Government to borrow another €1.2 billion as forecasts go haywire

The government is planning to borrow at least €1.2 billion this year according to its own estimates, pushing further debt levels that already reached unprecedented levels in 2021.

According to an official announcement made by the Treasury, “the central government borrowing requirements for the financial year 2022 has been set not to exceed €1.2 billion. This amount will be raised through the issuance of Malta Government Stocks of more than one year”.

The Treasury’s projections are very conservative and the borrowing will probably have to be much higher to keep up with the country’s spiralling deficit, experts have told The Shift.

The additional borrowing of €1.2 billion necessary to cover the bills for this year assumes that Malta will register a deficit of €737 million by the end of December, with the rest of the funds necessary to redeem past borrowing.

Yet with an economy struggling to gather pace and a government in full election mode, spending millions of euro in questionable contracts amid accusations of clientelism and nepotism, the situation might end up worse than predicted by the end of the year.

Missing targets, ballooning deficit

In a similar announcement last year, the Treasury had said that the government was planning to borrow some €1.1 billion in 2021, covering a deficit of €756 million. Provisional government data shows these targets were completely missed and the government had to increase its borrowing.

NSO data until last November shows that in the first 11 months of 2021, the government’s real deficit was more than twice that forecasted, reaching a staggering €1.4 billion. The government had to find the necessary financing of this deficit through the issue of more loans.

NSO data also shows that by the end of last November, the island’s debt levels soared to more than €8 billion, a record in recent history.

Official figures show that while Malta was registering a small surplus until 2018, the country has registered multi-billion-euro deficits since Robert Abela took over the reins of government, with the debt increasing by €3 billion in less than 2 years.

Austerity around the corner

As Malta heads to the polls in the coming weeks, pressure is increasing, particularly from EU quarters, for the island to restrain its spending and put its finances on a sustainable trajectory.

Yet, so far, the government has ignored these messages, as it seeks to retain its popularity in the lead up to general elections.

Government sources told The Shift that if the economy continues to underperform, Abela will have no other option but to introduce severe austerity measures soon after the elections.

Last week, Finance Minister Clyde Caruana sent his first signal, warning the business community that their days of avoiding tax will soon be over.