A fiscal watchdog has told the government to avoid inflating its spending so as to ensure adherence with its deficit targets.

In a report published in August, the Malta Fiscal Advisory Council (MFAC) said that whilst efforts at restraining government spending should be explored, “productive” capital expenditure that promotes growth should not be curtailed.

“Rather, the council encourages the government to preserve nationally financed public investment and improve its efficiency and effectiveness,” the report says.

The effective absorption of EU funds, particularly those that foster green and digital transitions, should also be ensured.

In the report, the council reiterated its recommendation for the government to prepare an adequate exit strategy for its policy of subsidising energy and fuel bills, adopting a more targeted approaching and enhancing incentives for energy savings.

Prime Minister Robert Abela has so far resisted by the European Commission to phase out the subsidies.

Abela said last year that the subsidies were costing the government €1 million per day.

The fiscal council said spending on the ongoing energy price measures continued to exert upward pressure on the deficit. In July, the EU launched excessive deficit procedures against Malta and six other countries.

The procedures aim to ensure EU countries maintain discipline in their government budgets so that government debts remain low or high debts are reduced to sustainable levels.

The deficit, at 4.9% in 2023, remained close to the EU’s benchmark of 3%.

Malta debts in 2023 hit €9.7 billion, an increase of €768 million when compared to 2022.

However, the council said strong growth in Malta’s gross domestic product (GDP) saw the debt-to-GDP ratio decrease from 51.6% in 2022 to 50.4% last year.

Although the debt levels were lower than the EU’s benchmark of 60% of GDP, the fiscal council said the government must remain vigilant.