Government predicts a 7.5% deficit for 2020, with economy shrinking by 5.4%
Finance Minister unveils the government’s public finance forecasts
The government is predicting a 7.5 percent deficit for this year, but things could change overnight, Finance Minister Edward Scicluna said on Wednesday.
Sharing the government’s budgeting for the year with social partners, Scicluna said his outlook of public finances forecasted a deficit for 2020, following a surplus of 0.5% for 2019. The deficit will decrease to 3.6% in 2021.
Referring to macroeconomic forecasts, Scicluna said the government was expecting Malta’s Gross Domestic Product to shrink by 5.4% this year and increase by 3.9% next year.
As expected, exports of goods and services will drop by 12.2%, but recover by 6.8% next year.
According to statistics released this month, unemployment rose by 20% in a single month in March, and 28% when compared to March 2019.
The government’s forecast for 2021 is more pessimistic than that of the International Monetary Fund, but more optimistic than forecasts by ratings agency Fitch.
According to the IMF, Malta’s economy is projected to shrink by 2.8% this year before rebounding into strong 7% growth in 2021.
Fitch, meanwhile, expects Malta’s economy to contract by 5.9 per cent this year before rebounding to 3.6 per cent growth in 2021.
The meeting on the national reform programme was held between Scicluna, Minister within the Office of the Prime Minister Carmelo Abela, the Malta Council for Economic and Social Development (MCESD) and the Malta-EU Steering and Action Committee (MEUSAC).
Scicluna clarified that the forecast was dependent on many assumptions, especially when the world was fighting COVID-19 pandemic and all the challenges it had brought with it. Uncertainty was very high at the moment, and actual figures could change overnight.
The predicted 5.4% drop was moderate when compared to other countries’, and 2021 projections so far showed that growth would not be negative, he said.
The government’s safety nets
One of the challenging outcomes of the pandemic was the number of those who end up at risk of poverty or social exclusion, the minister said, noting that the rate of people at risk of poverty or social exclusion had seen a constant drop over the past years.
All the government could do, he added, was providing safety nets, that included financial aid and other measures such as extending the deadline for tax deferral forms to the end of June, and that of provisional tax forms to the end of May.
Scicluna noted that the government aid will not stop as soon as lockdown measures were lifted – as things stand, the government had budgeted for nine months (till the end of 2020).
The budgetary impact of COVID-19 measures
A slower economic activity had impacted the government’s revenue to the tune of €630 million (up from €162 million in 2019) while the deferral of payment of taxes could mean €400 million less in the government’s coffers.
Meanwhile, it was spending €150 million on health, €666 million on economic support measures such as the COVID-19 wage supplement and quarantine leave, €54 million on social measures such as paying parents to stay at home to take care of their children and €20 million on the interest rate subsidy measure. The COVID-19 Guarantee Scheme saw the government guaranteeing €350 million.
“If you compare this financial package with those of Italy, France, Germany or Denmark, from a macro point of view this is a strong package that stands up to the occasion.”
Addressing the same meeting and the media, Abela meanwhile noted that while outlooks were encouraging, it was up to Malta to achieve positive results.