The Malta Fiscal Advisory Council has warned that government spending might exceed limits in 2017, based on the Budget.
In typical diplomatic language, the council’s report on the Budget said it “invites the government to explore possible fine-tuning of expenditure plans for 2017, to accommodate the requirements set by the Commission for both the annual structural effort, as well as the yearly expenditure growth limit”.
Overall, the Council said that the budgetary plan for 2017 broadly complied with the requirements of the Fiscal Responsibility Act and the Stability and Growth Pact – the same conclusion reached by the European Commission.
“In this regard, it will be important that compliance with fiscal rules is done in a way which does not limit the efficacy and the meeting of fiscal policy objectives.
“The Council considers that the expenditure rule should be respected in 2016, as annual expenditure growth, after adjusting for certain components, is expected to be within the prescribed limit. However, there is a risk that such limit could be exceeded slightly in 2017.”
The final report on the Draft Budgetary Plan for 2017 supplements two reports published in October and November this year, which respectively focused on the plausibility of the government’s macroeconomic forecasts, and its fiscal projections.
The Council was positive about the planned trajectory for public debt, which is expected to decline from 64 per cent of GDP in 2015 to 63.3 per cent in 2016 and 61.9 per cent in 2017, noting that the slower accumulation of debt and the expansion in nominal GDP were enabling the debt to-GDP ratio to converge closer towards the Eurozone target of 60 per cent.
It also said that counter-cyclical fiscal tightening would contribute to further progress towards the attainment of Malta’s Medium-Term Objective of structural balance by 2019.
“Available information suggests that the pace of structural adjustment for 2016 – that is, the improvement in the fiscal balance after correcting for the effects of the business cycle and one-off and temporary effects – will exceed the 0.6 per cent of GDP minimum requirement,” it said.
The full report is available on the MFAC website http://www.mfac.gov.mt .