Finance Minister Clyde Caruana said on Monday that while he did not wish to be seen as minimising his concerns about Malta’s greylisting by the FATF, he wanted to assure everyone that Malta had plenty to fall back on and could absorb extraneous shocks.

Clyde Caruana was speaking in Parliament after the Financial Action Task Force, the global watchdog on financial crimes, put Malta on its grey list last Wednesday.  

Caruana said that the government would not cry over spilt milk. It could not turn the clock back and it therefore needed to look ahead, work hard and present solutions so that what had happened could be removed or remedied.  

What he was sure of, Caruana said, was that Malta would emerge well as it had done when it was faced by other challenges.

Government raises borrowing ceiling

Caruana was speaking during a debate on a motion to raise the ceiling on government borrowing through treasury bills to €1.3 billion from the current €1 billion.

He said the deficit this year would be 12% of GDP or €1.6 billion. But the economy was picking up and the deficit was projected to halve to 6% of GDP next year and then 4% in 2023 before falling below 3% in 2024, something which other countries would not be able to achieve.   

The government, he said, had been honest in its forecasts and had, even before the Budget in October, told Brussels about the deficit deterioration. This he said, was an issue of credibility, however unpleasant that forecast had been.   

He said the debt was increasing as the deficit widened but it will fall to 67% or 68% in three or four years time, meaning Malta will be back to the situation it was in in 2013.

This deterioration was caused by the pandemic, which had effectively cost the country 25% of GDP.

There was no doubt, Caruana stressed, that the government had been justified in its spending to fight the pandemic, save the economy and protect the national interest.

The motion being debated today would help the government consolidate its fiscal policy. It needed to borrow more to maintain the economic rhythm which would lead to what the EU was itself projecting as the strongest economic growth in the union.

Opposition: we warned about unrealistic forecasts

Shadow finance minister Mario de Marco recalled that in the Budget debate last October, when COVID-19 was still in full rage, the Opposition had warned then Finance Minister Edward Scicluna that his revenue and growth projections were wrong.

De Marco said he had personally warned that recurrent expenditure had soared over the past seven years - from €2.6 billion to €4.7 billion - well before the pandemic broke out, and the government’s room to manoeuvre would be limited if recurrent revenue dropped. He had also spoken about how the government had come up with short term solutions for long-term needs.

Edward Scicluna's projections were off by hundreds of millions

At the time the opposition was described as negative. But now the government wanted to raise its borrowing limit from treasury bills from €1 billion to €1.3 billion. The deficit that was projected to be €750 million would now be €1.6 billion.

Scicluna’s projections were off by hundreds of millions of euro and he had persisted in his error despite repeated warnings. Would political responsibility be borne? Would Scicluna remain governor of the Central Bank and did Caruana still have confidence in him?

Shadow finance minister Mario de Marco slammed the government over its revised budgets. Photo: Matthew Mirabelli

The government, de Marco said, needed to explain where and how expenditure had risen and revenue had fallen. True, there was a pandemic, but that was known last October. True, the wage subsidy and other measures had been extended but was that all?

De Marco said that despite this being a money bill, the Opposition would still vote in favour, this being a delicate time for the country.

But the government needed to be more open and transparent.

What had become of Malta's application for the European Commission to authorise state aid for Air Malta, he asked. 

PN: FATF debacle was government's making

De Marco said that while the pandemic was not of the government’s making, the FATF’s greylisting certainly was. That the FATF found a lack of political will for the effective implementation of Malta’s anti-money laundering laws was the government’s sole responsibility.

That the government had failed to convince the US, the UK and Germany, traditionally friendly countries, that Malta did not deserve to be put on the grey list was a major political failure.

As a result, Malta would be weakened politically as it fought to defend its fiscal sovereignty and the financial industry faced what had been described as the perfect storm for companies and employees to move out of the country.  This was reality that needed to be faced, a national challenge that needed a national solution, which was why the Opposition had suggested a national task force which it was prepared to join, along with the financial industry. The ball was the government’s court, de Marco said. 

Finance Minister: Nobody is perfect

Replying later, the finance minister said he had no problem in admitting that mistakes had been made, but one needed to look ahead. No one was perfect. This government had its shortcomings too.

“We will emerge from this because we have done a lot of work,” he said. 

This, he insisted, was not a political issue and it depended on action, not theatrics. 

As to the increased borrowing, he said spending was up by €600 million and revenue was down by €227 million owing to lower income tax, VAT, and duties, among others.  Most of the €600m increased outlay was in the wage supplement and other COVID-19 measures and an allocation already made for Air Malta. 

The difference shown in this debate, he said, was that the government offered solutions while others went round in circles.