Edward Scicluna says lower growth forecast is a prudent approach

Under pressure infrastructure must be given time to change as it catches up with the demands of unprecedented growth, Edward Scicluna said.

The Finance Minister insisted that the pressure on infrastructure will ease off as it develops but will not be completely avoided.

Scicluna was speaking to Business Today in the wake of comments he made at the Labour Party’s general conference yesterday morning.

The Finance Minister admitted during the conference that the rapid expansion of the economy at unprecedented levels had created pressure on the infrastructure. It also caused problems because people were not expecting it.

“Once the infrastructure is allowed to grow with the rate of economic growth, much of the pressures are reduced, though not completely avoided,” he told BusinessToday.

Economic growth is forecast to reach 6% this year but government is projecting a deceleration to 5.7% in 2020.

Asked whether the lower projection was the result of a bleaker outlook, Scicluna insisted it was a cautious approach.

“I do not adhere to the saying that ‘all good things must come to an end’, but neither do I believe that growth will continue on its own steam without active management. It needs daily tending,” he said.

Scicluna said the lower forecast would enable the government to be prudent when planning its 2020 expenditure.

“It is my, and the Finance Ministry’s, habit each year to set economic and financial projections slightly below the most probable rate and the year 2020 is no exception. Our original [economic growth rate] target of 6% was reduced to 5.7%. This will ensure that we err on the cautious side when we plan the 2020 expenditures. This is a safe strategy to avoiding fiscal slippage and accidental deficits,” Scicluna said.

This approach would ensure that government finances could return a surplus.

Figures released by the National Statistics Office on Tuesday indicated that government finances ended with a surplus of €250.8 million in 2018.

This was the third year in a row that public finances were in surplus and the NSO figures show that this would still be the case even if income from the sale of passports was not taken into account.

Scicluna rebutted criticism that has often been made that government finances were propped up by money from the Individual Investor Programme.

He told this newspaper that the surplus was achieved because the government had managed to follow its plan of increasing expenditure at a lower rate than revenue.

For this to be successful, he said, the government engaged in a monthly analysis of any variations in revenue and expenditure, ensuring prudence in its projections.

“Once you aim to balance the Budget, you prepare a plan whereby you plan your expenditures to grow by less than the revenue. This government has managed to do this over a three year period, from 2013 to 2015 and by 2016, the year when we achieved the first surplus, the expenditure ratio of GDP was reduced from 42.7% in 2012 to 36.5%,” he said.

This trajectory in public finances allowed revenue to exceed expenditure, which produced a surplus.

“This is not a year on year effort but a daily one with attentive gate- keeping, monthly variance analysis and prudence in your projections,” he added.