The Malta Fiscal Advisory Council has described the government’s deficit and debt projections as “quite ambitious” but within the “endorseable range”. However, while revenue projections were deemed “plausible”, it sniffed at the expenditure ones, saying they were vulnerable to “upside risk”.
The council recently presented its assessment of the official fiscal forecasts to the Minister for Finance. The forecasts form part of the Update of Stability Programme 2016-2019 report, published last April.
The government plans to keep up the momentum to consolidate its fiscal targets, aiming for a small surplus in the general government balance by 2019, equivalent to 0.1 per cent of GDP, whereas the public debt-to-GDP ratio would be scaled back to 55.5 per cent from 63.9 per cent in 2015.
The council said that the revenue projections were plausible and that it was actually possible that some specific revenue items could actually surpass projections, as the underlying assumptions – particularly for taxes on production and imports and current taxes on income and wealth – were rather prudent.
On the other hand, expenditure targets were rather ambitious, leaving the possibility for an element of upside risk particularly in the case of spending on compensation of employees and on intermediate consumption, it warned.
“Very close monitoring and vigilance by the authorities will therefore be crucial to ensure that these targets are met. Moreover, the government is invited to sustain the positive momentum regarding expenditure rationalisation, particularly the further implementation of the measures proposed through the Comprehensive Spending Review exercise,” he said.
On balance, the MFAC said opposing revenue and expenditure upside risks balanced each other out as broadly neutral.
“The track record in meeting the targets for the general government fiscal balance suggests that there appears to be sufficient flexibility within the budget to cope with an element of unplanned revenue shortfalls or expenditure overruns, provided these are not excessive,” it said.
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