Most families know the consequences of consistently spending more than they earn. Borrowing can bridge the deficit in the short term. But the sustainability of borrowing depends on the prospects of income levels improving in the medium term. The same principle applies to public finances that ultimately impact all people.

The National Statistics Office (NSO) has confirmed that the government debt at the end of 2022 amounted to just over €9 billion, with another €1 billion in government guarantees issued to non-financial public corporations.

The national debt increased by €740 million in just one year and the debt-to-GDP ratio has now reached 53.4 per cent.

The good news after a number-crunching exercise of the latest NSO debt statistics is that the national debt is still well within the levels recognised as acceptable and sustainable. But there are underlying trends that are less reassuring.

The rate of increase in the national debt in 2022 is worryingly high. The main reason behind this rise is that the government has continued to freeze energy prices to protect households and industries from the risk of an income squeeze or recession. Beside the harmful effects on the environment of a non-discriminatory subsidy scheme on fossil fuel consumption, the effects on government finances are significant.

The government has, so far, ignored the calls by the IMF and the European Commission’s to revise the energy subsidy scheme with Prime Minister Robert Abela making a commitment to keep the scheme going as long as necessary. He must recognise, though, that the chickens will invariably come home to roost if the long-term consequences of the rising national debt are ignored for too long.

Most economists understand how much debt is too much debt, even if politicians often have different views with an eye to the next election. The Stability and Growth Pact establishing fiscal rules for eurozone member states sets a limit of 60 per cent of debt-to-GDP ratio. This benchmark can lead to an oversimplification of the interpretation of a given national debt level. Policymakers must distinguish between the components of debt. They must not treat a rise in one country’s debt-to-GDP ratio as equivalent to the same increase in another country’s ratio, even though the two cases may have very different implications.

In the last decade, the country has witnessed the waste of taxpayers’ money on a massive scale in white elephant projects like the privatisation of the management of three public hospitals. The increase in the national debt due to these failed projects far from qualifies as a productive investment in the country’s infrastructure. Our public hospitals, for instance, remain overstretched as evidenced by the growing surgery waiting lists.

Rising interest rates will increase the debt financing burden in the longer term. The ageing population will entail more borrowing to finance transfer payments for pensions and healthcare. There are other critical economic threats that are not being sufficiently addressed: adverse legal developments in the ability of the government to keep selling European citizenship to wealthy third-country individuals; changes in international corporate taxation legislation; and the failure to promote investment in high-added value economic activities.

Complacency about the sustainability of escalating national debt will undermine the prospects of prosperity for present and future generations.

The government needs to work harder on keeping the debt below the estimated thresholds so as to build the fiscal buffer required to address extraordinary events and to promote the productive investment needed to steer the economy to higher added-value activities.