Economists have called on the government to ditch its fiscal surplus target to help the economy through the bumpy ride ahead, but while another analyst, Edward Scicluna, agrees in principle he warns we are already wildly off target after expenditure ballooned earlier this year.

"While macro-economic policy would normally suggest such a move (borrowing to boost the economy) the government is quite restricted in what it can do," he says.

Prof. Scicluna had warned that the government's targets were unrealistic last year and reiterated last August that we could end with a shortfall of up to €185 million in 2008 - some €117 million off projections.

Contacted yesterday, he said: "It is turning out to be much worse than I expected. Last year I considered the revenue projections as too optimistic and as a result the 1.2% deficit to GDP target could not be reached this year. Little did I think that expenditure could explode in such a manner.

"All that has been built painfully since 2004 has been unravelled in three quarters. We have not only exceeded the 1.2% target but gone well beyond the three per cent Maastricht criterion. Our public finance shortfall on a rolling year basis now stands at 4.3% of GDP."

When asked for a reaction, a spokesman for the Finance Ministry dismissed the projections saying simply: "It is not the first time that an economist has made a prediction which did not turn out to be accurate. We are not talking about any particular economist but in general. Even the International Monetary Fund from time to time makes revisions."

Still, Prof. Scicluna stuck to his guns, insisting that while the new tariff regime may correct the situation somewhat, it will not provide a big enough turnaround by the end of the year.

He is quick to clarify that he does not agree with the new tariff regime, and "the needless negative shocks it is expected to give to the economy", but says that what pushed the government to carry out such "a desperate move" was the bad state of public finances.

The projections come as two other leading economic analysts joined the chorus in industry calling for the government to ditch its target to reach a deficit surplus by 2010 and instead draw on a bigger deficit to stimulate the economy ahead of the shocks the island can expect to receive from the global crisis.

Employers, in particular, have been calling for such a stimulus but the message so far appears to be that this will be a rather tight budget. The Prime Minister himself yesterday stressed the word "responsible" repeatedly when talking about the budget at a party activity.

Gordon Cordina says the budget will have to face the international scenario squarely and the way to do it is by injecting money into the economy. "In a nutshell we need to see the fiscal deficit grow, God forbid we should keep insisting on tightening up finances. That should be done when things are doing well, precisely so there are resources to cater for the situation when things are not doing well, as is the case now," he said.

He would not comment on the analysis of Prof. Scicluna, pointing out that he would have to see the workings. When asked about the possibility of enlarging the deficit should we be faced with a deficit above the benchmarks allowed by the Maastricht criteria, he said: "We should use whatever leeway we have under the Stability and Growth Pact to expand expenditure as much as possible to see us through these rainy days."

Similarly, writing today on page 5, economic analyst John Cassar White says that in "these difficult and extraordinary circumstances", strict fiscal rectitude can wait.

"Following the recent massive increases in the cost of energy services for households and businesses, it would be very surprising that even more pressure is applied by increasing taxes. I already believe that the recent revision in water and electricity tariffs, combined with the imminent hefty increase in the price of domestic gas, is going to affect the economy very negatively."

Like, Prof. Cordina he suggests that the government should draw on a bigger deficit and invest the money productively to boost the economy. "It will be a big mistake if we curtail public productive investment now on the pretext of balancing the books," he says.

But Prof. Scicluna points out that the government does not have much option, being left with very little room to manoeuvre. "The government has left itself with little latitude... the problem is that there isn't much fat to draw on."

The silver lining is that, in view of the global crisis, the EU has been sending messages that it is prepared to be more lax on the Maastricht criteria which binds Malta, among other restrictions, to stick to a deficit-to-GDP ratio of three per cent.