Malta aims to have a balanced budget and slash public debt by seven per cent of GDP by 2015, according to a three-year plan submitted to Brussels a few weeks ago.
The aim is to increase revenue and cut expenditure to improve structural balance
These ambitious targets are included in the country’s latest so-called National Reform Programme submitted to the EU as part of the Stability and Growth rules.
Following a thorough analysis, the Commission described Malta’s plans as “appropriate” but, at the same time, cautioned that there were risks that must be tackled because these could derail the island’s targets.
The NRP details how the government is planning to consolidate Malta’s public finances in the coming years to achieve long-term sustainability.
Although the programme gives overall objectives, some of the measures are missing as they are expected to be spelled out in future annual budgets.
According to the plan, Malta is aiming to increase revenue and cut its expenditure to gradually improve its structural balance by at least 0.5 per cent of GDP each year until 2015.
The objective is to have a budget balance of just -0.5 per cent of GDP by 2015, meaning a first ever budget surplus in 25 years.
With regard to public debt, which has increased substantially in recent years, particularly on the back of loans and guarantees given to Greece as part of the EU’s bailout packages and the restructuring of Malta Shipyards, the government is planning to gradually reduce debt to 65.3 per cent in 2015 from the current 72 per cent.
Despite the economic and financial crisis of the few past years, Malta is one of few EU member states that has managed to slash its deficit substantially, down from 4.8 per cent in 2008 to 2.7 per cent at the end of 2011.
In its assessment, the Commission recognises Malta’s efforts and states that the plans are realistic and achievable. However, it also highlights some risks that might impede Malta from attaining its goals.
“The adjustment path towards the medium-term objective (balanced budget) as planned in the programme seems to be appropriate,” it said.
Among the main risks identified by the Commission are a lower revenue for 2012-13, given that economic growth could translate into lower tax revenue.
Brussels commented on the fact that the structural revenue increase planned for 2013 is not yet specified.
“Expenditure overruns, linked also to weaknesses in the budgetary framework at execution stage, have occurred in the past, such as in intermediate consumption, given pressures in the health sector,” the Commission notes.
“Also, notwithstanding the strong commitment to restrict recruitment, there is a risk of slippages in the public sector wage bill, also in the light of the collective agreement not yet being renewed,” the Commission said.
Brussels is also sceptical about the government’s reduction plans with regard to public debt and sees quite a number of “debt-increasing risk factors”, particularly due to the restructuring of Air Malta and Enemalta.
Contrary to the government’s projections, the Commission forecasts a rise in debt, at least until 2013, and warns that “government-guaranteed debt in Malta is high (16.8 per cent of GDP in 2011) compared to other member states; 60 per cent of this is accounted for by the public energy utility – Enemalta”.