Europe to assess Malta’s updated Stability Programme today
Charlot Zahra The European Commission (EC) today is expected to give its assessment on Malta’s updated Stability Programme (SP) for 2010 in view of the latest decision by the EU to give Malta an additional year in which to correct its budgetary deficit.
The Commission has kept a total lid on the matter, with various questions sent by MaltaToday about today’s decision remaining unanswered by the time went to print yesterday evening.
Under Malta’s updated SP, the country’s budgetary deficit will rise by 0.1% in 2010 to 3.9% of GDP
It will be only in 2011 that Malta’s budget deficit is expected to fall to 2.9%, on the basis of the removal of the temporary support schemes for industry for this year, an increase in growth of the economy as well as a general tightening of government expenditure in 2011.
However, the collective agreement for the Civil Service, which has expired last year, could lead to a variance from the projected estimates due to added expenditure.
According to Malta’s SP, in terms of the EU Stability and Growth Pact presented by the Maltese Government to the European Commission, the Budget for 2010 aimed to keep the deficit-to-GDP ratio “broadly stable”.
“Against the backdrop of a still hesitant international economic recovery and the somewhat lagged effect that the international crisis is having on the domestic economy, further support will be provided to economic activity in 2010”
In this context, Malta’s SP programme explained how the Budget announced a number of stimulus measures, “mainly earmarked to encourage investment and employment.” These were projected to have a fiscal impact of around 1.1% of GDP.
The SP programme is projecting that measures amounting to 0.6 % of GDP would be financed from domestic resources. The remaining measures, amounting to 0.5% of GDP, “would be largely financed from EU funds and will thus have a minimal impact upon the fiscal position,” Malta’s SP for 2010 added.
At the same time, the 2010 Budget announced fiscal consolidation measures which were projected to save around 0.5 % of GDP. “As a result, the deficit is projected at 3.9% of GDP in 2010, compared to the expected 3.8% in 2009,” Malta’s SP programme added.
Whilst the Budget for 2010 aimed to provide short-term support to the economy, Government’s medium-term fiscal strategy remained “that of achieving a sustainable budgetary position”.
In this context, the updated SP explained how Government was “committed to achieve the 2010 deficit target of 3.9% of GDP”.
In the 2010 SP, the Maltese Government was pledging “close monitoring of emerging developments in revenue and expenditure components” and “additional measures will be adopted as necessary”.
However, the macroeconomic environment trajectory underpinning the Malta’s SP envisaged “a marked improvement in 2011”.
If this pick-up materialised, Government “will more comfortably resort to the aggressive fiscal consolidation stance presented in the Programme, as from next year,” Malta’s SP is forecasting.
It is only against this macroeconomic backdrop that the deficit would decline by 1% of GDP to 2.9% in 2011.
“The correction of the excessive deficit would largely reflect the phasing out of stimulus measures, the impact of the economic recovery and consolidation on the expenditure side,” Malta’s SP programme for 2010 is forecasting.
Malta’s SP was projecting that the ratio of total revenue to GDP “will decline by 0.5% of GDP in 2011”.
This will reflect “a stable level for EU grants which is materialising against the backdrop of an increase in GDP, thus resulting in a lower ratio of the other category of revenue to GDP”.
Meanwhile, tax revenue was being projected to increase in absolute terms “but at a slower rate than GDP”.
The ratio of expenditure to GDP was being projected to decline by 1.4% of GDP in 2011.
This mainly would reflect “lower ratios-to-GDP of compensation of employees, intermediate consumption, gross fixed capital formation and the other category of expenditure.
Around 60% of the support measures impacting on the 2010 deficit were of a temporary nature. “The withdrawal of these stimulus measures accounts for 0.4% of the fiscal consolidation in 2011,” Malta’s SP for 2010 added.
The programme is pledging “restraint of the general Government wage bill”, which would constitute “an important element in the fiscal consolidation strategy.
According to Malta’s SP, this would “largely be generated by restricting public employment levels in non-essential categories”.
At the same time, the programme is forecasting “better conditions for public sector employees” … “also following the expiry of the current collective agreement in 2010”
Government said it was determined to replace “only part of the vacancies which will materialise following the retirement and/or resignation of current incumbents of these posts.
In fact, recruitment would be undertaken “on a strictly need basis”, following screening by both the Management and Personnel Office and the Finance Ministry,” Malta’s SP for 2010 added.
Furthermore, efforts were being pledged “to improve the consistency in working conditions for employees in public entities which do not form part of the public service”
In addition, Government would also implement a policy of “expenditure restraint” as regards intermediate consumption.
Any proposed alterations to departments’ expenditure plans as provided for in the Budget “will be carefully analysed within the constraints delineated by the overall financial allocations at the disposal of the respective departments,” Malta’s SP for 2010 is pledging.
To support the long-term development needs of the Maltese economy, specifically improved infrastructure, education and the environment, Malta’s SP programme for 2010 pledges that Malta would sustain a “relatively high level of investment” during the Programme period.
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