Excessive deficit "not due to exceptional economic circumstances"

The European Commission today adopted a report which concluded that Malta is running a deficit which is not due to exceptional economic circumstances."

The report was adopted as part of an excessive deficit procedure against Malta after the deficit rose well above the 3% limit laid down in the Stability and Growth Pact.

The Commission considered the economic background and examined whether the excess was exceptional and temporary.

Last February, the Commission had already adopted a report where it found that the then deficit of 3.3% made in 2008 was small was expected to be temporary, although it did not result from exceptional economic circumstances.It was therefore concluded that no further steps under the excessive deficit procedure were necessary at that time.

However, according to data notified by the authorities last March and subsequently validated by Eurostat, the general government deficit in Malta was revised upward to 4.7 per cent of GDP in 2008, thus largely exceeding the reference value, while general government gross debt stood at 64.1 per cent of GDP. The 2008 figure is due in great part to specific developments on the expenditure side rather than to the impact of the economic downturn, as GDP growth in 2008 was still positive at 1.6 per cent. In particular, the Maltese shipyards were reclassified inside the government sector (1.3 percentage point of GDP) and there have been unexpected delays in the payment of corporate taxes.

The Commission said that the deficit was, therefore, not close to the reference value, nor was it due to exceptional economic circumstances within the meaning of the Treaty and the SGP.

Furthermore, the deficit could not be considered temporary as the spring forecast anticipated the deficit to remain above the 3 percent threshold in both 2009 and 2010.

General gover debt, which had been above the 60 per cent of GDP Treaty reference value since 2001, was anticipated to increase over 2009-2010.

The Commission’s report will now be discussed by the Economic and Financial Committee of the Council and than returned to the Commission for its final recommendation.