Updated - Moody's downgrade: Muscat tells PM to 'say things as they really are'

Updated - includes comments by Dr Charles Mangion and PN reaction

Labour leader Joseph Muscat insisted this afternoon that in the wake of the Moody's downgrade of Malta, the Prime Minister should "say things as they are".

Moody's yesterday downgraded Malta's foreign-currency and local-currency government bond ratings to A2 from A1 and revised the outlook to negative.

Speaking at a press conference, Dr Muscat said the downgrade was a matter of concern, but it was no surprise to Maltese families, who had long been struggling to make ends meet, even while the government claimed that the economy was improving.

"We want honesty about the true situation of government finances" Dr Muscat said.

"The credibility of the country is at stake here".

The people had been worrying for a long time, and now international analysists too had shown concern.

Malta, Dr Muscat said, needed real, sustainable economic growth which the people could benefit from.

In his statement, Dr Muscat reiterated Labour's commitment to reduce utility bills in a sustainable manner when it is returned to power, saying it was clear that the prices were not based on the real price of oil.

Opposition finance spokesman Karmenu Vella said the current situation could partly be attributed to the international situation, but it was also undeniable that the government's debt and borrowing requirements had been rising steadily since 2004, well before the recent international financial crises. A quarter of Malta's debt was raked up in the past three years and Malta was paying €550,000 every day in debt serving costs.

'NEGATIVE OUTLOOK'

Dr Charles Mangion, opposition spokesman on the economy, expressed his concern over the fact that Moody's had said that the outlook for Malta was negative.

The country, he said, needed to concentrate on various aspects, not least its low labour participation rate, the decrease in productive investment, falling competitiveness and the fact that inflation had outstripped wage growth, putting downward pressure on domestic consumption.

He noted that according to recent NSO data, much of the foreign investment to Malta last year was in financial mediation, which, although welcome, did not increase the country's productivity in the long term.

As for inflation, it was a fact that government-induced costs played a large part and were among the highest in Europe. Malta, Dr Mangion said, needed effective regulators which ensured a fair market for consumers and operators, rather than monopolies, whether public or private.

MEP Edward Scicluna said that since 1995 Malta had had four upgrades, two downgrades, two positive outlooks and three negative outlooks by the ratings agencies, excluding yesterday's.

Yesterday's decision, he said, was bad news especially because it was accompanied by a negative outlook, and the government could end up paying more for its borrowing.

The government, he said, clearly knew that all was not well as the most recent EU outlook revealed that the NSO had carried out a downward revision of the 2009 GDP figures.

He said that apart from the public debt, Malta also had a problem of a low labour participation rate.

When replying to questions, Dr Muscat said the Opposition was ready to work with the government on improving Malta's financial situation, but the truth was that in other areas, such as the Air Malta restructuring, consultation by the government only amounted to lip service.

Dr Muscat also hit out at wrong spending priorities by the government, such as the money spent on a new Parliament House.

PN STATEMENT

The PN said that in less than 24 hours, Joseph Muscat had two perfect opportunities to flesh out Labour's economic plans, but he failed each time.

First, it was The Times which asked the Labour leader to spell Labour's financial plans.

Yet, the newspaper reported that: "In its response, the party did not offer specific solutions but outlined the general policy aims. Nor did the party say, despite being asked, what it considered to be a sustainable deficit".

This afternoon, Dr Muscat gave his reaction about the Moody's report but did not offer specific solutions on the governance of Malta's economy.

"On both occasions, however, Joseph Muscat lived up to what has now become Labour's trademark: Cheap talk, clichés, and lip service. In his hastily called press conference, he yammered about government's handling of the economy but failed, unsurprisingly, to come up with concrete solutions. Even worse, Joseph Muscat gloats at every opportunity to damage the country's reputation," the PN said.

He had, however, ignored positive results issued over the past 24 hours in terms of economic growth and job creation.. He also, conveniently, ignored the fact that Moody's report highlights Malta's success in tackling the financial crises and the fact that the same credit rating agency indicated as the main reason for the reclassification the risk of contagion from the euro area debt crisis given Malta's small and open economy, the PN added.

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