Economists caution on Brussels’ deficit forecast

Economists have expressed caution over the European Commission’s forecast that Malta’s deficit will worsen next year.

In its autumn forecast, the Commission said Malta’s deficit would reach three per cent of GDP this year and increase to 3.5 per cent next year.

The figures do not tally with the government’s projections that the deficit will be 2.8 per cent this year and 2.3 per cent in 2012 but economist Lino Briguglio said the Finance Ministry was better suited to know the figures than the Commission.

“We should respect the Commission’s forecast but, at the same time, we should acknowledge the fact that it is the Finance Ministry in Malta that is on the ground,” Prof. Briguglio said.

While acknowledging that he did not know what type of modelling exercise the Commission used to arrive at its figures, Prof. Briguglio said forecasts were based on assumptions and these always carried “a margin of error”.

A similar sentiment was expressed by economist Joseph Vella Bonnici, who insisted that, in the absence of information on the method used by the Commission, analysts had to rely on what the government was saying.

However, he said the Commission’s assessment of a worsening deficit next year could be a result of two factors: slower growth, which meant the deficit as a percentage of GDP would climb, and structural expenditure such as social services, which the government was reluctant to cut.

Mr Vella Bonnici said there were other unknown factors that had to be considered such as the restructuring aid for Air Malta and the uncertainty surrounding utility bills.

The Finance Minister has said that lowering the deficit was a priority as the eurozone grappled with a debt crisis.

According to Prof. Briguglio cutting the deficit should lead to a lower debt burden that would release funds for investment. But the economy would be affected by slow growth in the EU, he said, given Malta’s exposure to factors outside its control.

“Successive Maltese governments, including Labour governments, have been very resourceful in withstanding external shocks and I am hoping that the economic arsenal of the Finance Ministry includes policies aimed at strengthening the resilience of our economy,” Prof. Briguglio said.

ksansone@timesofmalta.com