Malta’s efforts to control its deficit and public finances are in line with the Stability and Growth Pact, the European Commission stated yesterday, and the country is expected to be close to “reaching these targets by the end of its respective programme periods”.
However, the country – along with Cyprus – is invited to improve the long-term sustainability of its public finances.
Commenting on Malta’s latest update of its convergence programme, the Commission held that the programme presented by Malta was consistent with the aim to correct the excessive deficit by 2006.
The commission, however, said that it would be appropriate for Malta to implement rigorously the 2006 budget in order to ensure its correction this year.
It is also recommended that Malta ensures that the debt ratio declines towards the 60 per cent of GDP reference value at a satisfactory pace from 2006 onwards and to improve long-term sustainability by making further progress in the design and implementation of the pension reforms.
Malta submitted a new update of its convergence programme, covering the period 2005-2008, on 6 January 2006. The programme aims at bringing the deficit below three per cent in 2006, as recommended by the Council in July 2004, and at further reducing the deficit thereafter, against a macroeconomic scenario which appears favourable in 2006.
The deficit outcome has been estimated at 3.9 per cent in 2005 and is seen decreasing to 2.7 per cent in 2006 and 1.2 per cent in 2008.
In its assessment, the Commission pointed out that the medium-term objective (MTO) for the budgetary position was a balanced budget in structural terms, which is in line with the pact.
“Although the budgetary outcomes could turn out less positive than targeted in the programme, Malta seems on track to correct the excessive deficit by 2006, provided that the budget is fully implemented and the macroeconomic risks are duly addressed,” it stated.
“Thereafter, the adjustment towards the MTO is in line with the pact’s benchmark and the objective should be within reach by 2008. This will provide a safety margin against breaching the three per cent ceiling with normal macroeconomic fluctuations,” the Commission added.
According to Malta’s last update, the debt ratio, estimated at close to 77 per cent of GDP in 2005, is planned to start declining in 2006, to attain 67.2 percent of GDP by 2008.
Malta is at a medium risk with regard to the impact of the aging of population on the long-term sustainability of its public finances.
In its overall assessment of the convergence programmes of Malta, Cyprus, Lithuania and the United Kingdom, which are member states having excessive deficits, the commission held that their “present strategies should enable them to correct their excessive deficits, though the UK may have to introduce additional measures in 2006”.
“All countries – except the United Kingdom – have set medium-term objectives for their public finances that are in line with the revised Stability and Growth Pact. It is also encouraging that Cyprus, Lithuania and Malta would be (close to) reaching these targets by the end of their respective programme periods.
“Budgetary strategies in line with the Pact not only produce sound fiscal policies over the economic cycle but are also a necessary precondition for stronger growth in Europe,” Economic and Monetary Affairs Commissioner Joaquín Almunia told a news conference in Brussels yesterday.
Each year member states notify to the Commission their medium-term macroeconomic and budgetary projections that must provide a safety margin against breaching the Treaty deficit ceiling of three percent.
According to the revised Stability and Growth Pact, euro area and ERM II member states are recommended to set their respective medium-term budgetary objective (MTO) within a range between minus one per cent of GDP for low debt/high potential growth countries and balance or surplus for high debt/low potential growth countries. If they have not yet reached their target, they should pursue an annual adjustment in cyclically-adjusted terms, net of one-offs and other temporary measures, of 0.5 per cent of GDP as a benchmark.
The assessment of the budgetary programmes is separate from the assessment as to whether a country that has not yet adopted the euro is ready to do so or not. This latter evaluation will be carried out in October in the so-called Convergence Report unless there are individual requests before.