Malta must focus on debt reduction - finance minister

Addressing a business breakfast as part of Budget 2012 consultation process, Finance Minister Tonio Fenech said Malta’s primary goal is to reduce Malta’s debt – currently standing at 68% of GDP – while increasing economic growth.

“Malta’s debt levels are still significantly lower than the EU average (85%),” he said. “However, market instability will only be defeated through further improvement of debt levels.”

"Following recovery and return to growth, it is in our interest to return to financial sustainability," he added. “Financial sustainability is essential to continue attracting investment and further growth.”

Fenech said that Malta’s main contributor for economic growth is direct foreign investment and that total foreign investment in 2010 reached €792.1 million, an increase of €250 million over the previous year:

“Between 2008 and 2010 Malta Enterprise approved 99 new investments, despite the challenges on an international level. The momentum improved in 2011, where during the first half of the year, Malta Enterprise approved 23 projects with an investment of €49 million.”

Last year, 26 projects with a total investment of €49 million were approved. “The budget’s challenge is to reduce Malta’s deficit from 3% to 2%. To attract investment we should keep in mind that the message to send is where Malta stands in the crisis,” Fenech said. “We should not risk slipping in the same trap like the other countries did.”

He reiterated that it was thanks to the government’s immediate intervention to address the recession problem that led Malta to keep afloat when compared to countries such as Spain, Portugal, Italy and Greece.

Malta’s economic growth was the result of job creation, and increases in public investment also through European funds. “Malta’s productivity in the first quarter of 2011 registered an increase of 2.4% while the European average was 1.1%.”

He said that government’s main priorities for the coming budget would be enhancing growth to attract further job creation, improving financial sustainability, investing in the key areas such as education, research and development, environment, modern infrastructure and sustaining the social sector to ensure qualitative health services.

Also addressing the meeting was economist Lawrence Zammit who said that Malta should adopt the balanced budget concept while obtaining economic growth, mainly by incentivising the private sector and further investment.

Zammit added that economic growth can also be achieved by increasing privatisation and liberalisation – to which the Finance Minister said that the Maltese economy is no longer state-driven and that government was limited in choices where to privatise.

Zammit said that government should produce a return of investment on public spending. “A usual practice in the private sector is to provide a forecast of what one expects the spending results to be. This should be adopted by the public sector as well.”

Referring to public services, Zammit said they should be efficient. Taking the public transport system as an example, he added: “Malta risks creating a dictatorship out of bureaucracy which would take over the society.”

Among the attendees was also GRTU president Vince Farrugia who told the finance minister not to subsidise non-productive sectors and repeat the same mistakes carried out with the privatisation of the dockyard and public transport.

Referring to the permanent residency scheme, Farrugia - a critic of the new amendments to the scheme - told Fenech he should be giving the tax incentives to the Maltese and not to foreign nationals. "Don’t mess with the system.”

Malta Employers Association director-general Joe Farrugia also warned Fenech when government speaks of the low rate of unemployment. "Maltese employers do not have the ‘hire and fire’ culture – so despite the lack of work during the recession and the Libyan crisis, employers still held on to their employees.”

He warned that Malta should not increase its expectations, despite the positive indicators: “Malta is an open economy largely affected by foreign forces. We need to remain competitive.”

Farrugia said that other countries are in the situation they are in because they tried to match people’s expectation without controlling public spending. He added that in Malta there is already low consumer confidence, while the average wage had low purchasing power.