Deficit this year to fall to 2.1% of GDP - report

The European Commission has forecast that the government will cut its deficit to 2.1 per cent of GDP by the end of the year. This is slightly higher than new government data estimating that the deficit will shrink to 1.9 per cent, which, in turn, is lower than the government's original estimate of 2.3 per cent.

The figures are contained in a new report on the state of public finances in the EU, released in Brussels.

The report says that the forecast for the 2007 deficit ratio was improved to 1.9 per cent of GDP in the April 2007 fiscal notification.

"The lower deficit ratio in April 2007 is primarily due to advance receipts in relation of a one-off operation related to sale of land amounting to 0.4 per cent of GDP, originally booked for 2006. The transaction was however completed in 2007 and appropriately booked as a deficit-reducing operation in that year," the report said.

Despite the government's optimism, the report makes a slightly more cautious projection of 2.1 per cent. This projection, it says, stems from lower social contributions, which are forecast to move in line with the increase in compensation of employees.

The Commission said that further improvements are also expected in 2008 and 2009.

"According to the December 2006 upgrade of the Convergence Programme, the general government deficit for 2008 is anticipated to decline to 0.9 per cent of GDP. For 2009, the update foresees a broadly balanced budget in nominal terms."

If the 2009 target is achieved, it will be the first time Malta has balanced its books in two decades.

The report also projects an improvement in the government debt which is expected to continue the downward trend started in 2005. By 2009, this is expected to go down to 59.5 per cent of GDP from 72.4 in 2005.