Assessing Malta’s budgetary stability programme yesterday, the European Commission gave a mixed view on Malta’s prospects of attaining a budget surplus by 2010, but was overall encouraging.
It also placed the long-term sustainability of Malta’s public finances at medium risk.
The EC yesterday urged Malta to accelerate the design and implementation of a comprehensive healthcare reform, to pursue further fiscal consolidation and to spell out measures for the envisaged fiscal consolidation, enhance the efficiency and flexibility of public spending.
The EC stated the goal for Malta to achieve a budgetary balance by 2010 “should be possible” given the estimated outcome for 2007 and the economic growth outlook.
It encouraged Malta to reach the 2010 objective and also called on the government to “speed up the reform of the health care system and generally pay attention to staying competitive”.
The Commission was assessing Malta’s first stability programme, necessary given the country’s recent eurozone membership, which had been submitted by the government at the end of last November.
The EC acknowledged that Malta’s stability programme foresees continued progress toward the medium term objective of balancing its budget, or in other words achieving a budget surplus, by 2010 through a blend of restraint in expenditure and sustained economic growth.
The EC, however, pointed to risks in achieving the stated budgetary target. The main concerns observed by the EC were the stability programme’s “reliance on volatile tax revenue items in 2008, the recent decision to subsidise energy prices without compensating measures and the favourable macroeconomic outlook after 2008”.
The EC also pointed to a “lack of information about the underlying measures, especially as regards the envisaged continued restraint in the public wage bill”.
These factors, it found “may hinder the achievement of the medium term objective by the target year 2010”.
“In addition,” it adds, “Malta’s competitiveness within the euro area may be at risk in the event of a departure from wage moderation in the public sector, which may spill over to the private sector.”
The EC remarked that the reduction of the general government gross debt “is planned to proceed at a satisfactory pace and is expected to fall below the 60 per cent of GDP reference value by 2009.
“In terms of the long-term sustainability of public finances, Malta is at medium risk.”
The Commission, in view of its assessment, “invited” Malta to “pursue further fiscal consolidation as envisaged in the programme so as to reach the medium term objective by 2010 and ensure that the debt-to-GDP ratio is reduced accordingly, by spelling out the measures supporting the planned consolidation, especially on the expenditure side.
It also urged Malta to “enhance the efficiency and flexibility of public spending, and accelerating the design and implementation of a comprehensive healthcare reform.”