Fiscal council warns 2022 outlook remains ‘very sensitive’ to Finance Ministry assumptions

The Malta Fiscal Advisory Council has issued a warning regarding the Government’s economic projections for 2022, saying the outlook remains “very sensitive” to assumptions being made by the Finance Ministry.

Due to “exceptional circumstances,” the Government’s outlook relies on the ongoing resilience of the labour market and the performing of key economic sectors in line with expectations, it said.

The council is tasked with reviewing the plausibility of economic calculations underpinning annual Budget plans, and is led by former Bank of Valletta chairman John Cassar White.

In a letter to Finance Minister Clyde Caruana, he acknowledged that while the predictions “lie within the endorsable range” of the council, “due consideration” of the uncertainty inherent in such projections, and the pandemic, was also factored into the council’s assessment.

It comes as the Government’s ambitious economic growth targets of 6.5 per cent GDP in 2022 have faced scrutiny.

This is because, considering the Budget contains no new taxes or new significant revenue streams, the plans to reduce the deficit will rely on the uptick in economic activity, along with a clamp down on tax and VAT balances due.

One economist, Philip von Brockdorff, told BusinessNow.mt that achieving this figure would represent a “formidable challenge” for the economy.

Prof von Brockdorff said he was expecting a growth rate closer to five per cent, given international developments, “particularly because of an increase in energy prices and supply chain problems.”

Similarly, Opposition Leader Bernard Grech questioned the estimates’ reliance on significant increases in VAT, asking whether the Government would be raising rates, or if it would be hoping for an economic miracle.