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B usiness analysts, politicians and practically every organisation have become obsessed with this term ie Normality: whose meaning is increasingly ambiguous. It appears as if a large cohort of Maltese society is par- alysed and unable to effectively object to the notion that achieving "normality" is a sacrosanct right aer having suffered so much by way of furlough wages and being locked inside working online (while car- ing for children as schools were shut) for many weeks at a stretch. Again, it is no consolation that the Op- position continues to beat the drums singing to the tune that Malta is invaria- bly corrupt. ese accusations allegedly involved key persons at Castille. ey have taken prominence at pre-election meetings, around dinner tables, in plac- es of work and, of course in the media, whether independent or regime-con- trolled. Colin Regan writing in the Times of Malta, laments that the island is busi- ly engaged in the self-destruction of its land, sea, resources, self-respect, and perhaps worst of all its youth. e digni- ty and strength that is a historical part of Maltese national and international iden- tity has been elbowed aside for crassness, greed and short-termism. A quick analysis of our economic per- formance is the whopping first quarter deficit of €371.6million (as reported by the National Statistics Office). One cannot but forget the umpteen prom- ises that once elected the PL promises no new taxes but logic tell us these are a poisoned chalice to start repaying the accumulated 3€ billion deficit. e island is witnessing a widening of social inequalities with the richest 20% earning 37% of the total income, and the poorest 40% earning only 22% of the to- tal income. Let us try to focus how Malta posted the highest deficit in EU which at the end of March, central govern- ment debt stood at €8,466.3 million - a €1,170.8 million rise from 2021. It is not difficult to explain why our economy also plunged due to the Ukraine war. e war has disrupted the supply of corn, gas, metals, oil and wheat, as well as pushing up the price of critical inputs such as fer- tilizer. ese developments have prompted warnings of a looming global food crisis. Back home, we notice how government debt, currently at 61% of GDP, is project- ed to increase steadily, reaching around 73% of GDP in 2032 in the baseline. Brussels sources told us that with this level of deficit, Malta is expected to be included in an Excessive Deficit Pro- cedure (EDP) next year, once the rules, better known as the Maastricht criteria, are back. One may draw a parallel to the similar excessive deficit situation record- ed in 2012/3 by the outgoing PN admin- istration. I remember how the finance minister Edward Scicluna (currently promoted to a Central Bank governor) had heavi- ly criticized John Dalli (ex-finance min- ister) saying his profligate spending will lend us to incur penalties (under Exces- sive deficit mechanism) from the Com- mission. Of course, with hindsight the prime minister of that day Joseph Muscat had an ace card up his sleeve - how to quickly kill the deficit. is consisted of a con- fidential agreement with Henley and Partners to launch the "Golden Pass- ports" scheme - a windfall which attract- ed oligarchs with deep pockets buying passports yielding a cool €1.6 billion to boot (the scheme will most probably be removed as the Cyprus scheme did last year). e same fiscal problem is facing Clyde Caruana finance minister who is currently navigating the ship of state through stormy waters. Our excessive deficit exceeds the Maastricht rules so it must be reduced by next year to under 60% of GDP. Can the young economist conjure a hat trick and reap a 3€billion windfall? Not so easy now, as Malta went from the medium to the high-risk category when assessed in the latest Fiscal Sustainability Report (FSR) for 2021. Brussels moved Malta from a 'medium risk' to the high- risk category for both its medium- and long-term public financing. Officially, Malta exclusively blames the pandemic for such imbalances. It says, the deficit is mainly driven by the coun- try's current budgetary position, which has been severely depleted by govern- ment spending during the pandemic. e good side is that immediate risks to Malta's sustainability, however, remain classified as low in the FSR report. Conversely, according to the report, Malta's long-term financial sustainability appears to be at a high risk. is risk is mainly driven by the projected increase in ageing costs. As Malta's population gets older, expenditure on pensions and healthcare increases. e main compo- nents in extra state expenditure involved added outlays towards social security benefits, following two regular payments of retirement pensions made in March (€66.1 million), economic stimulus pay- ments (€48.2 million), tax relief meas- ures (€25.8 million) and assistance to help the elderly live independently (€12.4 million). International fuel and LNG prices are skyrocketing but locally no increases to motorists so far at the pumps. Jour- nalists were placated by Miriam Dalli, the energy minister saying that govern- ment allocated €200 million in last year's Budget to softening the blow of high en- ergy estimates. She added that government has no plans on increasing energy tariffs to make well for heightened public spend- ing. Since the 24th February, when Rus- sian troops invaded Ukraine, one hoped that the war will be brief and common sense will prevail culminating in a quick ceasefire agreement. is war is now in its 60th day and there is no olive tree branch in sight. A darkening outlook came just as the glob- al economy appeared to be shaking off the impact of the highly infectious omi- cron variant. e IMF now expected that the sanc- tions imposed on Russia will shrink its economy by 8.5 per cent this year which would represent just a quarter of the 35 per cent slump expected in its neigh- bouring country Ukraine. Back home, it is not all doom and gloom as several factors mitigate the risks for us over the long term. Malta is facing a serious multifaceted democratic crisis caused by its two main political parties. It is reassuring that this crisis is be- ing played out under a protective EU umbrella. It is comforting that our EU membership credentials remain sus- tained by the likes of Dr Roberta Metsola (President of EU Parliament). Other aces in our pack are Malta's pos- itive international investment position, relatively stable financing sources, a pro- fessional financial services workforce, the currency denomination of Malta's debt, the drive to unveil a new fiscal tax model and historically low borrowing costs. Let's start walking towards normality. Walking towards normality George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island 8 OPINION 5.5.2022

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