In 2011, the government deficit of both the Eurozone and EU27 decreased in absolute terms compared with 2010, while the government debt rose in both zones. Malta’s performance was worse on both fronts, with both the deficit and the debt increasing in absolute terms, according to the second reporting of EU member states about their finances.
Put into the perspective of Gross Domestic Product, however, whilst the deficit to GDP ratio decreased and the debt to GDP ratio rose in both the Eurozone and EU27 in 2011, in Malta there was a drop in the deficit ratio and a rise in the debt ratio.
Over the four-year period to 2011, the Eurozone’s deficit to GDP ratio deteriorated by two percentage points to 4.1 percent, whilst the debt to GDP ratio rose 17 percentage points to 87.3 percent. This contrasts sharply with Malta’s record, where the deficit to GDP ratio improved by two percentage points to -2.7 percent whilst the debt to GDP ratio deteriorated by almost eight percentage points to 70.9 percent.
The Maltese result on the fiscal front was a combination of decreasing deficits (by €91m to €177m in 2011) and increasing GDP (by €640m to €6.4bn in 2011). Government debt, however, grew by €975m to €4.6bn and its percentage growth was higher than that of GDP.
Although the Nationalist Government continually boasts about its success in the improvement in government finances, the reality is that its ability to beat the Maastricht target of 3% fiscal deficit was mainly due to GDP growth not to a structural realignment of its finances. In fact, both the higher revenue ratio (an improvement of 0.4 percentage points to 39.6% over four years) and the lower expenditure ratio (an improvement of 1.6 percentage points to 39.6%) were driven by an 11 percent growth in GDP.
The lowest percentages of deficits to GDP were recorded in Luxembourg (-0.3%), Finland (-0.6%), and Germany (-0.8%), whilst three countries – Hungary, Estonia and Sweden - even registered budget surpluses. Seventeen member states had budget deficits higher than 3 percent of GDP.
In 2011, the lowest ratios of government debt to GDP were recorded in six countries, the best being Estonia (6.1%) and the highest being Lithuania (38.5%). Fourteen member states, including Malta, had government debt ratios worse than 60 percent of GDP, ranging from Greece (170.6%) at one end to the Netherlands (65.5%) at the other end. Six countries recorded an improvement in their debt ratios.
Economic analysts described the Maltese result as encouraging, but not enough to guarantee a sustainable state of public finances over the medium term.