Finance Minister Clyde Caruana has forecast that Malta will record a budget deficit of 2.6% of gross domestic product in 2027, while public debt is expected to remain broadly stable at 46.8% of GDP, as the government seeks to maintain energy subsidies and continue spending on families, pensioners and investment.

Presenting the government's fiscal projections in his Budget 2027 speech, Caruana said the country's financial position remained strong despite international economic pressures, particularly the impact of higher energy prices. He pledged that the government would continue working to reduce the debt burden during the current legislature, while keeping the deficit below the European Union's 3% threshold.

The minister said the deficit was expected to reach 2.6% of GDP in 2026, up from 2.1% in 2025, reflecting the cost of measures to shield households and businesses from higher energy prices. The same deficit ratio is being projected for 2027, with the government planning to maintain energy prices at their current levels.

Caruana said energy subsidies accounted for a substantial proportion of the deficit, amounting to around 1.4 percentage points of GDP. Without the additional pressure caused by the recent energy crisis, he argued, the projected deficit for next year would have been almost one percentage point lower.

He maintained that the government's approach allowed it to support families and pensioners, preserve stability in energy prices and encourage investment without breaching the EU's deficit threshold.

Government revenue to exceed €10 billion

Total government revenue is forecast to reach €10.1 billion in 2027, an increase of €1 billion over the amount expected to be collected this year.

Tax revenue is projected to rise by €645 million to €9 billion, while non-tax revenue is expected to increase by €359 million to €1.1 billion.

Government expenditure is also set to increase by almost €1 billion, according to the minister's estimates.

Recurrent expenditure is expected to reach €9.4 billion, representing an increase of €711 million over 2026. Capital expenditure, meanwhile, is projected to approach €1.5 billion, an increase of €283 million.

Caruana highlighted the role of European Union funding in financing capital projects, saying that around €390 million of next year's capital expenditure would come from EU funds. This would be €90 million more than the amount expected to be received in 2026.

He argued that capital spending remained a priority for the government and described its approach as responsible financial management, rejecting the Opposition's characterisation of its fiscal policy as austerity.

The projections point to an expansion in both government revenue and expenditure, with the administration expecting to collect more in taxes and other income while continuing to finance public services, social measures and investment.

Debt expected to remain stable

On public debt, Caruana said the government expected the debt-to-GDP ratio to remain broadly stable despite the financial pressure caused by energy subsidies.

The ratio is now estimated at 46.7% for 2026, below the 47.3% forecast made a year ago. For 2027, the government is projecting a ratio of 46.8%.

The minister said Malta would face another energy-related financial burden of at least €400 million next year, but maintained that this would not significantly alter the debt ratio.

He rejected Opposition criticism of the increase in the country's nominal debt, arguing that the debt-to-GDP ratio was a more meaningful measure of the burden on the economy.

Caruana also sought to explain the increase in borrowing over recent years, saying around 70% of the rise in debt was attributable to the Covid-19 pandemic, successive energy crises and the costs associated with closing the national airline and establishing a new one.

He challenged the Opposition to identify which of those measures it would have avoided, or which forms of assistance it would not have provided to households and businesses.

At the same time, the minister acknowledged that the government was not perfect and said it could perhaps have achieved more with less expenditure. He reiterated his commitment to reducing the debt burden during the remainder of the legislature.

Energy subsidies remain central to fiscal policy

Energy subsidies are set to remain a defining feature of the government's fiscal strategy in 2027.

Caruana's projections indicate that the government intends to continue absorbing part of the impact of international energy prices rather than passing the full cost on to consumers. The policy is intended to provide stability for households and businesses, although it comes at a substantial cost to public finances.

The minister argued that, without this intervention, the deficit would be considerably lower. He presented the continued support as a deliberate policy choice, allowing the government to protect consumers while maintaining spending in other areas.

However, the figures also underline the scale of the resources required to sustain the policy. With energy subsidies accounting for an estimated 1.4 percentage points of GDP, changes in international energy prices could have a significant effect on the government's fiscal position.

The projected deficit of 2.6% would remain below the EU's 3% reference value, but would leave a relatively limited margin should the country's economic outlook deteriorate or expenditure pressures increase further.

Caruana defends fiscal record

Throughout his address, Caruana contrasted the government's approach with what he described as the Opposition's failure to demonstrate how it would manage the country's finances under the current international circumstances.

He said the government had managed to maintain energy price stability, honour major electoral commitments, provide further assistance to families and pensioners, and encourage investment while keeping the deficit below 3% of GDP.

He also referred to warnings by the International Monetary Fund to governments facing rising debt and interest costs, arguing that some European economies were experiencing weaker growth and greater financial pressure.

The minister maintained that Malta's economic performance and its ability to absorb external shocks reflected decisions taken over several years. He insisted that the government's fiscal policy was designed to balance support for households with the need to maintain financial stability.

The Opposition's criticism, he said, focused on the increase in nominal debt without adequately accounting for the pandemic, the energy crises and other exceptional costs.

Caruana nevertheless accepted some responsibility for the government's spending record, while arguing that its broader approach had allowed Malta to avoid passing the full impact of international energy price increases on to consumers.

The central fiscal objective for 2027, he said, would be to maintain the deficit at 2.6% of GDP, keep the debt ratio broadly stable and continue working towards a reduction in public debt.

The government's projections therefore rely on its ability to sustain a growing revenue base while containing the deficit, financing public investment and maintaining costly energy support measures. Whether those targets can be achieved will depend partly on economic performance and the extent to which international energy prices continue to put pressure on the public finances.