05 July 2006


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Fenech still confident despite Commission’s forecast

James Debono

Parliamentary Secretary Tonio Fenech insists that the European Commission’ spring assessment that the deficit next year will be above the three per cent benchmark is just a forecast which can be disproved by actual figures.
The Commission’s forecast came in the wake of government’s drive to cut down the deficit to below three per cent of GDP in a bid to meet the Maastricht criteria for Euro adoption.
Fenech does not question the criteria used by the Commission, which excludes one-off incomes, to determine its forecast but sticks to the targets set in Malta’s convergence plan.
“This is just a forecast by the Commission based on common rules used for all member states. But that does not mean that our figures are not correct. In the end it will all boil down to the actual figures,” parliamentary secretary Tonio Fenech told Business Today. According to the Spring Economic Forecasts issued by the Commission, in 2007 the deficit is set to rise to 3.2 per cent.
If that happens, Malta will be back in the red zone, as it will once again surpass the three per cent EU reference rate necessary for euro adoption in terms of the Maastricht criteria. During his last media briefing Prime Minister Lawrence Gonzi argued that the Commission had failed to take in consideration a number of one off revenue streams that the government was expecting in the coming months while including one off expenditures such as that on Mater Dei hospital.
In its convergence programme the Maltese government is projecting a deficit of 2.3 per cent for 2007, one percentage point less than EU forecasts and well below the 3 per cent mark.
Fenech acknowledged that by eliminating one off revenues from its forecast the Commission assesses the sustainability of every country’s deficit.
But Fenech insists that one off expenditures on projects like the Mater Dei hospital have a more significant bearing on the finances of small countries like Malta than those of larger countries like Germany.
“The financial impact of building a new hospital in Germany is far less than that of building one in Malta.”
But Tonio Fenech is not expecting the EU commission to change its criteria for assessing the sustainability of each country’s deficit.
“It is extremely difficult for the commission to change its rules and it would be futile to ask for the rules to be changed.”
Yet the parliamentary secretary is confident that the reduction of the deficit is still sustainable even if one off revenue streams are taken out of the equation.
Asked whether the government intends revising its forecasts, Fenech insists that the government still considers the figures outlined in the convergence plan as achievable.

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