Malta is facing a projected deficit of €1.6 billion for 2021, a finance ministry half-year report has confirmed.
The 2021 deficit, amounting to 12% of GDP, is a marked increase from earlier projections made last year of 5.9%
Deficits occur when government spending exceeds revenues.
Finance Minister Clyde Caruana had already alluded to the higher-than-expected deficit figure and ruled out any tax hikes in the next budget.
One senior finance official told Times of Malta, however, that it was inevitable the government would have to eventually slow down its spending, with any major cuts likely being postponed until after an election is called.
The finance ministry report, published recently, says the government’s fiscal performance in 2021 must be considered against the “exceptional circumstances” brought about by the COVID-19 pandemic, leading to a negative economic impact and “unprecedented but vital fiscal support” to mitigate it.
A raft of measures including wage supplements and government vouchers were introduced last year to save businesses and stimulate consumption.
The latest projected figures come on the back of a hefty deficit of €1.3 billion last year, after several years of surplus.
Malta’s deficit is among the highest in the EU
The 2021 figure puts Malta’s deficit among the highest in the EU in percentage terms.
Most EU countries have faced ballooning deficits as governments scrambled to save economies decimated by the COVID-19 pandemic.
As a result, the European Commission suspended rules aimed at keeping government spending deficits in check.
Government projections predict the deficit will fall to under six per cent next year.
The spike in spending to fight the impact of the pandemic has been funded by an increase in borrowing. The government also tapped funds from the sale of passports.
This has seen Malta’s debt-to-GDP ratio increase by 12.8 percentage points to 54.8% of GDP last year. The debt figure is expected to grow by a further 10.2% in 2021.
The finance ministry report said the decision by the FATF to grey list Malta is not expected to have substantive negative economic effects in the short term.
Malta was greylisted by the anti-money laundering watchdog in June over deficiencies in its fight against financial crime, with particular focus on tax evasion.