A fiscal watchdog emphasised the need to maintain “discipline” to reach the planned reductions in the fiscal balance.

According to projections analysed by the Malta Fiscal Advisory Council, an independent body, public debt is set to reach €9.1 billion by the end of this year, up from €8.2 billion.

The bulk of the increase, €850 million, reflects the financing of the spending deficit for this year. The fiscal deficit is expected to narrow to 5.4 per cent of GDP in 2022, from eight per cent a year earlier.

Council chairman John Cassar White said in a covering letter to a report published this month that the government should be adequately prepared for when EU rules on budget deficits and debt are reinstated.

The rules were temporarily suspended in 2020 to give EU governments more leeway in combating the impact of the COVID-19 pandemic.

Cassar White says rebuilding fiscal space and ensuring debt sustainability is key, not only because of the rules but also to restore the ability to counteract adverse shocks and enhance the economy’s overall resilience.

Finance Minister Clyde Caruana has been carrying out a spending review in a bid to slash millions in spending, as the government continues to heavily subsidise the energy sector.

The fiscal advisory council says in its report that the compensation for higher imported electricity prices is projected at €81.2 million this year, while €30 million are being factored towards support of petroleum products.

Subsidies are also being given to importers of wheat, grain and animal fodder in a bid to fight food inflation.

The government’s efforts so far have seen Malta’s inflation remain the lowest in the eurozone at 6.1 per cent as consumers in the rest of Europe deal with skyrocketing energy and fuel prices.

According to the council, the finance ministry is being prudent in allocating more expenditure for 2023 with respect to mitigating high energy prices, however, such calculations are subject to revision, seeing that they depend on external factors like the conflict in Ukraine and the supply of energy from abroad.