Malta could avoid further EU action over its deficit if Budget projections are confirmed by the European Commission.

Economic and Monetary Affairs Commissioner Olli Rehn warned last week that Malta could face sanctions if it did not keep its promises to slash the deficit to below three per cent of GDP by the end of the year.

He also warned that, according to the Commission’s autumn economic forecasts, “Malta will not meet the agreed fiscal targets” and that the island had until mid-December “to correct its deficit deviation”.

However, a Commission spokesman admitted yesterday that when the letter was sent they were unaware of the data announced in the Budget speech on Monday, which indicates that Malta was projecting to meet its original commitments.

“Given that the Budget for 2012 had not been announced yet by the cut-off date of the forecast, the autumn projection for Malta is based on a no-policy-change scenario. The Commission is currently assessing the Budget for 2012 and its implications for the autumn forecast,” Amadeu Altafaj-Tardio said.

The analyses of Malta’s reply, which has to reach Brussels by the middle of next month will also have to wait further, at least until spring 2012, when Eurostat normally publishes its final data on the state of the EU’s member states’ public finances for 2011.

This was also confirmed by the Commission’s spokesman when pressed to give a timeframe as to when the excessive deficit procedure against Malta could be closed if the government’s projections are confirmed.

“This process will take some time,” he said.

“A decision on a possible abrogation of the Excessive Deficit Procedure (EDP) for Malta can at the earliest be taken after the publication of the deficit out-turn for 2011 in the spring 2012 EDP notification and the updated outlook in the spring 2012 forecast,” Mr Altajaf-Tardio said.

Although the Commission last week said that its forecasts showed that Malta’s deficit was expected to rise to 3.5 per cent next year, the government is insisting that the deficit will in fact stand at 2.8 per cent by the end of this year and 2.3 per cent next year.

This is not the first time that Commission forecasts and government projections do not match. In fact, an exercise conducted by this newspaper (see table) shows big discrepancies in the past few years between the Commission’s forecasts and what actually happened.

In 2009, after posting a deficit of 4.5 per cent in the previous year, Malta was put under an EDP and forced to reduce its deficit by 2010.

The island was given an extension last year to put its fiscal house in order by the end of 2011 due to the impact of the global recession on its finances.

All EU member states, with the exception of Sweden and Estonia, are under an EDP.

If confirmed by Brussels, Malta’s 2.8 per cent of GDP deficit by the end of this year will be one of the lowest in the EU.