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The ‘€400m discrepancy’

Arriva was bought by the government for one euro and that needed explaining. A €4 million value needs as much explaining if not more. And that is what the National Statistics Office (NSO) did in its latest newsletter on the subject of Malta’s deficit and debt for the year 2013.

But for the leader of the Opposition to come out claiming that his party found a €400 million discrepancy, that is heavy stuff.

One needs to recall that prior to the election, Simon Busuttil penned an article in Times of Malta entitled ‘Why Labour risks a bail-out’.



“No fewer than two shadow ministers claimed that the government has managed to reduce the deficit by postponing 2013 expenditures to 2014. I can see Eurostat      holding their bellies with laughter”




Now the Eurostat-approved deficit and debt measurements came out in clear contradiction of that claim, he is coming out with his next Greece-tinged salvo: “The government is deceiving the people”, or more bluntly, cooking the books.

I will quickly try to clear these allegations lest I risk being sent for by the European Commission. Let us examine these one by one.

The first one as reported in the papers is that Dr Busuttil could not understand how come the debt has increased while the deficit is reported to have been reduced.

So back to basics: The deficit is a flow measured over a period of one year, which adds to the debt which is a stock, and measured at one point in time, say at the end of the year.

So whatever happens to a deficit, whether it increases or decreases, even if it were to fall to €1, it would still add to the debt.

Other things remaining constant, the cash value of the deficit over a year would be added to the outstanding cash value of the debt.

With that out of the way we can tackle the €400 million discrepancy allegation.

In economics we do not refer to these particular different values as a discrepancy, we call it a stock-flow adjustment.

It is the Eurostat standard approach to reconcile the deficit (flow) to the debt (stock).

Table 3 of the NSO newsletter gives a breakdown of the “stock-flow” adjustment amounting to €169 million and not €400 million, which is another maths slip on Dr Busuttil’s behalf.

This includes an additional €40 million IOU from Enemalta reported in Parliament many a time during debates, and €60 million loans or equity injection in the EFSF/ESM funds as part of our eurozone obligations.

There is statistical adjustment of €42 million to account for the conversion of the time-adjusted accrual deficit value to the cash debt value, to make them cover the same period.

The rest are other adjustments which include some additional loans taken by state-owned authorities (EBUs).

Although all these add to the gross debt, in an economic sense they do not all add to our net debt. This is especially true of our loans to the EU solidarity funds which are clearly so defined in the Council Regulations.

So where is the deception on the part of government? I would prefer to call it hypocrisy on the part of the Opposition, since the same NSO newsletter referred to by the Opposition shows clearly that in 2011 the reported stock-flow adjustment was €310 million, significantly higher than the €169 million in 2013.

The Labour opposition then was not so naïve to call that adjustment a “deceiving discrepancy”.

And this brings us to more hyperbole. No fewer than two shadow ministers claimed that the government has managed to reduce the deficit by postponing 2013 expenditures to 2014.

I can see Eurostat holding their bellies with laughter.

If Malta, being under the excessive deficit procedure with its added onerous reporting responsibilities, were to manage to do that, it would be the first post-Greece feat. That would be news.

Again, this shows poor understanding of government finance by the Opposition.

The 2013 accrued government finance as reported under the Maastricht Treaty report all expenditures whether these were effectively paid for or not.

Most businessmen are familiar with the basic terms “accounts payables and accounts receivables”. All these 2013 expenditures to be paid for this year are already included with the 2013 accounts.

So why is Dr Busuttil not informed of these financial accounting methods of the State?

No country wants to give a bad impression to international organisations of these poor standards discussed in our Parliament or elsewhere. So please, let some good economic advisers be taken on by our Opposition leader.

This is not to say that government finances do not face risks.

This applies to this year and all the years to come. The pressures are there every day. But then this is the stuff good governance is made of.

Governments are obliged to react and ensure they keep to the intended budgetary track.

If one were to swerve out of that path one has to take action, as this government has promised to do and indeed did last year.

Ultimately for Malta’s welfare the Labour government will ensure too that it achieves this legislature’s fiscal targets.

The new government has reasons to be proud of its short-term economic and financial record.

Given time it will have more reasons to be proud of its long-term record as well.



Tuesday 29th April  2014


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