How Robert Abela’s debt will come back to bite us

When Robert Abela ascended the steps of Castille, wide-eyed and bushy-tailed in January 2020, the national debt stood at €5.7 billion. Just six short years later, it’s €11.4 billion. That’s a doubling of our national debt.

Abela has single-handedly created more debt than all other Prime Ministers since Independence put together. For that privilege, the Maltese taxpayer is paying €261 million a year in interest alone. That was forecast to reach €384 million per year by the end of next year. But that was before Labour’s nominee for the Nobel Peace Prize, Donald Trump, started the war on Iran.

Now, the likelihood of a hike in interest rates has significantly increased. Even if, in the best case scenario, interest rates stay put, they’re unlikely to go down anytime soon.

Malta’s Central Bank estimates that for every 1% increase in interest rates, we will need to pay an additional €115 million per year. Adding that to the baseline rise in interest payments, Malta will soon be paying between €440 and €500 million per year in interest alone.

But that’s not the only likely hit to our pockets. Malta currently pays around €150 million per year in subsidies to energy costs. Abela has promised to keep energy prices at current levels, no matter how high oil and gas prices rise. The problem is that Abela isn’t paying those subsidies out of his own pocket.  We’re paying for them. And like our interest payments, they’re definitely going to rise.

Until January, oil prices were around US$60 a barrel. Now it’s closer to US$120. And the war isn’t over. Damage to oil production infrastructure in the Middle East is ongoing. The Strait of Hormuz is still effectively closed. There’s no guarantee that oil prices won’t keep rising, especially if the war drags on.

The price of LNG, on which our power station now depends, has skyrocketed. In January, it cost US$10 dollars per MMBtu equivalent. Now it’s touching US$30 dollars. That’s a threefold rise in the cost of LNG. And that price is unlikely to go down.

The reason is that the world’s largest gas-producing facility, Ras Laffan, has been severely damaged. Repairs to that facility are likely to take up to five years and cost billions. Besides, whatever gas is being produced in the Gulf still cannot get out because of the closure of the Strait of Hormuz.

LNG is far harder to reroute than oil. Buyers will be competing aggressively for any gas reaching the market, and as current reserves dwindle, countries will be forced to buy emergency cargoes at any price.

Even if oil and gas prices remain at current levels, it will cost the country an additional €100 million per year to maintain consumer prices at current levels. If the disruption in oil and gas supply persists, oil prices may reach US$150 per barrel. That will cost between €200 and €350 million per year to subsidise.

In the extreme situation where oil prices spike to close to US$200 a barrel, the cost of subsidising energy may reach closer to €700 million per year. That’s several times more than what we’re paying today in subsidies.

Combining borrowing costs and energy subsidies reveals a terrifying picture of the real stress on the country’s finances. Between €261 million in interest and €150 million in subsidies, we’re already paying over €410 million per year – that’s more than €1 million per day.

But that pales into insignificance when the impact of Trump’s war is considered. If the European Central Bank keeps rates high and oil reaches US$150 dollars a barrel, the Maltese taxpayer will be paying over €1 billion per year in subsidies and debt interest payments.

The Finance Minister’s so-called “war chest” of €250 million won’t make a dent in that astronomical national bill. And when you think about it, if Robert Abela has run up the national debt to €11.4 billion, where is Clyde Caruana going to get those €250 million from?

Energy Minister Miriam Dalli promised the country that energy subsidies will be bolstered and consumer prices will remain stable. The Prime Minister echoed that pledge: “We will maintain the subsidies”.

But as we watch oil fields ablaze and gas production facilities targeted, that €250 million war chest looks woefully inadequate. Abela and Caruana are conveniently concealing the additional costs imposed on the taxpayer by their profligate borrowing.

The pain of those additional borrowing costs will not be felt immediately. The Maltese government has issued long-term bonds at fixed rates, and debt maturities are spread out. The impact of new borrowing at higher rates will only start to be felt in three to five years’ time.

That’s why Robert Abela isn’t bothered. By the time we feel the impact of his exorbitant debt burden, he may well have secured another term – and then it will be too late. He is conveniently kicking the can down the road, knowing he won’t be there to pick it up. When the whole Ponzi scheme collapses, somebody else will need to deal with the catastrophic fallout, but it will still be us who’ll pay for it.