Prime Minister must come clean on state of the economy – Muscat

He was commenting on Moody’s downgrade of Malta’s bond ratings to A2 from A1 and a revision of outlook to negative, which he described as “disappointing”.

“It is not in our interest to be critical at this stage, but our duty to call on the Prime Minister and his government to be honest about the economic situation,” Muscat said.

“The writing has been on the wall for the past seven years but the prime minister chose to engage in absurd priorities that have set the government’s finances back.”

Muscat mentioned the €100 million parliament building as an example, and took potshots at ministers’ salary raise saying Lawrence Gonzi had accepted the highest salary ever paid to a Maltese prime minister.

He also denounced “record variations” in budgeting on national projects, road infrastructure and the power station extension that had cost the exchequer millions of euros.

He pointed out that debt servicing, which was mentioned by Moody’s in its report, was “strangling the economy.”

“I challenge the prime minister to admit he was wrong all throughout and to do something before it is too late. We believe in this country and hope for a turnaround,” Muscat said.

The Opposition leader also insisted that reducing utility tariffs, which would be central to his future economic policy, would not affect Enemalta’s own costs for energy production.

Labour MEP Edward Scicluna said the Moody’s downgrade was particularly worrying. “Since 1995, Malta has had four upgrades, two downgrades, two positive outlooks, and three negative outlooks. But this one is the most worrying because it is the first downgrade since joining the Eurozone.

“Moody’s has taken note of the fact that Malta has not explained how its economic targets will be reached. That is why the outlook is negative and possible that a further downgrade follows.”

Moody’s rating

The main driver underlying Malta’s one-notch downgrade to A2 and negative outlook is Moody’s view that the global recession of 2008-09 will leave the country with a legacy of slower medium-term economic growth.

Specifically, the Maltese government estimates that potential output growth will decline to 2.3% from well over 3% before the crisis, because of a decline in fixed capital investments, which led to lower capital formation during 2009-10, and lower total factor productivity growth. However, the IMF projects an even lower medium-term growth rate of 2.0%.

Continued instability in the euro area also heightened the risk of a new economic shock throughout Europe as fears of contagion intensify. Moody’s assessed the probability of contagion from such a shock to be moderate and the likely impact to be low given the limited impact of the 2008-09 crisis on the performance of the Maltese economy.

However, Moody’s said that Malta’s real economy was susceptible to contagion from the euro area debt crisis given the country’s small open economy and its reliance on external demand and tourism.  The impact of such a possible shock would arise from second-round effects given that the primary blow would be felt by core European countries, which represent Malta’s main trading partners and tourist markets.