A tale of two reports: What IMF said in 2013 vs in 2021

The Opposition is currently adopting two strategies in its economic policy narrative. The first one, which has been on repeat since 2013, is that the current administration is mismanaging the economy and public finances. The second one, which is an addition adopted in recent months, is that pre-2013 economic and financial management was much better than it is now.

Unfortunately for the Opposition, even for those who have forgotten its pre-2013 dismal track record, it only takes a quick google search to turn up ample evidence of the failed economic policy of those times. At the same time, the Opposition’s unwarranted criticism of current economic and fiscal policy is belied by a constant stream of independent analysis carried out by international entities.

On the one hand, Bernard Grech’s characterisation of Malta’s Resilience and Recovery Plan as a mess “froġa” and his statement in Parliament that the Opposition could not accept it because of its many failings. On the other hand, the strong worded praise of Ursula von der Leyden who unequivocally stated that this plan clearly meets the Commission’s demands. The contrast between the negative message of the Opposition and the positive message of international institutions could not be stronger.

The IMF has just published its Article IV report on Malta. This is not a report to be ignored. It comes after a detailed and comprehensive assessment of Malta’s economy and public finances by a team of IMF economists, which is then endorsed by the IMF’s Executive Board.

According to the Opposition, Government has adopted a haphazard and disjointed response to the pandemic which has resulted in great hardship. Instead, the IMF report concludes that “the authorities’ swift and bold policy response helped mitigate the impact, preventing large-scale layoffs, bankruptcies, and credit disintermediation.”

“The authorities’ swift and bold policy response helped mitigate the impact, preventing large-scale layoffs, bankruptcies, and credit disintermediation” – IMF

The Opposition finance spokespersons argue that the deficit is not due to pandemic-related assistance but is rather a result of mismanagement of public finances, while hinting at corrupt practices. The IMF study documents how according to its expert calculations, in 2020 and 2021 pandemic-related assistance will have reached a record figure of 13.4% of national output.

While the Opposition advocates a quick return to austerity, the IMF’s Executive Board argues that “targeted, coordinated policy support should continue until the recovery firmly takes hold, balancing near-term growth with long-term stability while pursuing structural reforms to strengthen the economy’s resilience”. In simple terms, do not turn off the lights too quickly and remember to continue spending on things that boost long-term growth.

Now you can accuse the IMF of many things but being advocates of fiscal profligacy is not their forte. In fact, just look at their Article IV report conducted in the wake of the 2013 election. Back then, they had a very different take on the state of Maltese public finances.

“The main challenges for fiscal policy are to reverse the deterioration of public finances and to strengthen the governance framework.” As a reminder, the 2012 spending spree landed Malta in the EU’s excessive deficit procedurefor the third time. No other EU country was ever placed three times on this naughty list.

The IMF experts at the time had noted that “The fiscal consolidation path was reversed in 2012 amid the election cycle….The fiscal slippage in 2012, which amounted to 1 percentage point of GDP relative to the budget target, led to the result of overruns in all components of current spending and lower-than-expected revenues.” The same persons who accuse Government of over-spending and of making over-optimistic revenue projections were the ones who were caught red-handed doing exactly that in 2012.

The same persons who accuse Government of over-spending and of making over-optimistic projections were the ones caught red-handed doing exactly that in 2012.

 Then the IMF were adamant with the incoming Labour administration that it had to curb its plans because the state of public finances was dire. In fact, their debt sustainability analysis showed that the path of the national debt was not sustainable and was going to exceed 75% of GDP.

After being hit by a pandemic, our debt burden will be far less than that. More importantly, the 2021 Article IV report is clear that the IMF’s debt sustainability analysis shows that the debt burden will reduce. It is no joke that the impact of Nationalist mismanagement of public finances was such as to exceed the impact of a global pandemic.

While the IMF is not worried about the fiscal situation of the Maltese Government after the pandemic, they were deeply worried about our finances after the March 2013 election. They wanted fiscal policy to be reined in. Now in 2021 they argue that “fiscal policy remains appropriately expansionary” and that “fiscal support should continue and be only gradually reduced”.

The differences in the two IMF reports are not just in the judgement of fiscal policy. Let’s compare the following two quotes and try to guess which one is from 2013 and which from 2021.

Quote A

“Despite good performance overall, GDP growth remains below potential and uncertainties abound. Domestic demand has remained lacklustre, reflecting sluggish investment and private consumption and headwinds from a soft real estate market. Going forward, staff projects a moderate acceleration in real GDP growth….The pick-up in activity to 1¼%…(from ¾%)”

Quote B

“Consumer and business confidence have recovered…and signs of labour markets tightening are emerging. Staff expect the economy to grow by around 5¾% in 2021 and 6% in 2022”.

The first is after the Nationalist administration of 2012; the second in 2021 in the middle of a pandemic. The IMF’s prediction of Malta’s economic growth after a Nationalist administration were a quarter of those after a pandemic.

It is hard to imagine a more dismal judgement of one’s economic and financial competence.

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