The Prime Minister yesterday hinted that the European Commission may lift the Excessive Deficit Procedure imposed on Malta for failing to stick to the Maastricht criteria’s three per cent benchmark. The Labour government inherited a 3.7% deficit from the previous administration in 2013. Since then, the wheels of bureaucracy began to turn and the EDP was imposed, and Malta was told to bring the rate down to below the three per cent threshold in a sustainable manner within two years. Since then, the government managed to reduce the deficit to 2.1% in 2014, which was a victory in itself, when compared to other European Union members in the current economic climate.

This year, the government is forecasting to close the financial year with a deficit of 1.7%. While the Prime Minister has hinted that the EC will lift the procedure, it is almost a foregone conclusion. Malta is chipping away at the deficit bit by bit and Gross Domestic Product continues to grow, which means that things are definitely improving. Everything must be said, however. While the government did inherit a slightly bloated deficit ratio, the economy was robust and had weathered the European financial crisis well under the stewardship of Lawrence Gonzi during the last administration. This gave the new government – which the PM had described as being ‘unashamedly pro-business’ – a solid platform on which to reduce the deficit. This was done not by means of austerity, but by still increasing spending within the framework of larger economic growth. Put simply, Malta made more money than it needed to spend and as a result, the deficit was narrowed.

Dr Muscat said that if the figures are approved by the European Commission, it will be the government’s greatest achievement to date. And he is absolutely right. But it does not stop there. Malta’s sovereign debt ratios are still on the high side. The Maastricht criteria stipulate that countries should not have a debt level of above 60% in relation to GDP. Malta’s current figures are just over 70%. What many do not seem to understand is that we can only start to chip away at debt levels once we turn our deficit into a surplus - and that would mean putting more money into repaying debts (which grow exponentially with interest). Malta is by no means one of the sick men of Europe, and while many question why the public is not reaping the benefits of our booming economy, the reality is that until we can reduce sovereign debt, then we cannot really give out alms. The government has given something back in terms of reducing the water and electricity tariffs and income tax reductions, but we cannot really expect much else until the debt ratio is narrowed by at least 10%. Whether Muscat’s government can do that within this tenure or whether it will be an election promise for 2018 is yet to be seen.