Economic situation under the magnifying
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
Minister John Dallis 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 years 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 Maltas 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 Maltas cause and
with an expected upswing in visitor Eichels 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
The minister of finance and economic affairs, is however, perhaps somewhat
belatedly indicating that he will put his foot down on Maltas
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 Germanys
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 Maltas 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 countrys 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 Dallis agenda and the minister pointed
out that research and a high quality service industry were Europes
cutting edge. Malta has to follow Europes 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.