. The doctoring turned to surgery and the figures received much more than a cosmetic intervention.

Because of the euphoria of well-being created by the government, sundry investors, especially in the property market, entered into considerable commitments. Local banks sensed the imminent bursting of the bubble and, consequently, lost their appetite to play ball. Requests for repossession topped the court cases during the last three years. Trade creditors followed suit and energetically started to claim their dues.

The haphazard spending by the government to appease disgruntled voters aggravated the downward spiral in recessionary terms. The national kitty, which was already in dire straits a year earlier, broke its bottom last year.

But that does not matter to the PN. What matters is that it gets re-elected. Incumbency works wonders for this ruling party. It had the taxpayers' funds to use for its election campaign. Instead of investigating the huge squandering of public funds, the Administration promised heaven on earth, as long as it garnered the votes. Whiffs of corruption and back-scratching turned to wafts; smelly clouds floated five feet high all over the land. Sleaze deflated the economy but not the corrupt.

Whisker or no whisker, the Exchequer-that-was returned to his office and became the Exchequer-that-is. Celebration fever over, the fact was that the economy was in crisis. And, to add insult to injury, the new Administration ended up cash-strapped.

It is no setback for them, really. They are the ones who shape the rates, the bills, the surcharges, the taxes - are they not? How would they pay civil servants their salaries, otherwise? They stalled the tax refunds and the payments to the medicine importers, to the contractors (not to all) and the oil supplier (not for new supplies at much lower prices - how could they if they had no liquidity?). How would they pay their own salaries and the handouts to the fallen, otherwise?

Come October last year and, knowing fully well their dilemma, they grabbed at the proverbial straw and started to blame the credit crunch worldwide. Why did they not reduce taxation? Why did they not ease the burden on the taxpayers in a bid to release some spending power that was by then stagnated? Because they had, and have, no liquidity.

Why did they double the electricity surcharge, increase the road tax overall, cheekily pledge to introduce a sewage rate? Because they had, and have, no dosh.

Being cash-dry normally means one is insolvent, unless one sells assets, and quick. Unless one borrows. Bonds might be their answer. But what interest rate can they offer? From where would they service the interest? They can tap the income tax regime but, hey, they had promised to reduce the burden for electioneering purposes.

Yuletide has come and gone. Nevertheless, the typical season spending spree by consumers did not. The year 2009 started with a gloomy and dreary picture. Now, while all the previous predicaments were of the government's own making and did not have anything to do with the international credit crunch, the Maltese economy is unfortunately in shambles, again because of the government's mulishness, recklessness and irresponsibility. Yet, we still have to face the ripple effect of the global depression. I hope I am wrong, for posterity's sake, if not for the impending hardships.

How I wish I were not cynical enough to see through the government's disguised messages of "we can handle it"! Picture the empty hotel beds and restaurant tables begging for diners, to mention but one of the important economic stays, locally.

What of the risks faced by the property market in Malta? That is what a lot of the growth in the past three years was based on: using international finance to build apartments and residential complexes (when we already own a stock of over 50,000 empty dwellings), apart from some good efforts like online gaming and IT.

Do we have to sit indolently and watch what happened in Spain, where there are now many examples of deserted new residential areas, ensue here (not that it has not started already)? That could really hit the financial sector hard in Malta, let alone the government! The ripple effect shall be disastrous, unfortunately.

Linger a while longer until our exports dwindle and jobs continue to be shed. Would quantitative easing be the answer? Would the European Central Bank allow that? I doubt it.

Interest rates are still irrationally high and are far from helping to turn around the ominous state of the economy. Some banks are still milking the ailing cow. Mixed with our government's greed, inertia and ineptitude, these ugly components would make a cocktail I would rather refuse to taste.

When will the economic slowdown in Malta show up in the official GDP numbers? When will the government own up? I suspect that it will never do, considering that there's some sort of an election, year in year out.

Whither Malta?