Sharp discrepancies in structural deficit projections

A confidential report by the Finance Ministry reveals sharp discrepancies between figures given in the last budget speech and those drawn up in preparation for the budget for 2003.

A structural deficit of Lm76.9 million is being projected by the government for 2003 in contrast with the Lm53.5 million forecast made by the finance minister in his last budget speech. For the following year, the deficit will stand at a projected Lm65.8 million against the Lm47.2 million mentioned in the last budget.

The figures are given in a confidential pre-budget consultation document passed to unions and employers' associations. The report is expected to be discussed by the Malta Council for Economic and Social Development this Friday when Minister John Dalli will attend.

The report says the deficit this year is expected to be Lm78.6 million while Mr Dalli had told parliament he expected a deficit of Lm77.7 million for 2002.

Figures in the report show that next year - contrary to what happened in past years - government receipts will decrease by Lm3 million to Lm743.9 million but will then rise by Lm28 million to Lm770.8 million in 2004.

The report says the budget deficit is expected to decline from Lm85.3 million recorded in 2001 to about Lm50.2 million in 2005. Thus, the budget deficit as a percentage of the Gross Domestic Product is expected to follow a downward trend from 5.2 per cent in 2001 to 2.5 per cent in 2005.

Debt is forecast to rise by Lm54.9 million in 2002 over 2001 and again by Lm19.9 million in 2003. The report forecasts income from privatisation in 2003 of Lm50 million.

The report says the government's medium-term macroeconomic objectives remain the achievement of a sustainable economic growth and a high level of employment, the restoration of public finances to a sustainable path and ensuring stability in the external sector.

The report says that while in real terms the GDP contracted by 0.8 per cent last year, it will grow by 3.3 per cent this year and 3.1 per cent next year. It forecasts that the GDP would continue to increase and reach a growth of 3.8 per cent in 2005.

On exports and imports, which decreased by 4.9 per cent and 10.2 per cent respectively in 2001, the report says that in 2002, exports should increase by 1.9 per cent and imports by 3.5 per cent. For next year, the report gives a far more optimistic outlook. It says that in 2003, exports are expected to increase by 5.3 per cent and imports by 4.4 per cent.

The report states that in line with the government's policy of containing the level of fiscal imbalance, the budget balance is expected to decline in the medium term, after remaining relatively stable in 2001.

This gradual reduction in the budget deficits in the 2002-2005 period will contribute to levels of public debt which will grow at a slower pace than the rate of economic growth.

The report gives a snapshot of the current situation and a review of short to medium term projections of macroeconomic and fiscal developments the government perceives to emerge.

It says: "2003 and beyond will be crucial years in Malta's political, economic and historic developments. The government continues to be primarily focused upon the challenges of the run up to accession with the direction towards economic and fiscal convergence being underpinned by structural reform plans, increased institutional and administrative capacity and a harmonised legislative programme."

The report says that the outlook for unemployment was promising since although initially a slight increase is expected - mainly due to the lagged effects of 2001 events - the jobless rate will start to fall by 2003 and is expected to reach 4.3 per cent by 2005.