State guarantees in Malta are relatively high when compared to other European Union members, the Fiscal Advisory Council has warned.
The council is an independent body tasked with reviewing and assessing the government’s economic policies.
In a report published last week, it said that while the guarantees, which reached just over €1.4 billion by the end of 2015, were of little concern during periods of economic growth, they might become problematic during a downturn.
Malta ranked the fourth highest within the EU in terms of the outstanding guarantees-to-GDP ratio. The council said in its report the government was actively considering its recommendations for establishing a stronger governance system and more specific controls in relation to the award of state guarantees.
Bulk of guarantees are concentrated within a limited number of beneficiaries
It said such a system would be beneficial in the long term, particularly when taking note of the fact that the amount of outstanding guarantees remained high when compared to other EU member states.
Although guarantees were useful to attracting foreign investment, they also represented a risk if not appropriately controlled, the council warned.
Government guarantees increased from 7.2 per cent of GDP in 2005 to 11.8 per cent in 2010, surging to 16 per cent in 2012 and remaining stable at this level up to 2015, the council noted.
Finance Ministry projections show that this ratio was envisaged to decline to 11.9 per cent of GDP this year thanks to the removal of the controversial €360 million guarantee to Electrogas, the consortium behind the new gas-fired power station.
In absolute terms, the total volume of outstanding guarantees increased from €371.6 million in 2005 to slightly more than €1.4 billion in 2015. Of the latter, €812.2 million (56 per cent) were granted to cover financing facilities by local financial institutions whereas €644.5 million (44 per cent) were in respect of facilities by foreign institutions.
The council said the bulk of these guarantees were concentrated within a limited number of beneficiaries. Eight entities accounted for 97.7 per cent of the aggregate outstanding amount at the end of 2015.
The energy sector absorbed almost two-thirds of such guarantees. Other sizable guarantees related to the transport sector, water services, the industrial sector and education, the council said.