Updated | Fenech says revised deficit target could be 2.5% in 2012

Updated at 4:34pm with additional comments

Finance minister Tonio Fenech said the government is will be revising its 2.2% deficit target for 2012 slightly, but said this would remain well below the 3% of GDP threshold set by the EU's Maastricht criteria

"I don't want to speculate over what the deficit will be," Fenech told MaltaToday when asked whether this will reach 2.7%, last year's deficit.

"It could be 2.3%, 2.4% or 2.5% - our target is to remain as close as possible to our budget targets. It is too early to speculate on precision but we will stay under the 3% threshold, and not just by a little margin."

Coming a day after Moody's credit rating agency said it expected Malta's deficit to rise to 2.9% by the end of 2012, this is the first time Fenech has suggested the government will not be able to reach the deficit target it set itself.

"We have to keep in mind that during the year the government had had to take certain decisions by not increasing utility bills and help Enemalta due to its liquidity problems. Government also took the decision to increase healthcare spending by increasing operations and medicinal provisions, decisions that the public knows have been positive for them."

Fenech also said government would step in to assist Enemalta, which is experiencing cash flow problems due to the increase in oil prices.

"It has nothing to do with the political cycle of the election," Fenech said when asked whether the deficit would be growing due to pre-electoral spending. "The increase in health spending and the reduction in ministerial expenditure elsewhere has nothing to do with the election."

The finance minister also insisted he was still working on a Budget for 2013, when asked whether the government will actually go ahead with a budget - as Lawrence Gonzi's unstable majority faces a new threat from MP Franco Debono, who recently claimed he won't support the government's budget.

"Can I give a guarantee that I will present a budget? I know that I am working on the budget right now," Fenech said.

Moody's Investors Service has affirmed Malta's A3 government bond rating, but insisted the economic outlook remained negative.

Moody's said the key drivers were the government's successful consolidation strategy, which brought the 2011 fiscal imbalance below the 3% of GDP ceiling under the EU's excessive deficit procedure.

Although the deficit should remain below 3% of GDP, Moody's believes that the fiscal imbalance will increase to 2.9% in 2012, before declining to 2.6% in 2013.

These forecasts imply a continued, but slowing, increase in national debt. The rating agency expects general government debt to rise to 73.7% of GDP in 2012 and 74.5% of GDP in 2013 before trending downward.

Malta's structural deficit has reached an unprecedented €333.3 million in the first seven months of this year, €95.1 million more over the first seven months of 2011. Official data released by the National Statistics Office showed that the increase in recurrent revenue of €72.4 million was outweighed by a sharp rise in total expenditure of €167.5 million. This widened the government deficit by €333.3 million.

In a separate statement issued by the Department of Information, the finance ministry reiterated it had reduced the deficit from 3.6% in 2010 to 2.7% in 2011 - 0.1% better than targeted in the budget for 2011.

"We did this notwithstanding the difficult economic climate that prevails within the European Economy.  The deficit projected for 2012, set in the estimates as 2.3% continues to be an important target that this country needs to achieve notwithstanding the pressures on public finances being caused by higher oil prices and other expenditure pressures," the finance ministry said.

Fenech also expressed his concern that the lower growth rates achievable due to a worsening economic climate at an EU level, pose additional challenges to achieve these financial targets.

However, as stated to MaltaToday, Fenech reiterated that Government was committed to ensure a deficit level significantly lower than 3% and closer to the 2.3% budgeted.

Fenech added that the increase in government's expenditure during this year was due to the assistance given to Enemalta, to Air Malta, the substantial increase in the budget for medicines and the increase related to different sectoral agreements, including pay rises to the Police Corps.

"Despite this, we took a number of measures and continue to identify further savings to compensate for any increases in the above expenditure items - as is usual practice throughout the financial year," he said.