Addressing a business breakfast on 24 January, the Governor of the Central Bank, Michael C. Bonello, had some straightforward things to say.

In the course of what The Malta Independent described as “a critical analysis of a number of areas of government policies and the current economic situation”, Mr Bonello made it clear that, on its own, the adoption of the euro would not lead to faster growth and it was not the solution to all of Malta’s problems.

In his view “there are still structural impediments in our economy” that could prevent Malta from fully benefiting from the single currency. Mr Bonello holds that a country can only benefit from the euro if it has a flexible economy that can adapt to exterior shocks, the ability to take advantage of growth opportunities, and the tools to address country-specific developments.

The governor pointed out that Malta had one of the lowest growth rates in the EU over the past few years. Although other countries had shown less prolonged recessions, and earlier and sustained recovery, “we have lost ground since the beginning of the century”.

Underlying weaknesses

Mr Bonello owned up that the underlying weaknesses are the result of government policies in the 1990s, when growth was fuelled by government expenditures. This, he confessed, had produced internal and external imbalances that the country has inherited today. The high growth rates of the 1990s, he said, created a false sense of security “and we are paying the price now”.

In a sense, it’s too late to call back yesterday, when repentance comes too late.

In the sphere of economic management, repentance is a pill bitterly swallowed, because the confession of past sins is not rewarded by instant absolution. The penance has to be paid in kind for however long it takes.

The unadorned and brutal truth, succinctly described by Mr Bonello amounts to this: The government has been living steadily beyond its means since l987. Suffice it to say that, notwithstanding the fact that it increased its tax intake, it has incurred extravagant debt, jacking up the national debt from Lm86 million in l987 to over Lm1,400 million at the last count.

Unstated reality

This is not the time or place to argue how much of this has been squandered or dissipated without rendering any return.

However, there is an unstated reality, which is a hard fact of life, and which has set, and continues to set back the economy as a result.

Until the national debt is redeemed, the government has to cope with an annual debt-servicing bill of approximately Lm70 million. No wonder we have a structural deficit.

This commitment has hypothecated considerable resources which could otherwise have been made available for productive purposes.

Late laments to the effect that “Malta’s competitiveness has fallen behind because of a lack of productivity” have a hollow sound in the circumstances. To say that “the government must trim expenditure to be able to reallocate resources to areas that need them” lacks conviction in the light of the government’s past performance.

To call for a “serious debate” and for better use of resources to generate more output, at this late stage, is like crying over spilt milk. Who comes late lodges ill. The time for vigorous, outspoken and open intervention was during the 1990s, when this Central Bank wisdom could have prevailed.

In fairness to Mr Bonello, it must be said that on one auspicious occasion he did not mince words, and publicly declared ex cathedra that we had been “living beyond our means”. Even if it may have been belated, his clarion call was bold. It would have been a shining demonstration of grit and endurance if it were vociferously sustained to bring the government to its senses when it mattered.

Lost opportunity

Alas, that was an opportunity lost, and, in Mr Bonello’s words “we are paying the price now”.

It is not a fixed price. It is bound to escalate. Mr Bonello has declared frankly that “more structural reform is indispensable and responsibility to deliver is national” to the point that fiscal reform must be expenditure-driven, with means testing applied more widely than heretofore, and with pension reform going beyond the first pillar.

A time-honoured English adage is apposite in the context of the Central Bank Governor’s latest speech. It says: “A hundred pounds of sorrow pays not one ounce of debt”.

Even so, we are by now older and wiser. We have come to realize that we never know the worth of water till the well is dry!

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