Gonzi's reaction to Moody's report

Deputy Prime Minister Lawrence Gonzi was yesterday optimistic following the latest update on Malta by Moody's credit agency, which gave Malta a negative outlook, saying that the relevance of many of its comments depended on when its update was drafted.

"For example, I found interesting the reference to labour market reform as being contentious. I suspect the report was drafted when the employment and industrial relations bill was being hotly debated, but a final solution was found in October which was acceptable to all. So much so that it was actually applauded by all parties in parliament.

"If this was an important point in Moody's eyes, I am glad to be able to tell them that the problems did not materialise," he said when contacted.

He was also asked about the deficit and debt, which Moody's also said were too high.

"Again, if the report was based on the first and second quarters, it would be understandable. But since then, in third and fourth quarter, we recuperated as the finance minister said in the budget speech; so much depends on when the assessment was made.

"They say that our fiscal programme was derailed, but really we went through the same problems as other countries. I think the figures in the budget show that these difficult times have now been brought under control - unless something else crops up, whether in Malta or overseas.

"If you look at employment, it was affected by the drop in tourism, but preliminary figures for October and November show things are improving and this means it will open up new opportunities.

"The challenges are there and we are ready to face them," he said.

Moody's has had a negative outlook on Malta's A3 ratings since February 1999. It said that the outlook stance reflects numerous constraints as well as concerns that much-needed reforms in the pension system and labour market were "deeply contentious politically."

It said that: "This is particularly relevant to the ratings outlook since the Labour Party has threatened to withdraw the country's application to join the EU should they win the next election.

"Aside from the EU issue, maintaining economic stability with an exchange rate peg linked to a strengthening euro could prove to be a struggle for a small, open economy that has serious competitiveness challenges. Finally, the outlook for a turnaround in growth and stronger public finances depends on the prospects for the tourism and electronics sectors, which remain highly uncertain," the report said.

Dr Gonzi also highlighted that Moody's had since 1999 put the EU as the centre of its analysis, not just for Malta but for all accession countries.

"They have pointed out the position taken by the Labour Party, as everyone else has. This position is not helping Malta but is creating problems.

"Everyone knows the global problems in 2001, both the economic slump in the electronics industry and the effect on tourism post-September 11. Malta is very open to such development.

"Considering all difficulties, when comparing Malta with other places in the Mediterranean, especially in tourism, we have recuperated quite well. In the electronics industry, so much depends on what is happening thousands of miles away, but again, the indications are the industry is recuperating."

However, Labour spokesman for the economy Leo Brincat did not see it the same way. In a statement, he said that the negative outlook rating was a confirmation that the Maltese government had failed to reach its own targets.

"Just a few days after the European Commission reported on the pre-accession programme of the Maltese government and said that the financial targets were overly optimistic and distanced from reality, an international credit rating agency says that the fiscal deficit is expected to be 50 per cent higher between 2002 and 204 than originally planned."

"This report, like other recent reports, continues to show the gaping chasm between the Nationalist government's propaganda and the facts - which nobody can deny."