Malta Fiscal Advisory Council urges government to fine-tune expenditure plans

On 28 December the Malta Fiscal Advisory Council presented its final assessment of the Draft Budgetary Plan for 2017.

This Report reviews the conduct of fiscal policy, examining the compliance with the fiscal rules which are outlined in the Fiscal Responsibility Act and in the Stability and Growth Pact.

This Report supplements the previous two reports published in October and November this year, which respectively focused on the plausibility of the government’s macroeconomic forecasts, and its fiscal projections.

The council notes positively that the planned trajectory for public debt, which is expected to decline from 64.0% of GDP in 2015 to 63.3% in 2016 and 61.9% in 2017, complies with the debt rule. The slower accumulation of debt and the expansion in nominal GDP are enabling the debt to-GDP ratio to converge closer towards the target of 60%, which is applicable to euro area Member States.

The council also welcomes the plans to move ahead with further improvement in public finances, with the aim of lowering the fiscal deficit to 0.7% of GDP in 2016 and 0.5% of GDP in 2017. The undertaking of counter-cyclical fiscal tightening contributes to further progress towards the attainment of Malta’s MediumTerm Objective of structural balance by 2019.

Available information suggests that the pace of structural adjustment for 2016, that is, the improvement in the fiscal balance after correcting for the effects of the business cycle and one-off and temporary effects, will exceed the 0.6% of GDP minimum requirement.

However, the council identifies the risk of some possible divergence from this requirement for 2017, also on the basis of the calculations published by the European Commission in this regard.

Likewise, the council considers that the expenditure rule should be respected in 2016, as annual expenditure growth, after adjusting for certain components, is expected to be within the prescribed limit.

However, there is a risk that such limit could be exceeded slightly in 2017.