Government, Opposition at loggerheads over burgeoning national debt

Finance Minister Tonio Fenech has accused the Opposition of misquoting economic statistics that have put the national debt at 75% of gross domestic product - the third revision in debt targets, according to Labour counterpart Karmenu Vella.

Fenech insisted that the 75% debt target registered in the first quarter of the year was down to EFSF guarantees and the issue of government stocks announced in Budget 2012 had been issued towards the last month of the first quarter to seek favourable market conditions.

Government issued €455 million, or 65% of total stock in the first half of 2012, which this year is earmarked to reach not more than €700 million.

"It is clear that the 75% debt target is only temporary, something Karmenu Vella is ignoring in a bid to paint a misleading picture," Fenech said.

Shadow finance minister Karmenu Vella has claimed that the finance ministry's target for public debt had been revised three times in the last eight months, when national debt was originally forecast to go down to 72% of GDP by end-2012.

"Initially, the finance minister had indicated public debt at end-2012 would be at 66.9% of GDP when the stability programme was presented to the European Commission in April 2011.

"The first revision was announced in the Budget in November 2011, 68.9% of GDP. Five months later the target was revised upward to 70.3% in the April 2012 stability programme."

Vella said that cumulatively, the public debt target had been revised upwards by more than 5% of GDP in less than a year. "Between its target in the Stability Programme presented in April 2011 and today, the government has revised its public debt figure upwards by around 5% of GDP or €280 million."

Vella said that the results of the first quarter of 2012 had already shown debt standing at 75% of GDP, excluding government-guaranteed debt of 16.7% for public corporations, which puts the total of debt to almost 92% of GDP.

"For debt to stand at 72% of GDP, our gross domestic product would have to grow at a much higher rate than our debt. This is a very optimistic assumption, considering that public debt in the first five months increased by 4%, whilst our GDP only grew by 1% in the first three months," Vella said.

Vella also contradicted claims by finance minister Tonio Fenech that Malta's contribution to the European Financial Stability Facility had increased national debt, saying that EFSF guarantees were explicitly included and taken into consideration with the debt projections in both the Budget and in the Stability Programme.

"NSO data shows that these EFSF guarantees amounted to 0.9% of GDP in Q1 of 2012. Therefore, it is absolutely false that excluding these guarantees would bring the public debt from 72% to 69% of GDP," Vella said.

"One could also argue that taking away the 0.9% EFSF guarantees from the actual present figure of 75% debt, and including the 16.7% of government guaranteed debt, total overall government's debt commitments would still be well over 90% of GDP.

But Fenech accused Vella of showing little knowing of the EFSF workings, saying the European council approves the maximum amount of bailout funds in staggered tranches. Every approval of each tranche is based on a study by European Commission to ensure member states can respect the conditions of each bailout.

"Vella loses no opportunity in discrediting the country's financial, when rigorous tests by the European Commission and the IMF have positive certificates to the country's economic leadership. The Opposition knows well that had the country failed its financial targets, the Commission would have taken steps against Malta. This has not happened, and government has strengthened its finances sustainably."