A surplus in the government’s finances last year turned out to be €24 million off the mark, significantly below the projection made in the 2019 Budget.
The discrepancy was flagged in a report by the Malta Fiscal Advisory Council, an independent body established by the finance ministry to monitor if the government is adhering to its financial targets.
The government ended 2019 with a surplus of €9.4 million when the target set had been of €33.3 million. While revenue was €40.9 million below expectations, the situation was mitigated by the fact that expenditure was €16.9 million short of the projected amount.
The report notes that the shortfall resulted from a €91.1 million drop in direct taxes, mostly from income tax due to higher refunds.
On the expenditure side, the largest variance was in capital expenditure, which was €107 million below the projected amount as projects materialised at a slower pace than expected.
The report also looks at the economic growth registered last year and, again, indicates that the government made an overestimation. Though in 2019, the nominal gross domestic product remained very high at 6.8 per cent, it was significantly below the target that had been set for 7.7 per cent.
The council remarked that, even though making accurate forecasts for a small open economy like Malta’s posed challenges, the finance ministry should closely watch economic developments to capture possible turning points of the economy.
The council also issued its half-yearly report for 2020, which looks at government projections for the first half of this year, characterised by the COVID-19 outbreak.
Though it has already been acknowledged that the drop in revenue, combined with the unexpected financial outlay to keep the economy afloat, would result in a heavy deficit, the projection has been revised.
Originally, the government was expecting to end 2020 with a shortfall of €951.9 million but this has been raised to €1.11 billion, which is equivalent to 8.7 per cent of GDP. The forecast for the outstanding public debt has, likewise, been revised, up from €6,939.7 million to €6,988.3 million by the end of the year.
In its conclusion, the council noted that its half-yearly report contains no information on the absorption rate of EU funds and the list of all outstanding creditors for the first six months even though the government is obliged by law to furnish such information. It called on the finance ministry to take the necessary measures to ensure this does not happen for the 2021 half-yearlyfian report.