30 July 2003

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Economic situation under the magnifying glass

By Julian Manduca

It is never a comfortable experience for a finance minister to face his people and say the state of the economy is worse than had been expected.
Minister John Dalli’s six month update on the state of our finances did not make comforting reading, with the deficit expected to reach Lm100 million or 7 percent of GDP by the year’s end instead of the 4.1 percent predicted.
Although one can debate whether the minister made the right calculations when preparing his last budget figures, nobody can accuse him of keeping us in the dark.
When addressing the media last week Dalli was long-faced until he spoke about the future and predicted better times to come. He could be wrong, but during the coming six months government will be gathering revenue in a post election scenario rather than a prior one. The revenue is expected to be higher barring any new wars or disease outbreaks, part of the reason why January to June 2003 was so poor.
Dalli reminded us, not that we needed reminding, that during both 2001 and 2002 Malta’s economy performed badly.
Not all the indicators are bleak for the past six months and revenue was not down on the comparative period last year, it was just not as high as expected.
Tourism decreases from Germany have not helped Malta’s cause and with an expected upswing in visitor Eichel’s economy expected in the coming months, Malta can hope to regain its number of visitors what is its second market behind the UK.
On the positive side, Dalli could smile about a 3 percent increase in exports, and a 2.3 percent increase in tourism as a whole from January to May. Cruise liner visitors, which are computed separately, achieved an even more creditable six percent increase.
The Malta Development Corporation, on its part, has just confirmed that it has approved projects for an investment of Lm20 million which are expected to result in the employment of 1,700 employees.
Dalli told a meeting of the Malta Council for Economic and Social Development Monday that the government is seeking to run the country by consensus and certainly that would be very useful if Malta is to make headway economically. Said more radically, unless we achieve consensus, disaster looms.
The minister of finance and economic affairs, is however, perhaps somewhat belatedly indicating that he will put his foot down on Malta’s economic restructuring plans.
Pension reform has been spoken about, but fuzziness about the subject has not helped to drive the matter home. Dalli referred to Germany’s ability to start a reform process and indicated that Malta will soon have to be following suit.
Heath reform is also on the cards and while the minister explained that the health service at Mater Dei will be of a higher quality and therefore more expensive, he made it clear that savings must be made where today there is wastage.
The other area requiring government funding in the coming years as well as restructuring is the environment and Dalli mentioned the polluter pays principle as one area where business attitudes will have to change.
Inefficient monopolies like that of the port stevedores that kept freight charges for importers and exporters high would have to be broken, Dalli said, implying that other sectors such as public transport sector could also come in for radical change.
Turning Malta’s economic performance round will not be an easy task and Dalli is looking for a variety of changes that would be helpful.
Innovation, especially from entrepreneurs, is of the utmost importance and the minister expects more creativity from the private sector.
Of all the measures that can be examined to gauge a country’s economic performance, Dalli prefers to look at the figure for value added: what can be added by one hour of productive work by one Maltese. It is that value that will be the best indicator of our competitiveness.
Discipline will be necessary in government spending, and while Dalli is not calling for expense cuts across the board he said that while reviewing expense accounts with government departments it was found that while certain budgeted figures actually needed to be increased, many could go down a notch or two.
Research also comes high or Dalli’s agenda and the minister pointed out that research and a high quality service industry were Europe’s cutting edge. Malta has to follow Europe’s lead in its future position as EU member.
The minister said the government is sticking to its social commitments and while trying to improve the quality of life for everyone, it also has to be socially just and to fight against tax evasion.
"The sticks are stacked against us when we try to recover taxes that are due, for obvious reasons," Dalli told the media.
Minister Dalli said that in the last quarter the indications are that Malta has started working, even if not to the extent that had been expected. The economy is no longer hindered by unease because of major political decisions, and the next six months should result in considerably healthier figures that the first six of 2003.

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
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