There should be “clear and rigorous” policies on how to use and replenish the Contingency Fund, the Malta Fiscal Advisory Council (MFAC) has warned.

In its assessment of the Draft Budgetary Plan for 2016, the council noted that some expenditure undertaken in 2015 was not initially allotted for in the Budget Estimates and, as a result, the government used the Contingency Reserve, noting that this was done on the basis of “unforeseen circumstances.

“However, the MFAC invites the authorities to establish clear and rigorous policies of how this reserve may be resorted to in future, while at the same time encouraging the authorities to maintain the required amount of funds in the reserve, as stipulated in the Fiscal Responsibility Act,” it wrote.

The country is on the right path towards attaining its medium term objective of a balanced budget

According to the Act, the Contingency Reserve should amount to between 0.1 per cent and 0.5 per cent of GDP in any one particular year, building up gradually over a five-year period since it came into force in 2014.

The assessment presented to the Minister for Finance noted positively the government’s commitment to meeting its fiscal targets – saying that given current growth the plan could even be accelerated.

“The consecutive declines in the annual fiscal deficit being achieved and planned, suggest that the country is on the right path towards attaining its medium term objective of a balanced budget in structural terms by 2019, which the MFAC considers as a cornerstone of prudent macroeconomic management.

“Indeed, the MFAC considers that, in view of the strong economic growth being recorded in recent quarters – which is expected to persist in the short term – there is a good opportunity to accelerate the fiscal consolidation process. In particular, revenue windfalls, as distinguished from normal revenue forecast errors, should primarily be used to build fiscal buffers rather than create permanent spending commitments.”

The MFAC also encouraged the government to evaluate how best to utilise funds being generated through the Individual Investor Programme, “particularly to ensure that their future use does not create negative implications for the fiscal balances in the years ahead”. The full report is available at www.mfac.gov.mt.