Last week Malta was given two certificates of good government, one by the International Monetary Fund and the other by the European Union.
Someone may point out that this week the EU is still assessing whether Malta’s deficit reduction is sustainable over the medium term – a key factor in ending the excessive deficit procedure Malta has faced since 2008.
A final decision on this matter from the European Commission is expected at the end of the month.
As I told journalist Bertrand Borg in reaction to this news item, I strongly believe that the European Commission’s cautionary approach reflected ongoing economic turmoil across Europe. This does not mean that we should not seek to increase revenues and reduce public expenditure to maintain the sustainability of our deficit reduction programme.
However, over the last years, the government has been quite successful in reducing the deficit while at the same time achieving economic growth.
This apparent conflict between economic objectives that seems to be plaguing a number of European economies is not an issue for us.
There is general agreement that the government has met its targets and while it needs to remain vigilant to ensure that the deficit reduction remains sustainable, this should be a challenge that we can overcome.
This positive feeling was echoed in the forecasts of the European Commission regarding economic growth and unemployment.
The European Commission is forecasting for 2012 that, although economic growth has slowed down when compared to last year, Malta’s economy was still expected to perform better than the euro area average.
If these forecasts are realised, Malta would have the sixth largest economic growth and the fifth lowest unemployment rate in the EU.
The forecasts shows that while the eurozone economy is currently in a mild recession and is expected to contract by -0.3 per cent of GDP by the end of 2012, Malta’s economy is expected to grow by 1.2 per cent of GDP by the end of this year, with a stronger recovery of two per cent forecast for 2013.
Malta is this year expected to continue to lower its deficit to 2.6 per cent of GDP.
In spite of this very positive forecast, Malta is still being advised to take the necessary steps to ensure that the progress registered is not squandered.
The IMF report also warns Malta of the dangers ahead that could put us off track.
It also refers to the longer term policy challenges that Malta has, which include population ageing (hence placing a greater burden on our welfare system), labour force participation (which remains lower than that of other countries) and energy policy (that is reducing our dependence on oil).
If we do address these challenges in a successful manner, it would be one way of ensuring that the deficit reduction programme remains sustainable.
In its consideration, the IMF noted a number of very positive features in our economy.
It mentioned the fact that the banks that serve the domestic market have sound capital and liquidity buffers, low leverage and a conservative funding model.
It highlighted the fact that real GDP is 1.5 per cent higher than it was prior to the crisis of 2008-2010 and that spillovers from the euro debt crisis and financial contagion have remained contained.
It also commented that Malta’s resilience in the face of such a severe international economic crisis is also due to the government’s commitment to fiscal prudence and to improve the competitiveness of businesses operating here.
The IMF report makes reference to other aspects that require further discussion such as future outlook, risks and policies. Yet the message remains one: Our country has been given a certificate of good government but we should not take this certificate for granted.
We need to remain resolute in reducing the deficit while striving for economic growth. To achieve this, we need to continue making adjustments to our economic model while not sacrificing the social model we have built. Maintaining our feet on the ground and not taking anything for granted are key in this process.