Brussels will be keeping a keen eye on Malta’s public finances for at least another year despite a recent positive forecast of the economy.
European Commission sources told Times of Malta that, although the deficit was coming down, Brussels was still not convinced that the situation would continue to improve in the coming years.
The Commission’s analysis showed that structural deficit problems remained and was predicting the situation would be turning for the worse.
According to the excessive deficit procedure recommendations issued against Malta last July, the government had to make a structural deficit adjustment of 0.7 per cent of GDP per year for 2013 and 2014. However, according to the forecasts, although Malta will reach its targets for 2013 it will not remain on track this year.
“According to our forecasts, improvement in structural balance is just 0.2 per cent this year and will be worsening by 0.3 per cent next year,” the sources said.
“This means the abrogation of the excessive deficit procedure is highly unlikely,” they added.
In its latest forecasts, the Commission acknowledged an “improvement in the structural deficit of 0.7 per cent for 2013 despite the limited size of the consolidation measures”.
It said that from a structural balance of -3.8 per cent in 2012 Malta was expected to lower it to -3.1 per cent this year.
However, it noted that the situation would only “improve slightly by 0.2 per cent this year before deteriorating by 0.3 per cent of GDP in 2015”.
The Commission will be officially assessing progress on Malta’s deficit in spring, when it receives the official figures for 2013.
“Although our forecasts indicate Malta is coming round, there are some major risks preoccupying us for 2014, which we are following closely,” the sources said.
These indicators include rising unemployment, which could eventually put a strain on social benefits; a possible delay in the building of a new power station, which would affect Enemalta’s revenue due to lower tariffs promised by the government; and the new public transport service, which could lead to increased subsidies and higher operational costs.
There are some major risks preoccupying us
Following last year’s launch of an excessive deficit procedure, Brussels ordered Malta to cut its structural deficit by 0.7 per cent of GDP in 2013 and 2014, which “would allow the headline government deficit to be brought below the three per cent of GDP reference value by 2014”.
The government had immediately taken the necessary measures by implementing a spending review.
In last week’s forecasts, the Commission said the Maltese economy was expected to remain stable this year, with a GDP growth of 2.1 per cent – the same level registered as in 2013.
The forecast partly reflects a gradual revival of the EU economy, which is expected to register mild growth this year after a period of recession.