Finance Minister Clyde Caruana may no longer be able to continue to take cheap loans to plug budgetary holes as the EU is set to reintroduce its fiscal discipline regime at the start of the year.
EU ministers are currently squabbling on the fine details of a reinvigorated Stability and Growth Pact and are expected to reach a compromise by the end of December.
It is likely that countries such as Malta, with a current annual deficit over 3% of GDP threshold, will be obliged to cut their annual deficit by at least 0.5% every year until they come back in line.
MEPs and the EU’s Council of Ministers are currently discussing the new pact, with France and Germany at loggerheads over how long defaulting countries will be given to correct their position.
A decision is expected to be reached at an EU summit this week.
EU experts told The Shift that reintroducing fiscal discipline rules, suspended a few years ago to allow countries to deal with the COVID-19 pandemic, will force Caruana to scale back spending and borrowing drastically.
Over the last three years, Malta has borrowed billions of euro, albeit at low interest rates, to keep its economy afloat.
Between 2020 and 2023, the government led by Prime Minister Robert Abela increased the national debt by over €3 billion, reaching a record high of almost €11 billion.
This caused the country to divert significantly from its low annual deficit record, reaching a staggering 10% of the GDP during the pandemic.
According to the latest figures, despite record GDP growth, Caruana still depends heavily on borrowing despite rising interest rates.
Instead of reining in the deficit and restricting spending, Caruana plans a deficit of 4.5% in 2024, causing debt to rise further to 55.3% in 2024, up from 52.8% this year.
No concrete measures have been taken in the budget to lower government spending next year.