Editorial

A Reuters' report from Washington a few days ago sent out a glimmer of hope for world economic recovery but, at the same time, it also put a question that few, if any, could answer. Governments, it said, were spending piles of money, consumers were creeping out of their cocoons and companies were clearing stockpiles of goods, which all lays the groundwork for economic recovery. It remarked, however, that whether the recovery would be sustainable or not was a trickier question. Time would tell.

Just because the commercial banks in Malta escaped the full blast of the shake-up abroad, following the upheaval sparked by the sub-prime bubble burst, many thought the islands would not be severely hit by the economic downturn. They may not have been hit as hard by the crisis as so many other countries have but the ill-wind has reached the islands' shores as well. A string of companies facing a drop in orders for their goods have had to be directly helped by the government to avoid discharges. Others have been allowed to delay payments due to the government in order to keep them going. Exports have gone down and the government's finances are not exactly in ship-shape condition. Malta is in recession and the economic prospects, at least as far as they could be assessed up to only a few weeks ago, are not all that bright. In fact, contrary to official growth forecasts, the economy is expected to contract this year.

The government is putting up a brave face and has been emphasising its political stance that its first priority is saving jobs. This is all to the good, so long as the firms helped out of particular problems have good prospects of surviving the storm. However, it is also important now for the government not to throw to the wind its cautionary stance to stay within the limits imposed by the European Union rules. Intentions therefore have to be backed up by concrete action to ensure that government finances are brought back to order following last year's deviation.

According to European Commission figures, the deficit shot up to 4.7 per cent of gross domestic product last year. The government is saying it will now manage to bring it down to 2.6 per cent this year but the Commission says its forecast is of 3.6 per cent, which is still above the threshold allowed under the stability and growth pact. Malta has given three reasons for the rise in deficit: the cost of the retirement schemes for dockyard workers, amounting to €64.7 million, a €45.6 million subsidy to Enemalta and the delay in statutory payments of income tax, national insurance contributions and government dues, totalling about €50 million.

The European Commission is unwilling to take any chances and has started infringement proceedings over Malta's failure to keep to the threshold. It remains to be seen whether the government manages to bring its finances back to order this year. One problem is that the government has very little room to manoeuvre and, in any case, trimming expenditure is, generally speaking, not an exercise that can be done overnight. But savings can well be made over time through the streamlining of work practices in so many government places and through the checking of abuses in health and welfare benefits. A massive efficiency-savings exercise ought to be taken up with urgency as part of the government's deficit control programme.