Budget 2022 | Deficit to hit €1.5 billion in 2021

Key points

• Real GDP to grow by 4.8% in 2021 and 6.5% the following year
• Deficit will reach €1.5 billion, or 11.1% of GDP
• Malta’s debt-to-GDP will rise to 61.32%

Malta can expect its real GDP levels to rise by 4.8% at the end of 2021, according to government forecasts in the Budget 2022 estimates.

By December, the government deficit is expected to stand at 11.1% - a downward revision compared to the 12% forecasted in April this year.

In the initial pre-budget document, government predicted Malta’s debt-to-GDP ratio to increase and potentially reach 65% by end of year.

However, in the updated budget document, the 2021 debt-to-GDP ratio will rise to 61.3%.

In 2022, the government deficit is expected to contract to 5.6% of GDP. The debt-to-GDP ratio will stand at 61.8%, and real GDP will grow by 6.5% compared to 2021 levels.

Under the EU’s  Stability and Growth Pact, Malta’s budget deficit cannot exceed 3% of GDP, while national debt cannot surpass 60% of GDP. However, the European Commission activated a general escape clause that allows Member States to in effect deviate from these benchmarks temporarily to promote economic recovery during the COVID-19 pandemic.

The finance minister estimates that the pandemic contributed to 25% of Malta’s debt-to-GDP ratio.

In his budget speech, the minister noted that Malta was one of the few EU countries that kept the labour market intact, by increasing the number of employed people and reducing economic inactivity. 

He said that the employment rate in the first quarter of 2021 rose to 77.3% compared to the 76.8% registered in 2019. Conversely, the unemployment rate in August this year fell to 3.2% from 2.6% two years ago.

The fiscal situation

With regards to Malta’s fiscal situation, the consolidated fund’s recorded deficit is set to decrease over the years.

In 2020, the government’s consolidated fund reached a €1.4 billion deficit. The revised deficit for 2021 is €1.5 billion.

The fund is expected to remain in the red until 2024, but will decrease steadily each year. The estimates indicate a €737 million deficit next year, which will then drop to €697 million in 2023.

By 2024, goverment’s consolidated fund will report a €491 million deficit.

A closer look at the consolidated fund  shows that tax income is expected to increase consistently until 2024. In 2021, tax revenue constituted €4.4 billion. By 2024, it will rise to €5.7 billion.

Recurrent expenditure will similarly increase over the years. Government is forecasting a short dip here, with €3.5 billion spent in 2021 according to the revised estimate. It will fall to €5.3 billion in 2022, and rise to €5.6 billion in 2024.

Government is further expecting fluctuating capital expenditure over the next three years. While this form of expenditure stood at €799 million this year, it will shoot up to over €1 billion in 2023.