Malta has just received the results of its public finances exams after the first year of membership of the eurozone club. The criteria established in the Stability and Growth Pact are tough but the deterioration in the country's fiscal performance in 2008 after a few years of improvements in the management of our public finances is disappointing. And it has forced the European Commission to recommend that Malta become subject to an Excessive Deficit Procedure, joining a growing list of member states in the same boat.

With a budget deficit of 4.7 per cent in 2008, Malta had the third worst performance within the eurozone, with only troubled Ireland and Greece registering a worse performance. Malta's 2.2 per cent deficit registered in 2007 was remarkable but its sustainability is now being questioned.

The Labour opposition has pinned the blame for this fall in performance on the Nationalist government's effort to influence public opinion favourably through excessive expenditure during early 2008 in the run-up to a general election when the odds were stacked against the government retaining power.

Labour further blames the government for its inability to propose an economic stimulus package to revive the economy because the public finances are in such a poor shape. This view seems to be corroborated by a statement by the Governor of the Central Bank in the 2008 annual report when he said that Malta's ability to manoeuvre in the prevailing economic crisis was "limited by the relatively high budget deficit and debt levels".

Forecasting future economic developments, including public finances performance, is notoriously difficult. The leaders of the Maltese economy are trying to hit a target that is constantly moving but are optimistic of success, going by Finance Minister Tonio Fenech's deficit projections yesterday. But all those institutions projecting future economic indicators need to be realistic. Many analysts argue that no country can really talk itself into a recession. Similarly no country can talk itself out of one. What will make Malta turn the economic corner is tough action to address the areas where it is under-performing. For instance, the tourism sector is badly in need of a shake-up. Curtailing productive public investment can, if prolonged for too long, complicate the already difficult situation in the tourism industry.

The Stability and Growth Pact fiscal regulations are important tools to ensure that public finances are managed in a way that promotes economic growth, rather than slow it down. Failure to achieve the set targets in any year or two does not really constitute a permanent failure.

Many economists in fact argue that, in extraordinary times, like the ones we are going through, strict adherence to such public finance targets can cause more damage to economies that are already struggling. But this does not mean that Malta should throw caution to the wind and let the fiscal deficit and the public debt escalate without control on the pretext of stimulating economic growth.

The long-term consequences revealed by the 2008 Eurostat public finances statistics of eurozone countries need to be addressed by Malta through the definition of an action plan for further economic reforms. The country may have failed its first annual exam since adopting the euro but tougher exams await us, exams we need to pass.

People must have the real picture on how the country can really improve its future economic prospects, even if this truth can at times be startling.