- deficit at 9.7 per cent, debt at 72 per cent of GDP
by David Lindsay
New figures issued through a new statistical approach – the European Commission’s Excessive Debt Procedure - released yesterday show that government deficit and debt both fall well short of the Maastricht criteria, which measures the sustainability of governments’ financial position.
In terms of government deficit to gross domestic product ratio, yesterday’s data release shows Malta’s position as at the end of last year standing at 9.7 per cent, far above the Maastricht criteria’s ceiling of three per cent.
Government’s gross consolidated debt to gross domestic product ratio, meanwhile, worsened considerably last year and rose from 61.7 per cent in 2002 to a whopping 72 per cent at the end of 2003. The Maastricht criteria’s cut off line for ‘excessive debt’ is the 60 per cent level.
The recent shipyards restructuring exercise, however, played a significant role in raising the ratios.
As from this year, Malta will be submitting data on deficit and debt to the European Commission twice a year, with the first estimate having been submitted on 1 March and with the next update due on 1 September. The European Commission consider these data as being of high significance not only because of this reporting requirement but also because they are key economic indicators in their own right.
To this end, the new data analyses ‘General Government’, which includes the central government made up of ministries and departments, all other government accounts, and entities (referred to as Extra Budgetary Units, or EBU’s) in receipt of public funds that have been classified as forming part of this sector as well as local government, in our case local councils.
While data for Central Government is available from the centralised Departmental Accounting System, the financial out turn of the EBUs is taken from their annual audited accounts and where accounts are not available, the EBUs are surveyed. The audited accounts of the local councils were also examined for this first exercise.
However, the data presented to the EC differs significantly to the monthly news releases on government finance, are limited to the Government’s Consolidated Fund. The Excessive Deficit Procedure, on the other hand, exercise delves deeper into detail and looks at all government accounts as compiled in the annual financial report, as well as EBU’s and Local Councils.
Any transactions within the different funds and entities are consolidated. A further adjustment covers the profits due to the government from the Central Bank and are adjusted to account exclusively for trading profit. Adjustments are also made for accrued income and expenditure for the Consolidated Fund, based on a questionnaire sent to the major government ministries and departments.
The restructuring of the shipyard sector in 2002-2003, heralded in by the Dockyard and Shipbuilding Yard (Restructuring) Act, 2003, played no small part in the government’s deteriorating fiscal position and had a sizeable impact on last year’s government deficit and debt.
In fact, the negative impact, as a percentage, resulting from this adjustment as related to the shipyards issue was of 3.2 for the deficit, and 2.3 for the debt.
The impact of the Drydocks issue on the deficit levels amounts to an increase in the deficit of Lm57.9 million, a figure arrived “by summing up the aggregate liabilities of the MDD/MSCL net of the net book value of the fixed assets and the amount of realisable debtors”.
Meanwhile, the negative adjustment 2003’s debt position take into account the Lm41.9 million being total bank loans/overdrafts at the time of the closing down of the MDD/MSCL, while the advances by General Government are not included in this total. Likewise, any positive bank balances are not taken into consideration. This amount was also rolled forward into 2004.
The consolidated fund deficit for 2003 has been estimated at Lm105.3 million, or 5.8 per cent of GDP, which compares with a net borrowing of Lm102.7 million in 2002. However, the figure for 2003 includes a one-off adjustment of Lm57.9 million resulting from the restructuring of the Maltese shipyards. Net borrowing is referred to as ‘government deficit’ in the Maastricht Treaty.
At the end of 2003, general government gross consolidated debt at nominal value was Lm1,309.3 million compared with Lm1,108.3 million at the end of 2002.