It is not just Malta that has had a deficit in the government's finances for last year. According to an EU Commission report, of the 17 members that had been assessed, no fewer than five others had exceeded the threshold of three per cent, as established under the Stability and Growth Pact. They are Ireland, Greece, Spain, France and Latvia.

However, the report makes a very important distinction. In Malta's case, the deficit was brought about not by exceptional circumstances, such as war or natural disaster, or by a severe economic downturn, which, as the Commission points out, would have been allowed for a breach of the threshold, but by circumstances of a temporary nature and, therefore, Malta has technically failed to fulfil the pact's rules.

Even though on balance, "the relevant factors seem to be relatively favourable", the Commission is advising enhanced surveillance of public finances. The matter will be taken up at a finance ministers' meeting on March 25 and if Malta is found to be breaching the pact's conditions, a deadline will be set for the island to correct the deficit.

According to the Commission's report, Malta was expected to close last year with a deficit of 3.5 per cent of the island's gross domestic product. At 62.8 per cent, government debt is still above the 60 per cent threshold but the Commission sees the ratio diminishing sufficiently at a satisfactory pace. It will continue to diminish if the government manages to keep to its financial targets and reduce the deficit.

The Commission's assessment comes shortly after it published its overview of the national reform programme, which, basically, highlighted six challenges, one of which is a need for a better control mechanism to restrict growth in spending. In fact, the Commission finds the government's estimate of closing the year with a deficit of 1.5 per cent as optimistic, saying its own estimate is of 2.6 per cent. Well, this would still be below the threshold. Again, the question is whether or not the government will in fact be able to meet this target at all.

Much depends now on how the economic downturn abroad will hit the economy over the coming months and how this could ultimately affect the direct revenue for the government. What will help is a more aggressive drive to cut unnecessary spending and abuses in the payment of welfare benefits, as well as in the distribution of free medicine. Savings can also be made through greater efficiency in government operations.

Moving on, the Commission finds that the measures adopted by the government in response to the economic downturn are in line with the EU recovery plan but it also points out risks to the achievement of the deficit and debt targets. An interesting comment made by the Commission and which seems to run against current belief, at least as expressed by some government sources only recently, is what it describes as the lack of diversification in the economic base. It says that, although matters have improved in recent years, such lack of diversification increases the island's exposure to external shocks, especially in the face of the current economic downturn.

The island has already managed to diversify into financial services, now an important pillar in the economic structure. Other important lines are the cruise liner business, ship registration and the teaching of English to foreigners. What other possible lines can be feasibly and profitably tapped? The discussion is open to the floor!