Government has abandoned its quest for a balanced budget by 2011, as pledged by Finance Minister Tonio Fenech during last year’s Budget speech.
Fenech is now projecting a budget deficit of 3.79 per cent for 2009 (€217 million), a slight increase to 3.93 per cent of GDP for 2010 (€233 million), and down to 3.2 per cent in 2011 (€200 million). Only in 2012 - with a projected deficit of 2.9 per cent (€190 million euros) – government deficit is forecasted to fall below the 3 per cent reference value as set out in the EU’s Stability and Growth Pact.
The Finance Minister has also revised Malta’s GDP-to-debt-ratio to 68.7 per cent in 2010, 68.2 per cent in 2011 and 67.2 per cent in 2012, always higher than the 60 per cent debt-to-GDP standard ratio set by the EU.
As to the GDP, the Finance Minister is now projecting a contraction of - 2 per cent for 2009, which is projected to change to a positive projection of + 1.0 per cent in 2010.
In the 2008 Budget Speech, Tonio Fenech had forecast that the Budget deficit for that year would have dropped by 2.0 per cent and to -1.2 per cent in 2009, and with a surplus of 0.2 per cent in 2010.
A year later, in the 2009 Budget Speech, the Finance Minister had substantially revised its Budget deficit forecast, with 2008 reaching -3.49 per cent, and 2009 reaching 1.65 per cent. Next year, government is expecting a deficit reduction of -0.40 in 2010.
The Finance Minister had been projecting a surplus budget by 2011, but
even those forecasts were too optimistic, as both the European Commission’s Spring Economic Forecasts in May and the IMF’s interim report in July had revealed.
In the Spring Economic Forecasts, Malta’s budget deficit was forecast at 3.6 per cent for year, falling to 3.2 per cent in 2010, just 0.2 per cent short of the threshold set by the EU.
As to the public debt figures, the EC had also forecast a growth beyond the 60 per cent limit set out by the Stability and Growth Pact, with 67.0 per cent for 2009 and 68.9 per cent for next year.
In its final report in September 2009, the International Monetary Fund (IMF) had warned that the fiscal deficit was expected to narrow marginally to 4.5 per cent of GDP in 2009.
However, excluding the substantial one-offs of 2008, the balance would deteriorate by over 0.5 percentage point of GDP, the IMF had insisted.
The IMF report had also a harsher forecast that Malta’s budget deficit would only fall below the 3 per cent threshold set out by the EU’s Stability and Growth Pact only in 2013, with public debt reaching 70 per cent of GDP.