Government guarantees should be capped and anything over the threshold should need parliamentary approval, the Fiscal Advisory Council has recommended.
The chairman of the council, Rene Saliba, said that the outstanding level of government guarantees, as a percentage of GDP, was “rather high” in Malta and that it was worth considering the introduction of specific new legislation.
The government issues a guarantee as security when a state entity applies for a loan or overdraft facility from either a local or foreign lender.
Government guarantees reached €1.4 billion in 2014 – up from just €893 million in 2009. This includes €225 million to restructure Enemalta’s guarantee, and €31 million for Electrogas, until the European Commission approves the security of supply agreement between it and Enemalta.
In an interview with The Business Observer (see pages 10 and 11), Mr Saliba explained that the government’s borrowing powers were very clearly defined by laws dating back decades, and require parliamentary approval. “But when it comes to guarantees there are no such controls, no limit and no procedure that it has to follow with regards to parliamentary approval.
“It is more a matter of informing Parliament rather than requiring its approval. The council is suggesting that there should be more explicit legislation to govern this area, both in terms of procedures and also perhaps an upper threshold that could be subject to parliamentary approval.
For instance, in the case of the Treasury Bills or overseas borrowing, the minister needs to present a parliamentary resolution if he wished to have the ceiling raised.
“Legislation to cap the amount of outstanding government guarantees and establishing parliamentary approval for it to be exceeded would be one way of improving governance in that area as even though guarantees are not a debt, they are a contingent liability. And in the case of default, what is a contingent liability becomes a real liability,” he said.
The council’s chief economics analyst, Malcolm Bray, noted that such contingent liabilities were closely followed by international agencies – all the more because Malta stands out among other member states.
According to Eurostat data for 2014, Malta’s government guarantees represent 16.8 per cent of its GDP, the fourth highest rate after Greece (28%), Austria (26.5%) and Finland (25.8%).
Top five (2014)
Enemalta - €523m
Malta Freeport Corporation - €227m
Malta Industrial Parks - €117m
Water Services Corporation - €93m
Foundation for Tomorrow’s Schools - €72m
Contingent Liabilities
Government Guarantees
Total in 2014 - €1,403,270,738
Total in 2013 - €1,257,929,437
Total in 2012 - €1,242,675,071
Total in 2011 - €1,142,575,151