The deficit needs to be kept in check

A change in the deputy leadership of the two main parties and the shocking developments in the judicature have eclipsed some good news on the economic front. Much as the Prime Minister tries to recalibrate the focus, the national agenda remains dominated by the events in the judiciary and by the continued analysis of the election of the two deputy leaders.

Both have been catapulted from the rarified atmosphere of the European Parliament in Brussels to local politics through unforeseen circumstances. It is their role in the political fortunes of the two main contesting parties and their prowess in delivering their respective parties’ messages that will occupy the minds of the electorate over the next few days not the assessment of the island’s economic performance, though, of course, the Nationalists will make much of this in the electoral campaign. They have good reason to for even the credit rating agencies have come out highlighting the improvement made in the consolidation of the Government’s finances.

Government opponents may not be impressed, arguing that the situation on the ground may not reflect the credit rating agencies’ assessments. It is true that wealth may not have been percolating equally, or even fairly, through all strata of society, with swathes in some sectors doing very well and others finding it hard to make both ends meet.

But, on a national basis, considerable progress has at least now been made in putting the financial house in order, a matter that should help the country move ahead in these difficult financial times and work towards greater economic growth.

Credit rating agency Fitch has kept Malta’s A+ rating, arguing that the Labour Party’s decision to keep the Budget measures if elected in the general election of March 9 should allay fears of change in policy. It felt this stance should give certainty to European partners and investors about the island’s commitment to fiscal consolidation.

The Government’s deficit in 2012 was expected to be in line with its forecast – 2.6 per cent of GDP. Fitch is predicting a deficit of 2.2 per cent for this year, which, it said, was higher than the Government’s target of 1.7 per cent.

Fitch’s remark about Labour’s decision may not work out in the way the credit agency is thinking for while the party has said it is prepared to keep the Budget framework, the country does not yet know how it plans to actuate its promises without upsetting the financial applecart.

It is surely not in the party’s political interests to touch any of the Budget measures dealing with social benefits. But it has yet to be seen how, for instance, it plans to cut the water and electricity rates without hitting government finances.

A wrong turn could very well halt the progress made in bringing the deficit down to below the three per cent threshold as required by European Union rules.

Last November, the EU lifted its excessive deficit procedure against Malta and Eurostat and National Statistics Office figures last month showed that the island had the second best economic performance among the 17 eurozone member states in the third quarter.

Moody’s, another credit rating agency, considered the EU’s decision to lift its sanctions against Malta as “positive as it underscores the Government’s effective efforts towards consolidating the fiscal accounts and ensuring the sustainability of public debt”.

Election or no election, the country should not step back from its programme to keep the deficit in check.