NEWS | Wednesday, 05 November 2008

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‘We’ll be finding ourselves in the eye of the storm’ – Scicluna

Charlot Zahra
Economists speaking to MaltaToday have shed doubts on the government’s financial projections for 2009.
“Never before had such a budget created so much doubt about the true state of our public finances,” economist Edward Scicluna said. “The same can be said for the loss of credibility in any economic or financial projections supplied by the Government.”
Scicluna said the uncertainty would do “irreparable damage” to the private sector, which “crucially relies” on guidance as to future economic trends.
“Last Monday morning the finance minister was quoted throwing doubt on my finding that on a rolling year basis our deficit at the end of September stood at 4.3% of GDP. That same morning a previously embargoed EU report on Malta confirmed that indeed the deficit was expected to stand at 3.8% by the end of the year.
“Just try facing an angry crowd of shareholders in an AGM with such or similar results coming from one’s own doing,” Scicluna said.
Joining the chorus of disapproval was veteran economist Karm Farrugia, describing projections as “ultra-optimistic”.
Farrugia said that whereas other EU member states forecasted only a growth of 0.2% of GDP, it was unexplainable as to how Malta was planning on a 2.4% growth in 2009, 12 times as much.
“In circumstances when the recession has not completely with us or with other member states, how can you even forecast such a strong growth?”
Government is forecasting a €68 million deficit for 2009, when its plan for that same level this year shot up to €200 million.
Farrugia poured cold water over plans for a balanced budget by 2011. “I consider 2012 or 2013 to be more realistic.”
The backdrop to most of the economists’ reaction was the international slowdown that was expected to last two years.
Edward Scicluna suggested that the 2008 scenario could have been even worse, had it not been for one-off revenue schemes and one-time privatisations. “We will soon be finding ourselves in the eye of the storm unprepared and confused as to how we should react to this eventuality.”
But government was also forced to contend with a difficult international scenario and the shipyards retirement schemes, issues which economist Gordon Cordina said have limited the range of actions government could take.
He said priority should be placed on defending economic activity from the difficulties in export markets. “The Budget provides for measures to help tourism, manufacturing and construction. However, it could have given greater consideration to reduce certain costs of doing business in Malta,” Cordina said, referring to increases in licenses and fuel excise duties.
He said the increase in the fiscal deficit was “unavoidable and probably needed.”
“What will be important is to increasingly redirect expenditure towards productivity and competitiveness issues to enable the economy to emerge even stronger from the forthcoming difficulties in the global scenario.”
The flipside of that scenario would be subsidies on consumption, which Cordina said would only make the economy more dependent on the government, and less viable in the long run.
Irrespective of the pressures the government faced on the international end, Budget 2009 has also turned out to be a failure in terms of the pre-electoral promises back in March.
As former Labour finance minister Lino Spiteri commented, the budget failed to live up to the expectations created by the government’s pre-election promise on income tax: “It is under a fourth of what the government promised.”
And he also described forecasts of 2.4% growth as “very optimistic, considering that growth in our main markets is sliding to zero or worse. The government did not say where the stimulus could come from.”
Expressing sceptism on government’s re-stated target of a balanced budget by 2011, Spiteri hoped the objective will push government to control its expenditure strictly, and cut down “more energetically” on tax and social services abuse.
With a €98 million deficit to be achieved by next year, it will surely mean government will be hard at work at raking in all possible revenue.
“Some of the revenue heads seem to be overstated,” Spiteri said, referring to the revenue from car registration. “But the government will be pulling out all the plugs to reach its objective this time. I think it will get close to it.”

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