Fiscal prudence required as economy remains on track

Source: The Malta Business Weekly
by Christopher Sultana

Fiscal prudence is required for Malta to improve further its financial situation and maintain the course to reduce the debt and deficit levels throughout this year following the statistics issued this week by Eurostat and the National Statistics Office.

According to the official figures for 2010 the deficit was 3.6 per cent of the Gross Domestic Product¸ below the 3.9 per cent forecast¸ and the national debt was at a level of 68 per cent¸ instead of the 69.1 per cent projected by government.

Contacted by this newspaper¸ the Minister for Finance¸ the Economy and Investment¸ Tonio Fenech¸ said it is important that government debt and deficit levels improved on what had been predicted especially in view of what is happening in other EU countries that are experiencing high deficits. “The improvements are the result of government’s commitment despite the difficult economic circumstances. The targets are being reached through government’s work coordinated by the Ministry for Finance to collect revenue due and control expenditure and were this is not possible introduce new measures to reach our aims. Foreign investors look at countries were there is financial stability and the country’s improving financial situation will make it more attractive.”

Mr Fenech said the figures should be considered against the deficit average for the EU¸ which is six per cent¸ and 6.4 per cent for the eurozone.

Asked whether the financial situation is on track during 2011 the Minister said that although it is too early in the year for a clear picture the economy is on track to lower the deficit to below three per cent even though the impact of the Libya crisis and the increasing fuel costs still have to be factored in.

Contacted by this newspaper¸ economist¸ Lawrence Zammit¸ said that the data published by Eurostat is a comparative study on the state of public finances in the 27 EU Member States. “When compared to other countries the Maltese economy had a creditable performance in 2010. Although we are still over the 60 per cent threshold in terms of debt to Gross Domestic Product¸ one needs to appreciate that there are other countries that have ratios far worse than ours.

“However we still need to keep a watchful eye on public expenditure if we wish to keep taxation to sustainable levels. The worst economic policy that we can adopt is a tax and spend policy as it is very short sighted¸ as the experience of other countries has shown.”

Asked to compare the local economy with that of other EU Member States¸ Mr Zammit said that on the specific issue of Greece¸ Portugal¸ Spain and Ireland¸ we need to remember that contrary to these countries our debt is local and not with international banks. “This makes our public debt more manageable. However the impact of a possible default by these countries on their public debt is not something that we should take lightly. There is a limit to the amount of further pressure that can be put on the euro. The key message that emerges from this data is that fiscal prudence needs to be maintained for some more years in Malta and across th