The Central Bank of Malta has warned that the government may have to take additional fiscal measures to reach its deficit target for this year.

Government risks missing its target

In its quarterly review of the first three months published yesterday, the bank reported a deficit of 3.3 per cent.

Last year public finances ended with a deficit of 2.7 per cent and the government was committed to reduce it further to 2.2 per cent this year.

Under new EU rules governments have to reduce the deficit to below three per cent of GDP and sustain the reduction until a balanced budget is achieved.

The Central Bank said the government risked missing its target as a result of the widening deficit during the first three months.

“Although the budgetary position on a quarterly basis may be subject to a degree of volatility and to a number of one-off factors, further fiscal consolidation needs to be undertaken in the rest of the year,” the bank said.

The warning came on the back of more recent figures released last month by the National Statistics Office that showed the deficit continued to worsen even in the second quarter.

In January the government had already taken additional measures to cut €40 million in expenditure just two months after presenting the Budget.

The Bank said a more ambitious fiscal consolidation effort would also help place the debt ratio on a downward path. In March, debt increased to 75 per cent of GDP. Part of the increase arose from the government’s commitment to provide loans to euro area countries through the European Financial Stability Facility.

The bank also lowered growth projections to 1.4 per cent and said the risks “tilted to the downside” as a result of uncertainty surrounding the debt crisis in the euro area and “an uncertain business outlook on private investment”.

ksansone@timesofmalta.com