Commission postpones assessment of Malta’s finances

The European Commission has postponed its assessment of the state of Malta’s public finances until after it receives the government’s 2011 Budget proposals.

Brussels will assess whether Malta is on track to meeting its commitment to rein in its deficit to below three per cent of gross domestic product by the end of next year. The report was meant to have been concluded by mid-August but the exercise has now been postponed.

“For Malta, the Commission decided to postpone its assessment of progress towards the correction of the excessive deficit by 2011 until after the presentation of the 2011 Budget. This implies that the assessment will now be carried out in October or November,” a Commission said.

The reason for the postponement is that Malta normally unveils a series of measures in the Budget which will have a direct bearing on deficit and debt levels.

Apart from short-term objectives, the Commission will be looking at proposals to address the long-term sustainability of public finances – particularly measures to address pensions, aging and healthcare problems.

Last June, the Commission had warned Malta that the long-term situation of its public finances was unsustainable and urged the island to carry out the necessary painful reforms, particularly those related to pensions and healthcare.

In response, the Prime Minister had said that the government was mulling the possibility of introducing further reforms in the pension system by the end of the year including the possibility of introducing obligatory private pensions.

In its annual publication on the state of the EU’s public finances in the Economic and Monetary Union, Malta was placed in a group of 15 member states, which included the UK, France and Greece, “facing the largest sustainability challenges”. These are the countries whose public finances in the long-term will be “characterised by a very significant age-related expenditure”.

The Commission said these countries’ increase in government spending in aging-related categories was likely to be very significant (seven percentage points of GDP or more) and immediate reforms in pension and healthcare expenditure were necessary.

After Malta registered a deficit of 4.9 per cent of GDP in 2008, the EU started an excessive deficit procedure to oblige it to cut it back to below three per cent.

Malta was meant to reach this target by the end of this year but following progress registered in 2009 the EU extended the island’s target to the end of next year.