Fiscal plans comply with the fiscal rules

On 7 December, the Malta Fiscal Advisory Council presented to the Minister for Finance its assessment of the Draft Budgetary Plan 2019. The Fiscal Council considered the updated official macroeconomic and fiscal forecasts for 2018 and 2019 to be within its endorsable range. The Council also confirmed that the fiscal plans comply with the fiscal rules prescribed in the Fiscal Responsibility Act and the Stability and Growth Pact.

According to the Ministry for Finance, the Maltese economy will maintain strong growth over the forecast horizon. However, real GDP growth is expected to decelerate gradually, from 6.7% in 2017, to 5.8% in 2018, and 5.3% in 2019.

Supported by this economic outlook, the Government is targeting further fiscal surpluses over the forecast horizon, albeit smaller than in 2017. The fiscal surplus, which in 2017 amounted to 3.5% of GDP, is anticipated to drop to 1.1% in 2018, and thereafter increase slightly, to 1.3% in 2019. Meanwhile, the debt-to-GDP ratio is expected to maintain its gradual downward trend, falling from 50.9% in 2017, to 46.9% in 2018 and to 43.8% in 2019.

The methodologies used by the ministry to prepare these forecasts, as well as the explanations and evidence provided to the Council and the general consistency with the recent trends, support the Council’s endorsement decision.

The analysis carried out by the Council suggests that on a net basis there could be a marginal downside risk for real GDP growth for 2018, whereas for 2019 the risk outlook is neutral. Contingent on the materialisation of the macroeconomic outlook presented in the Draft Budgetary Plan, the Council sees the possibility of a largerthan-expected fiscal surplus in 2018, but in 2019 the fiscal surplus could be slightly lower than planned.

The Fiscal Council reminds and stresses the importance of strong public finances, not only to comply with the fiscal rules, but to ensure that appropriate fiscal buffers are created at a time when the economic performance is favourable.

Furthermore, the benign macroeconomic and fiscal conditions offer a window of opportunity for carrying out the necessary reforms to address both short-term and long-term challenges.

The full report, entitled “Assessment of the Draft Budgetary Plan 2019”, is available on the website of the MFAC: http://www.mfac.org.mt.