On December 11, the Malta Fiscal Advisory Council (MFAC) presented to the Minister for Finance its assessment of the Draft Budgetary Plan 2020, which the Ministry submitted to the European Commission on October 15.

The Fiscal Council considered the updated macroeconomic and fiscal forecasts for 2019 and 2020 to be within its endorsable range.

The Council also confirmed that the rules prescribed in the Fiscal Responsibility Act and the Stability and Growth Pact were complied with in 2018, and the fiscal plans put forward should ensure continued compliance with such rules, both in 2019 and in 2020.

The Council noted that according to the official projections, the Maltese economy is expected to maintain strong momentum but real GDP growth is expected to ease gradually, from 6.8 per cent in 2018, to 5.0 per cent in 2019 and 4.3 per cent in 2020. Supported by this economic outlook, government is targeting further fiscal surpluses, albeit slightly smaller than in 2018.

The fiscal surplus is set to stabilise at 1.4 per cent of GDP, both in 2019 and 2020. Meanwhile, the debt ratio is expected to maintain its gradual downward trend, falling from 45.8 per cent of GDP in 2018, to 40.3 per cent by 2020. These forecasts were examined against the explanations and evidence provided by the ministry, supplemented with the general assessment of the consistency with the historical patterns characterising such variables; comparisons with similar forecasts produced by other independent institutions and any specific factors which are expected to influence the trajectory of these forecasts. 

The Fiscal Council said strong public finances are important not only to comply with the fiscal rules but to ensure that appropriate buffers are created at a time when the economic performance is favourable. Such fiscal space would prove beneficial in the eventuality that economic conditions become less favourable at some future date, such as if the external economic conditions become more challenging  or the intensity of domestic demand abates.

The Council also reiterated the importance that expenditure developments should be monitored carefully, to factor in any possible future risks to the robustness of revenues.

The full report, entitled Assessment of the Draft Budgetary Plan 2020, is available at www.mfac.org.mt.