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Malta's Growth Forecast 'On The Optimistic Side,' Says EC

by Ulrika Lomas,, Brussels

08 February 2007

Malta's euro convergence programme expects a correction of the jurisdiction's deficit to well below 3% in 2006 and a progression towards balance as well as a debt below 60% of GDP in 2009, the European Commission said Tuesday. However, the EC warned that budgetary outcomes after 2007 depend on growth expectations that are "on the optimistic side."

"Malta comes from a long way since its deficit was 10% only four years ago," observed Economic and Monetary Affairs Commissioner Joaquín Almunia.

"After the correction in 2006, which we expect to see confirmed soon, the challenge is to continue on a virtuous path and reduce the deficit and the debt to more sustainable levels," he added.

Malta's convergence programme foresees growth in the country's gross domestic product of 3% in 2007, rising to 3.1% in 2008 and 2009. However, this is markedly more optimistic than the programme's forecasts in January 2006, which predicted GDP growth of 1.2% in 2007, rising to 2% in 2008. The European Commission also expects more moderate growth, and its autumn 2006 economic forecast predicted GDP expanding 2.1% this year and 2.2% in 2008.

"Malta's structural deficit is expected to improve gradually over the programme period, and the pace of adjustment is broadly in line with the stability pact after the correction of the excessive deficit. However, there are risks of worse-than-targeted budgetary outcomes after 2007 due to the markedly favourable macroeconomic scenario underlying the update's projections," said the Commission.

Overall, the EC stated that Malta's convergence programme seems consistent with a correction of the excessive deficit by 2006 and the debt ratio seems to be diminishing at a satisfactory pace towards 60% of GDP. It also said that maintaining a budgetary position that is robust to offset possible growth reversals is important especially in light of the recent build-up of external imbalances.

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