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Kurt Sansone
The announcement on the eve of the local elections that the economy registered an impressive growth of 2.5 per cent in 2005 had a strong whiff of political opportunism but a deeper analysis of the figures submitted by the National Statistics Office indicate that the exercise was more akin to a numbers game intended to paint a rosy picture where there isn’t one.
In 2005 the economy was only kept afloat by the funds from the Italian protocol, a one-off injection, and the funds from the European Union, which according to the NSO together totalled to around Lm64.4 million.
If these funds are extracted from the equation, the productive sectors of the country did not create enough wealth on their own to bolster the economy. Without the Italian protocol and EU funds GDP growth would have remained flat if not in negative territory.
The component of GDP listed as gross capital formation, which includes among others the protocol and EU funds as well as the value of stocks and inventories jumped up by almost 32 per cent in real terms in 2005 when compared to 2004.
Apart from the foreign funds the figures are also inflated by a more than significant increase in stocks and inventories, which are a clear indication that the country is producing goods but finding it very hard to sell them.
This increase in gross capital formation accounts for the impressive growth figure which government exponents have been bandying about. In contrast, consumption in real terms only increased by 0.6 per cent and worse still, exports of goods and services registered a drop of 3.3 per cent. The item ‘exports of goods and services’, which also takes into consideration tourism, is the country’s economic motor that generates wealth and jobs. But neither manufacturing nor tourism performed well in 2005. The country is still dogged by competitive issues which have not been dealt with in a concerted way.
Various economists have shed doubts on the reliability of the figures presented by the NSO and more so about their interpretation by government exponents.
Professor Edward Scicluna earlier this week told Business Today the GDP figures for 2005 published by the NSO are “challenging if not defying the universal laws of macro-economics.”
Scicluna contended that one cannot have the combined major sectors of a small open economy, manufacturing and tourism, falling by 3.5 per cent in real terms in any one year, and the economy growing by 2.5 per cent during the same period.
“There is a lot of explaining to do about this puzzle,” Scicluna told Business Today.
Disputing government’s claims of an economic turnaround, Scicluna said figures for the traditional productive sectors are not yet showing a comeback.
“I am as eager as any other Maltese to see a sustainable turnaround in our economy. We can only see this when there is a convincing turnaround in our main economic sectors,” Scicluna said.
It was in December last year that the European Commission issued its forecasts for the EU member states, where it sounded a warning about Malta’s dependence on external funds.
The Commission’s report stated that the “buoyant performance of investment in the midst of stagnation in the rest of the Maltese economy is due to the implementation of infrastructure projects financed by EU structural funds and public works funded through the Italian protocol.”
EU funds, it seems, will continue to remain an important lifeline for this country. But observers point out that dependence on foreign funds is an unsustainable way of creating wealth.
One fine day in 2013, Malta will not be receiving anymore funds from the EU the way it is doing now and it will be an unfortunate situation if the country fails to crank up its productive sectors in time.
Far away from the political rhetoric about having a performing economy, it is no wonder that people are not feeling the positive effects of the turnaround hailed by government.
ksansone@mediatoday.com.mt
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