Labour veteran Joe Debono Grech’s occasional outbursts are sometimes amusing but they can also be derisory as when he said over the weekend that his party inherited a broken country when it took over three years ago.
Labour has no magic powers and if the economy keeps making the steady progress it is registering now this is only because the country is continuing to build upon the solid foundations established over the years. It is therefore self-defeating and insulting to the people to infer, as the politician did, that Labour inherited a broken country.
It is gratifying that the country has been receiving so many glowing reports for the way it is managing to meet economic challenges. One report after another speaks of how the island is keeping a healthy rhythm of economic growth and reducing the deficit in the government’s finances, as well as the national debt.
However, the latest report, that by credit rating agency Fitch, actually says the economy is expected to slow down a bit, which is more or less the same assessment made in this regard by the European Commission in its winter economic forecast. In Fitch’s view, growth is expected to drop from last year’s 4.7 per cent to 3.2 per cent, due to the completion of large-scale energy projects.
On the other hand, according to the European economic forecast, gross domestic product growth is projected to moderate to 3.9 per cent this year and 3.4 per cent next year, higher than the figures forecast by Fitch. As experience of credit rating abroad has shown, agencies do not always get it right, and sometimes different agencies give different assessments, which is not altogether surprising as these are drawn up by different analysts.
Finance Minister Edward Scicluna does not agree with the growth projection made by Fitch. He believes that the island’s growth rate would be better than that forecast. He told this newspaper: “What Fitch does not foresee, however, is that the government plans to continue injecting public capital into major pro-jects over the course of the next year”, pointing out that this would see the economy grow at a faster rate than that forecast by Fitch.
However, while this is fine, the country would have to continue building up a sound, diversified economy based on profitable sectors that could sustain future growth. This is in fact what it has been doing ever since it moved away from an economy based on defence spending. The economy has come a long way since then, but the exercise never stops as the country would have to be smart enough to expand into new areas all the time so as to make up for sectors that pass through difficult times or are no longer competitive. There needs to be more evidence that the present government is laying the foundations for this continued diversification.
The International Monetary Fund recently said that reliance on domestic funding and the relatively well-diversified economy had helped preserve stability and given the island resilience in the face of global shocks. But Standard and Poor’s, another credit rating agency, differed somewhat about the extent of the country’s economic diversification. In its view, the degree of such diversification is “relatively low”.
As the country keeps exploring new economic lines, it is well to keep supporting manufacturing industry as this helps provide a well-diversified mix. Reducing further energy costs is one way to help industry keep its competitive edge. The country also needs to guard against creeping complacency and work for greater public discipline all round.