Economists have welcomed the leaner government deficit, saying it was very good news for the Maltese economy.
Some, however, cautioned that the devil was in the details: where was revenue up and where had spending been reduced in achieving a figure of 2.8 per cent of GDP?
Economist Karm Farrugia was surprised at the extent of the reduction, saying he had expected the final figure to range closer to 2.95 per cent.
“It is much better than I expected, but it’s quite an achievement – especially when we achieved the target a year before the deadline imposed on us by the European Commission.”
The government must be extra vigilant this year
What was even more positive was the fact that, for the first time in six or seven years, the government achieved a surplus in the last quarter of 2013, he added.
“You cannot judge matters by a quarter but this is exceptional. It could have just been a flash in the pan but it has not happened in a very long time,” he said.
It was also positive that Malta had not needed to resort to austerity measures or increase taxes.
“We’re doing well economically and this government is seeing the potential of our economy.
“Now we are among the best runners in Europe.”
Mr Farrugia, however, warned that 2014 was a “test year” for the government as there were no one-off payments which had to be made and this year would determine whether the government had control over public finances.
“The government must be extra vigilant this year,” he said.
Economists Lawrence Zammit and Stephanie Cutajar also said it was “a very positive sign” that the deficit had been brought down to 2.8 per cent. Both, however, said the details behind the numbers had to be studied to be able to draw long-term conclusions.
“I trust the government is looking at certain details to see whether there were one-off items which could have contributed to such a drastic increase in revenue or a decrease in expenditure,” Mr Zammit said.
Ms Cutajar said bringing the deficit-to-GDP ratio back down to below the three per cent EU threshold had “important economic implications” as it gave the government room forfiscal manoeuvre as well, signalling Malta’s strong economic fundamentals.
“However, the true challenge is ensuring that the deficit remains below the reference value and progresses towards a balanced budget. This will allow the government to start reducing the debt ratio towards the 60 per cent mark,” she said.
She said the deficit had been lowered because, according to official statistics, both revenue and expenditure had increased in 2013 when compared in 2012, with revenues increasing at a higher rate than expenses.
“More effort needs to be made to consolidate government expenditure and introduce efficiencies in the public sector,” she noted.
Ms Cutajar said that, compared to the EU and eurozone averages, Malta had a lower deficit and debt.
“Although we are still among the euro area countries with the lowest deficit, we have been losing positions in this ranking for the past two years.
“It is important to improve our position in order to continue promoting Malta as an attractive and sustainable hub for investment.”