While public opinion in Malta is still largely dominated by conflicting debates about ministers and their Chinese wives, at this tail-end of summer, the real action is about to begin.

Our sister paper The Malta Independent on Sunday reported that the government has just a week to present its strategy regarding excessive deficit to the European Commission.

A spokesperson for Commissioner Ulli Rehn told the paper: “Malta has not yet come back to the Commission with its strategy to end the excessive deficit situation. The Council Recommendation issued on 21 June, 2013 gave Malta a deadline of 1 October, 2013 to take effective action and to report in detail on the envisaged consolidation strategy to achieve the recommended general government targets for 2013 and 2014 specified in the Council recommendation.

“The report, which will be made public, will include the targets for government expenditure and revenue and outline the discretionary measures on both the expenditure and the revenue side that are being taken or planned to comply with the recommended adjustment path.

“The Commission will examine the report with a view to assessing whether Malta is complying with the Council recommendation. This assessment will be published by the end of November.

“In addition to the report on action taken, Malta has to submit two other documents: 1) an 'Economic Partnership Programme', by 1 October, detailing the structural reforms that are deemed necessary to support an effective and durable correction of the excessive deficit, and ii) the draft budgetary plan for 2014 by 15 October.

“The Commission shall adopt an opinion on the draft budgetary plan as soon as possible and in any event by 30 November.”

In this context, one has to read this in conjunction with the statement by Fitch on Friday which announced that Malta had been downgraded to ‘A’ from ‘A+’.

Since then, the government has launched a concerted effort to persuade public opinion that the downgrade is the result of the slippage of public accounts in 2012, under the former PN administration.

That is all true, but Fitch seemed also to allude at a rather late response from the government of Malta. It said: “There has been significant fiscal slippage. Malta’s general government deficit was 3.3 per cent of GDP in 2012, well above both the government’s target (2.2 per cent) and Fitch’s September 2012 forecast (2.6 per cent of GDP). This slippage has carried over to 2013, when Fitch forecasts a deficit of 3.6 per cent of GDP, compared with 2.7 per cent in the original 2013 budget.

“The European Commission has re-opened the excessive deficit procedure against Malta, with the deadline for correcting the excessive deficit set for 2014. In its previous rating review (September 2012), Fitch identified material fiscal slippage in 2012 as a negative rating trigger.

“Public debt dynamics are worsening. Fitch now forecasts that general government gross debt will peak at 74 per cent of GDP in 2014-15 (two years later than we previously expected) and decline only marginally in the medium term, remaining above 73pp of GDP by 2020. A debt ratio that is higher for longer reduces the fiscal space to absorb future adverse shocks.

“In Fitch’s view, the authorities’ response to the 2012 fiscal deterioration has been slow. The 2013 budget is moderately expansionary, rather than starting consolidation. Although the newly-elected government has committed to fiscal consolidation and pledged to exit EDP by 2014, as yet there has been no clarity around the fiscal measures underpinning the adjustment.

“The April 2013 Stability Programme Update suggests the fiscal adjustment will be based solely on revenue growth. Despite Fitch’s forecast for positive GDP growth in 2014-15, the agency believes it will be difficult for the government to reduce the general government deficit and put public debt on a downward trajectory without some adjustment on the expenditure side.”

The next day, finance minister Edward Scicluna stated that the government was addressing the concerns pointed out by credit rating agencies.

“The government is aware of the economic and fiscal issues referred to by credit rating agencies Fitch and Moody’s in their latest reports, and is indeed addressing them,” Prof. Scicluna said.

The finance minister added that the administration “is undertaking several initiatives to curb public expenditure, increasing efficiency, and maximising revenue. Through this programme, the government is aiming to close 2013 with a deficit below 3% and about one percentage point less than what other independent observers are forecasting.”

Now all that’s left is to see the government living up to its promises and being confirmed by the Commission as being on the right track.