Bertrand Borg
‘Aftermath of Moody’s downgrade depends on government action’
There was no need for the recent downgrade of Malta’s credit rating to be traumatic provided the government addressed public debt, three leading economic analysts have suggested.
Moody’s downgraded Malta’s government bond rating from A1 to A2 and revised its outlook of the country to negative.
In especially critical comments, financial analyst John Cassar White said that while “there are plenty of ideas and lots of chatter” there is a distinct lack of “clear targets and milestones to address the weaknesses in our public finances”.
“We are saying the right things but not doing the right things,” he said.
While Moody’s downgrade was not a cause for alarm, he said, it flashed a number of red lights that the government would do well to take heed of. The most pressing need was a comprehensive review of Malta’s social services expenditure. Mr Cassar White’s concerns were reflected in comments by economist Gordon Cordina. Domestic revenue, Dr Cordina said, was not high enough to meet future requirements. Although growth levels were healthy and employment rates were improving, he felt the government had to review certain aspects of its fiscal management.
Economist Lawrence Zammit said that although there had been a significant push towards lowering the fiscal debt, the total amount of public debt remained relatively high. However, he noted, most of Malta’s debt was local rather than foreign.
An economic report published by the European Commission last Monday insisted Malta’s key economic challenges were fiscal consolidation – in other words, bringing deficit and public debt levels down – and pension reform, linked with an increase in the retirement age.
Dr Cordina sounded a word of warning. “The things we are doing may not be sufficient to meet the challenges on the horizon. It is perfectly feasible to have an economy in which education and health remain entirely free. But we have to be able to afford it.”
Mr Zammit also spoke along similar lines. “So far, the economy is doing fairly well. However, there are parts of our social welfare system that are unsustainable. It may well be the case that we need to introduce an element of means testing.”
The EU report vindicated some of their concerns. The non-binding nature of many of Malta’s targets for fiscal consolidation suggested a “relatively short fiscal horizon”, it said, and the long-term budgetary impact of ageing was “significantly higher than the EU average”.
Mr Zammit, however, cautioned against too broad a reading into the downgrade. The Moody’s report, he said, was not a downgrade of the Maltese economy. It was a downgrade of “our local and foreign debt”.
“Malta’s economy is very exposed to events overseas. Moody’s could hardly ignore economic instability abroad when analysing Malta’s government bond rating,” he said.
Dr Cordina’s primary concern was in removing inefficiencies while simultaneously generating more jobs. Doing so, he admitted, could entail short-term readjustments, as was happening with Air Malta. Nevertheless, given adequate lifelong learning structures, there was no reason why workers in inefficient industries could not be retrained to become productive contributors to the economy. “We need restructuring permeating the entire public sector.”
Malta still had a long way to go in terms of lifelong learning, Dr Cordina said. “There’s little point in speaking of raising the retirement age if workers aren’t given adequate training to keep on working.” This was especially important due to Malta’s ballooning pension expenditure.
This concern was also reflected in the European Commission report. Malta, it said, suffered a “mismatch between demand and supply of skills on the labour market” and suggested the country “strengthen the effectiveness of its vocational training system”.
Growth rates were good when compared to other countries, Dr Cordina acknowledged, but they could still not be high enough to meet future expenses. “There’s little point in comparing ourselves with those that are drowning,” Dr Cordina quipped.
The government, Mr Cassar White said, had to take the lead and shoulder responsibility for its high levels of debt and bloated public sector. The Opposition also had a role to play. “Both,” he said, “must be clear with the public and explain where they intend to take the country, and how they intend to take it there.”
His words ominously reflected events in eurozone crisis countries. “Fiscal policy is becoming increasingly centralised. If we don’t tackle these issues we’ll find ourselves at some point in the not-too-distant future being forced to do so by others.”
A country, Mr Cassar White said, went on existing beyond the next election. “Politicians might think in terms of election cycles but citizens see things differently. Citizens think in terms of their lifetimes and those of their children,” he cautioned.
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Philip Hili
Sep 19th 2011, 14:32
Come on Mr Economists!!!!
You mentioned everything that in your opinion is making our economy week. But you failed to mention the amount of income tax not being paid by SHARKS because they are self-employed and therefore their income is not known. Not like employees who has to pay up to a single cent because their wages are declared and income tax is deducted prior to receive it.
A developer boasted on TV prior to the last general elections in a television debate that he owns to the Inland Revenue - TWO MILLION POUNDS - not EUROS and he will not pay them unless he will get the building permits he applied for.
These are the people who are weakening our economy and not the working class or the free health service or the free education. How many other SHARKS are not paying their dues so that the economy could be much more better? Or economists are part of this class and therefore it is not in their interest to advice the government to collect Income Tax - worth MILLIONS OF EUROS from such people?
Gianninu Saliba
Sep 19th 2011, 13:52
No, Mr. Dimech, what they are actuallyt saying is, and I quote: Moody's downgrate was not a cause of alarm"..."Moodty's report was not a downgrate of the Maltese economy"..."Growth rates were good when compared to other countries".
And most importantly they said: "The opposition must be clear with the public and explain where they intend to take the country and how they intend to take it there." Yes, Mr. Cassar White did say that the Government must do the same... but we all know where and how the government intends to take us. They have been successful in leading us in the right direction for the past 23 years. Gone are the days of one brand of toothpaste, one brand of condensed milk, one brand of chocolate, no colour TVs, no computers, no work for the unemployed and no democracy. Those days are over and gone for good. That's why Dr. Gatt said what he said yesterdat. Who on earth wants to go back to the 70s and early 80s? Who would risk all that we have, just to have a change in government?
Mr ALBERT LEONE GANADO
Sep 19th 2011, 13:45
The truth is that both the government and the opposition are hostage to their voting base and whilst I am sure that they are aware of what economic measures need to be taken to improve the state coffers they dare not implement them or put them in their electoral programmes. It is unfortunately a national malady that as a nation all social classes in their own sphere expect things for free.
Hoteliers and tourism operators had government give them land for free to build their hotels and then when they converted them into residential luxury apartments in prime areas they reaped all the speculative profit. In almost all tourist areas in the world there is a room tax per night but here we first introduced it and then dared not stand up to the hoteliers.
Businessmen threaten that they will dismiss workers each time government imposes some justified social burden on them.
Middle class parents expect government to subsidize church and private schools which in various onerous ways burdens the state finances at a time when the school population is dropping and whilst government schools are half empty and paying teachers good salaries for the shortest school day in Europe
Workers in parastatal companies expect handsome payouts if because of changed situations the economic existence of their company is no longer viable.
All of us expect free health,free medicines and free tertiary education. Even the richest countries in the world expect least an element of cosharing of cost. A twenty per cent funding by the individual of such services will result in a saving of at least double that through reduction of unnecessary demands and wastage on such social services.
There are also many community services we expect for free where they are paid for elsewhere in Europe such as housing rates, parking fees, waste collection fees etc.
Ironically you see a lot of prosperity and flaunting of wealth around us by those who demand a raft of free services confirming that we are in the main government poor and individually prosperous.
Government also is not sufficiently subject to citizen scrutiny in its expenditure and some ministers act as if the public purse is theirs to dispense as they deem fit. Wasteful show projects are a case in point. as are self assigned remuneration packages and handsome fees to so called experts.
Things will have to change as they did in Sweden which having slipped far back from the top of the wealthy nations has now redressed matters and anyone who has been there knows that in an equitable way you as to pay for all types of community services. The problem is who out of our crop of politicians has the political courage and integrity to bell the cat before a disastrous financial crisis occurs.
Philip Hili
Sep 19th 2011, 13:35
Did these three bright economists; who not like Moody's know how the Maltese in general lived in the past and the way of life the Maltese live up to today; commented as they did, did they took into consideration this account and which other European people who are in financial trouble ignored for decades?
To mention only one fact which to me was news up to a few months ago is the retiring age of employees in some other European countries who asked for bail. It transpires that the retiring age in Greece was, if I am not mistaken 55 or something around this figure, but surely not 60 not to mention the enormous commissions government employees got from the Government for work they were paid to do. There are other examples.
Having said this, I am not ignoring the fact that the Maltese economy should be ignored. But to paint everything doom and gloom.
Mr Angus Black
Sep 19th 2011, 12:59
All the Jeremiahs have to do is look at the last two LP leaders, both (supposedly) economists, and what they did or in the case of the latter, proposes (or not).
During Sant's brief tenure, the deficits soared to the highest levels, he switched VAT to CET and when that failed, went back to VAT again, after many had smashed their cash registers. Unwarranted increases in electricity bills when oil was selling at $12.00 a barrel! Some economist!
Now Joseph mirrors Sant. He promises a reduction in electricity bills, more spending to create more jobs, reduce the deficit and at the same time not increase taxes. Maybe he will start printing euros?
While the economists' (real ones) advice may be valuable, they usually opine on a specific day while economic events both positive and negative happen on a daily basis and what was good yesterday may be totally inadequate today and what tomorrow brings is another matter.
Did the US economists foresee the financial melt-down which happened under their noses? The answer is obviously NO. Why? Because many variables came to play simultaneously and caused the catastrophe we all know about, a tad too late.
Economists cannot even agree on a course of action in case of a recession and a world recession we've had for the last two years.
Malta has gone through this economic downturn virtually unscathed and this is not by coincidence. Malta could have gone Greece's way and threw money just to douse the recession fires, and look at what happened to them. Instead of spending frantically, Malta INVESTED by first saving jobs and secondly in projects which strengthened and embellished our infrastructure, creating hundreds of jobs in the process. Education and Health remained priorities for this government and while many moan and whine for political reasons, all they have to do is to make a list of all the benefits they receive today compared to the problems experienced under Labour administrations.
At least this government does not have to employ some 8000 on the eve of next election to make the unemployment figures appear better than what they already are.
Brian Gatt
Sep 19th 2011, 13:10
Yeah Right,
So what you are saying is that our Govt is so good that we survived the recession unscatched hence we faired better then the rest of the world....WOOOW impressive if only that was true!!! my humble opinion is that we have been only touched by the small waves and that the huge ones are still to reach our shores....God Forbid we are hit by the huge ones because we barely survived the small ones.
So what you are saying is that Moody's downgrading was unjustified hux hekk...and also what do the PL have to do with this issue. this Govt has been 25 years in Power so you are telling us that this is PL's fault and that we are still feeling the repercussions of the PL desicions !!!!!
Good try !!! you might sell your hypotesis to PN hardcore die hards not to us my friend
Mr Joseph Carmel Chetcuti
Sep 19th 2011, 13:47
I get it. So the blame is with the LP leaders not with the PN leaders who run the government. Malta's economy is a beggar economy and the government has been living beyond its means, creating the impression that "money is no problem". I would not put all the blame on the PN government because there are world factors but clearly we have a government that is blatantly and demonstrably incompetent. No use blaming the US when you can buy a house cheaper in the UK than you can buy in Malta. It is the working class that is repeatedly raped by PN governments as the rich manage to avoid paying taxes.
Mr Pat Hobson
Sep 19th 2011, 14:05
@Black. I pity you for swallowing your party's propaganda hook, line and sinker. Do you recall the "hofra hrafa" or the memo the then Minister of Finances John Dalli sent to the cabinet about the government's spending? I really pity you! And pray, tell us why Moody's downgraded us? But do not spin your party's spin? If something happens, and looks like disaster is round the corner, as Joseph Muscat said, we have no umbrella to protect us from the coming storm! What I fear most, and I hope my fears are unfounded, is that we don't end up like Greece, or the other Eurozone countries. Heavens help us, for nobody will be helping us. We're just a ripple in a big ocean.
Paul Micallef
Sep 19th 2011, 15:05
Ara veru tghix fil qamar sur Black int. Insjet kemm konna nghajtu money no problem ghax sibna l kaxxa mimlija u rnexxielna nonqfu kollox. U ghadna sal lum immorru lura bhal granc!
Ms pat muscat
Sep 19th 2011, 15:40
Don't blame the messenger because the message is unpleasant.
Mr Angus Black
Sep 19th 2011, 18:46
Gatt & Co
A further explanation seems to have been delayed. I shall wait and see.
j brincat
Sep 19th 2011, 12:46
What the 3 economists are saying is indeed a tall order and great doubt exists whether this government is capable of taking the bull by the horn, more so now that the elections are nearly round the corner (at most in 18 months' time).
(jb)
Randolph Peresso
Sep 19th 2011, 13:36
What these 3 economists are saying, and Cordina has been saying it publicly for quite some time now, is that we cannot afford to keep on providing free education and free health care to everyone.
Mr Lawrence Fenech
Sep 19th 2011, 12:27
Downgrade mad daqqa tal-Euro 500.
D Farrugia
Sep 19th 2011, 12:06
Well, read what these economists are saying, and read what joseph muscat, karmenu vella and edward scicluna have been saying.
Clearly, PL is giving a sober account, Lawrence Gonzi and Fenech are living in cloud-coockoo land.
A Dimech
Sep 19th 2011, 11:33
Essentially what they are saying is that this government is all talk but no action!!
Mr Michael Buhagiar
Sep 19th 2011, 11:31
no economist ever found the right medicine for any country's financial woes. These economists should be shot in the head for their arrogance and illogical advices. As long as the wheel turns it's ok. When the wheel is stopped, then God help us.
Mr Denis Pace
Sep 19th 2011, 12:51
Generic statements are useless and baseless.
Economists look at the figures and what has to be done.
Politicians are held down by the electorate...us...and we all look at immediate personal interests.
Take Health & Education...Everyone in his right senses knows that WE ARE LIVING BEYOND OUR MEANS. Free Medicines.... a bubble about to burst. The strain on public finances is huge.
Increasing fiscal pressure will only slow growth and this should be avoided.
There must be bipartisan agreement on public spending control and rationalization. Just like in Spain. In Greece, the opposition is holding back and risking leading the country to a default.
Let us hope that our politicians forget elections and concentrate on action...not futile Sunday morning "kazin"-talk.
Mr R ferriggi
Sep 19th 2011, 11:15
you do not need to be an economist to realise that we are heading for disaster.
we are not there yet, everything thing seems ''manageable''.
SEEMS.
free health, free education, free this free that will all finish.
pensions as we know them,,,, finished.
another mammoth problem is the huge public sector. of course............ government wont even mention of touching that holy cow!!!
Mr Angus Black
Sep 19th 2011, 13:40
Mr Ferriggi, the LP has been saying that we are heading for disaster for the last twenty-five years. This, after this country was rescued from bulk buying, no water, constant electricity black-outs, archaic telephone service, a Mickey Mouse airport (sorry, Walt), high unemployment, violence, corruption, beatings, and a host of other problems experienced under Labour administrations .
Of course, such problems should be forgotten, as if they never happened. Unfortunately, the main architects are still with us and a few have been welcomed back by Joseph, one of whom is writing the next Labour Party election programme.
"free health, free education, free this free that will all finish.." Yes, that is why Joseph has been saying that the Nationalist government intends to charge for Health services, so that if elected, can boldly say "but the previous government was going to introduce fees, anyway" Miskin hasibna cwiec.
The secret of business success is not just cutting expenses because one day there will be nothing else to cut. Success is when a business increases sales (revenue) and keeps (exependiture) under control. Creating jobs generates more taxes (revenue) without having to increase taxes across the board and this government is doing just that.
If Joseph has better ideas, just bring them on NOW not a week before next election giving no room for honest evaluation. These old tricks simply will not work, Joseph. We know only too well how strong the LP has been in the field of economics. Even Dr. DNA has been totally silent and will not go anywhere near Dr. Muscat 's (call me Joseph) inane proposals.
Ms pat muscat
Sep 19th 2011, 11:13
Actions speak better than words. We've been regaled with fairy -tale budget speeches for the last 20 years. PN made no hay whilst the sun was shining. 'Houston' we have a problem!
Mr John Montague
Sep 19th 2011, 10:58
There goes social welfare. I trust Lawrence Zammit's comments are well heeded - I am referring to means testing here; before we all jump in head first - this is no mepa permit......
Mr Paul Cassar
Sep 19th 2011, 09:25
THANK THE ECONOMISTS................. BUT WE ALL KNOW THAT..................WHAT WE ALSO KNOW THAT
GOVT HAS BEEN KNOWING THIS FOR AGES. IN FACT ALL BUDGET SPEECH POINT IN THAT DIRECTION
.................BUT WHAT ACTUALLY HAPPENS IN MUCH, MUCH DIFFERENT ..................IN FACT WE HAVE
FINISHED IN THE DIRE STRAITS WE ARE NOW IN..........THANKS TO GOVT. TOTAL FINANCIAL
MISMANAGEMENT ..............NOT ITS NICE WORDS.
Gustav Svensson
Sep 19th 2011, 08:02
Malta dream team Gonzi & Gatt, will keep doing what they are doing for another 20.... Well reallity will catch up, real estate bubble will burst banks will face problems, air malta, gaming companies will get local gaming licenses etc.. tough times a head..
Mr Paul Xuereb
Sep 19th 2011, 10:34
Doom and gloom all over! Let us by all means offer constructive criticism but let's not paint all the clouds black.