Malta told to cut public debt

Malta’s real challenge in the current economic scenario is to reduce its level of public debt, according to a new report issued by the European Commission in Brussels.

While acknowledging Malta’s ability to reduce its structural deficit despite the financial crisis, this year’s Public Finances Report underlines the fact that Malta’s debt “is still too high”. It says an effort is needed to reduce it and make it sustainable in the medium and long term.

The report shows that, while the deficit has been cut substantially, from 4.2 per cent of GDP in 2009 to a projected level of below three per cent by the end of this year, debt levels have been going up significantly, from 62 per cent of GDP in 2007 to 68 per cent by the end of this year.

The Commission forecasts that the debt will be reversed to about 63.7 per cent by 2014 but considers that this is still high.

“Malta needs to bring the public debt ratio on to a downward path,” the Commission insisted in its report, reiterating recommendations to the island issued by the EU Council earlier this year.

The debt situation in nearly the entire euro area is an issue of major concern for the Commission.

Although it sounds the alarm for Malta too, the report indicates that local debt is relatively low compared to the rest of the euro area. While Malta’s debt-to-GDP ratio rose by six per cent between 2007 and 2011, it went up by 22 per cent in the euro area during the same period. And while in Malta it is projected to be at 67.9 per cent by 2012, the average eurozone debt level is expected to reach 88.7 per cent.

The report comes a week after rating agency Moody’s downgraded Malta’s foreign-currency and local-currency government bond ratings to A2 from A1 and revised the outlook to negative.

One of the reasons given for the downgrade was “weak debt metrics the anticipated improvement in the government’s balance sheet at the time of joining the European Monetary Union has not materialised, according to the agency.

The EU’s Commissioner for Economic and Monetary Affairs, Olli Rehn, insisted on the need for more austerity measures to get European debt in line.

“In a period of high and still increasing debt levels in EU countries, ensuring the sustainability of public finances is a prerequisite for enduring economic growth and job creation,” Commissioner Rehn said.

“The member states facing market pressures must continue to deliver on reaching their fiscal targets and take additional measures if needed. Member states with fiscal room to manoeuvre should allow automatic stabilisers to function to mitigate the effects of a slowdown of the recovery on activity and jobs while sticking to their structural adjustment paths.”

According to the report, Greece will have the biggest debt ratio in 2012, peaking to 166.1 per cent of GDP, followed by Italy (119.8 per cent) and Ireland (117.9).

On the other hand Estonia is expected to have the lowest debt-to-GDP ratio, just 6.9 per cent.

Outside the eurozone, many countries also have high debt levels, with the UK topping the charts at 88 per cent of GDP in 2012.