Malta's poor credit rating

The Times gave ample coverage to the autumn (economic) forecast report published by the EU Commission on Malta (November 14). The forecast period extends to the post-referendum year - 2004. It is said that by that year, "economic activity in Malta is expected to progressively recover from the downturn experienced last year".

On close examination of the report, one finds that "output growth is estimated to remain below the average of the period 1997-2000".

Public consumption growth is estimated to be significant this year (2002), although it is estimated to decelerate over the forecast period. Investment growth is estimated to remain low this year, as lower investment in the manufacturing sector is not being outpaced by relatively strong public investment and construction activity.

However, investment is expected to increase visibly in 2003 and 2004 primarily led by the private sector, given the need to cope with higher competition and increasing external demand.

Malta's export performance is expected to remain weak this year as external demand remains low and the electronics and tourism sectors' performance continues to be below expectation.

The "expected" recovery in external demand in 2003 and 2004 is "foreseen" to lead a recovery of export growth. Even so, this is anticipated to be outpaced by import growth in 2003.

The same report says that the current account deficit is expected to deteriorate to about six per cent of GDP this year and remain stable in 2003, largely led by a deterioration of the services account.

Turning to the deficit, the report says that it remained unchanged at seven per cent of GDP in 2001, and opines that low growth undermined tax revenues and several categories of expenditure, such as health and education, increased significantly.

Interest payments on government debt also increased markedly as some expected privatisation transactions did not take place, impeding the debt to decrease to previously anticipated levels.

The report forecasts that privatisation will limit debt and interest payment growth during the forecast period.

However, pressures over expenditure are expected to remain, keeping the deficit relatively high. It is expressly stated that such pressures mainly concern health and education outlays, the compensation scheme for the removal of agricultural import levies, the restructuring programme for the shipyards and costs related to the implementation of the EU acquis.

This picture is far from positive. It could be even more sombre if those who drew up the report could work their way through the Malta government's 'hide-and-seek' accountancy (which plays abracadabra with millions of liri below the line) and duplicate statistics (which produce two sets of unemployment figures among other things).

The realities of the past four years are not debatable. They represent a hard-and-fast experience expressed in a steep and sustained rise in taxation, which was outpaced by galloping public expenditure, resulting in an unprecedented load of public debt, made all the more unbearable by accelerating debt servicing costs. We have reached a point where the Exchequer will not come clean if it were to sell all the nation's silverware!

The EU Commission's brief is to look to the future and it is optimistic insofar as it expects to see improvements in 2004, "when manufacturing exports, in particular electronics, and tourism activity are expected to pick up notably".

These improvements are based on anticipations. The report envisages more foreign direct investment largely due to several planned privatisation deals, job creation 'in several sectors' because "by 2004, industrial liberalisation and ongoing structural reforms are expected to have increased competition and efficiency".

Your guess as to what lies on the laps of the future is as good as mine. In due course, time will tell. And it's not that far away, save what happens in between.

What is less arguable is that the EU autumn report flatly gives the lie to the ongoing publicity campaign of the Fenech Adami administration whose motto is "1998-2003: Sahhahna Pajjizna" (We have made our country stronger).

Since 1998, there has been an investment fatigue, economic growth lost momentum and slumped, public expenditure ran out of control, taxation reached a point where it choked business initiative, the tourist sector entered into a period of decline well before the strike on the New York Twin Towers and the Malta Stock Exchange was becalmed in the doldrums even before that time.

Malta is going to be hard put to it if it is going to emerge from its predicament. And the driving force must come from Malta - not from anywhere else.

I believe that the electorate is becoming increasingly aware of what is at stake and that public opinion is not inclined to delude itself into believing the lie that the Maltese economy has been "fortified" during the past four years.

Malta needs a government which is more credible in real performance and which relies more on results than on airy-fairy presumptousness - one with an enhanced credit rating.