Malta Fiscal Advisory Council publishes its assessment of the Ministry for Finance’s 2016 Annual Report

On 31 July, the Malta Fiscal Advisory Council presented to the Minister for Finance its assessment of the ministry’s 2016 Annual Report which was tabled in Parliament on 27 June.

The main purpose of the Annual Report is to provide an appraisal of the execution of the previous Budget and present relevant explanations regarding any possible deviations between the actual and forecasted macroeconomic and fiscal developments during the year. The Annual Report also assesses compliance with the fiscal rules set by the Stability and Growth Pact and by the Fiscal Responsibility Act.

The Council notes positively that the 2016 fiscal turnout was significantly better than originally targeted. In fact, the Consolidated Fund reported a surplus of €8.9 million, as opposed to a deficit of €196.0 million indicated in the Approved Estimates published in October 2015.

The outturn based on the ESA methodology, which is more relevant in terms of assessing compliance with the fiscal rules, registered a surplus of €101.0 million, compared to the deficit of €102.0 million indicated in the 2016 Draft Budgetary Plan and the deficit of €65.7 million targeted in the Update of Stability Programme 2016 – 2019.

The better-than-expected fiscal outturn was largely revenue-driven and reflects a number of factors including the prudent assumptions used in the forecast round, a more tax-rich economic growth, a larger tax base than originally assumed in the ministry’s forecasting model, and higher yield from the Individual Investor Programme.

At the same time, total expenditure was slightly below the budgeted amount, as overruns across many current expenditure components, were more than offset by the lower spending on public investment.

Turning to macroeconomic figures, the Council notes that the ministry’s forecast for the 2016 nominal GDP growth was close to the actual outturn of 6.7%. This notwithstanding the slowerthan-anticipated progress in the utilisation of EU funds, which resulted in a noticeable gap in the spending on investment by the government, compared to what was indicated in last year’s Stability Programme and in the Draft Budgetary Plan.

The Council also notes positively the full compliance with the two fiscal rules directly mentioned in the Fiscal Responsibility Act, namely the budgetary rule and the debt rule.

Indeed, after netting out the impact of the economic cycle and temporary effects, the structural fiscal balance ended 2016 with a surplus of 0.2% of potential output. This meant that the country’s Medium-Term Objective was achieved in 2016, three years ahead of the plan agreed with the European Commission.

In this respect, the Council invites the ministry to remain vigilant in order to ensure that going forward, the country remains at its MTO. The target for the public debt-to-GDP ratio was likewise overachieved in 2016, as the ratio declined below the threshold of 60.0%, to reach 58.3% of GDP.

The upward revision in the nominal GDP statistics, which was undertaken by the National Statistics Office in December of 2016, contributed to the faster decline in the debt ratio.

In order to strengthen further the institutional dialogue, and add more fiscal transparency, the Council invites the Ministry for Finance to evaluate the merit of using its Annual Report to make public its views on the various recommendations made by the Council throughout the year. The full report, entitled “Overall Assessment – Ministry for Finance Annual Report 2016”, is available on the website of the MFAC http://www.mfac.org.mt.