Malta’s debt to GDP ratio and the deficit

The Malta Business Weekly (28 April 2011) asked Prof Edward Scicluna for his reaction to the fact that at the end of 2010 Malta registered at debt to GDP ratio of 68%, beyond the 60% benchmark, but less than the 69.1% of GDP projected in the national budget.

He was also referred to the Government deficit, that at the end of 2010 was 3.6% of GDP as expenditure decreased slightly while debt increased. This is below the projected figure of 3.9% of GDP. Prof Scicluna was asked to what does he attribute this decrease.

Prof Scicluna replied that if Malta’s performance in 2010 were to be compared to the Euro area or the EU27 one finds that it followed the general trend whereby its deficit ratio decreased while its debt ratio increased.

“However our deficit ratio only fell marginally, by 0.1 percentage points, which is less than the EU average of 0.4. On the other hand Malta’s debt ratio increased by 0.4 percentage points which is less than the EU average of 0.7.
What is certainly disconcerting is that this performance was obtained by a significant GDP revision, greater than 1 percentage points and which Eurostat had to note in its report. The other country which earns this accolade is Romania with which incidentally Eurostat has reservations as to the quality standards of its reported statistics. Changes in GDP affect deficit and debt ratios due to the denominator effect.

As a member of the EU I find it unacceptable that my country finds itself singled out as going off the mark by more that 1 percent of the GDP (more than 60 million euro). Whether intentionally or not our record on significant revisions is not a good one. We all recall the significant revisions made before we joined the Euro and which had significant repercussions on the Maastricht ratios. For the record these were accepted by the Commission though they did raise eyebrows at the IMF. The mandate given recently to Eurostat by the European Parliament to start auditing our statistics will hopefully see certain improvement. We should also note that the economic governance package passed through our Econ committee last week has proposed exorbitant fines (for Malta totaling to about 30 million euro) for avoidable mistakes committed by the authorities with regard to their statistics.

So whether Malta is doing better or not on the deficit and debt front I honestly cannot tell from the statistics presented to date. From anecdotal evidence government appears to be restricting certain expenditures and maximizing certain revenues. Whether that is adequate or not to avoid the newly proposed singeing sanctions of the revamped Stability and Growth Pact (SGP) we still have to see.”


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