It Did Not Take Long

Maltastar 

 

It did not take long to confirm the point of my contribution of last week that all talk of resource driven budgeting was nothing more than a finger pointing exercise to shift the burden of guilt for a deficit in public finances that is spinning out of control.

The figures for the six months to June 2003 published late on Friday show the deficit at the mid-point reached Lm114 million compared to a full year’s budget deficit of Lm74 million. This is Lm36 million (+46%) more than corresponding figure of last year and more than double the Lm54million measured at the mid-point in the year 2001.

The deficit figure at this time last year was Lm78 million. By the end of the year it reached Lm88 million adding Lm10 million in the second half of the year on top of the extraordinary Lm21 million artificially structured from the MIA privatisation deal. In reality the deficit increased by a further Lm31 million in the second half of last year.

If this year we add Lm31 million to the mid-year position we would finish up with a deficit of Lm145 million. The Minister, in an unusual post-election bout of realism, admitted that this year’s budget will never be made, feebly tried to pin this on the slow economic growth when he well knows that the deficit problem is from the expenditure side, and predicted a 7% of GDP deficit for the year. As he predicted that the economy will this year grow by 4% in nominal terms, which is in line what he had predicted at the budget stage last November with a real growth of 2.5% and an inflation of under 2%, the year end revised projected deficit would work out at Lm120 million.

The difference between the revised Lm120 million and the above calculation of Lm145 million mainly relates to Lm22 million grant money from the EU and Italian financial protocols which considering the bureaucracy involved for making their drawing I would not bet much money about their realisation in this financial year.

Perhaps I should recall how I had criticised the budget last December in my three part budget analysis in The Times published between the 4th and the 6th December 2003.

‘The true deficit for next year is more like Lm113 million (as against the official Lm74million) and that only if new tax measures generating Lm6 million are announced out of budget. …..With this budget the Minister means to fudge the real issues and limp to the next election which will clearly come before the deficiency of the budget will have time to emerge.’

I was perfectly right wasn’t I?

It was clear then as it is clear now that the budget was put together artificially to look decent until the election. Expenditure did not overshoot the budget. The budget was purposely undershooting expenditure already committed to and now the truth is emerging with vengeance and I write it in block capitals.

WITH SO MANY MILLIONS TAX MONEY LATER WE ARE STILL WITH THE SAME DEFICIT THAT WAS DISCOVERED BY LABOUR ON COMING TO POWER IN 1996.

The more worrying part is not the emergence of truth of where we stand but where are we going. The government has committed itself to so many financial obligations regarding EU membership especially the compliance costs and the price support measures for the agro sector and food importation, that one shudders to think where these funds are coming from given that economic growth is and is expected to remain anaemic.

Whichever way you look at it you will perfectly understand that the Minister of Finance needs to share the blame with his colleagues and needs to insist on the enforcement of the culture of resource driven budgeting.

Twelve years too late Mr Minister!

Portfolio

Strategy 1 No Risk Lm1004.5654
Strategy 2 Medium Risk Lm 998.360 (after Lm40 charges)
Strategy 3 High Risk Lm Lm 1034.55 (after Lm20 charges)
Strategy 4 High Risk For Currency . Lm 1012.460 (after Lm40charges)

All prices and rates of exchange are the latest available on Saturday 26th July.

To recapitulate we started on 1st June by investing Lm1000 each in four different strategies with difference risk profiles.

Strategy 1 is a straight bank deposit earning interest at 3.5%p.a.

Strategy 2 is a balanced strategy investing 50% in international investment grade bonds and 50% in international equities with currencies weighted according to the Lm basket.

Strategy 3 invests in local equities. So far the investment has been completely in Maltacom plc.

Strategy 4 invests in international equities, 25% each in GBP sterling equities fund, EUR Eurostoxx50 equity fund, USD Biotech fund, and Yen Japanese equity fund. All funds are of UBS.

Equities registered progress during the week as Maltacom continued its climb now at 95c0 as against the 90c0 we invested at. International equities were also pretty stable this week and finished in the US on a high note which is not yet reflected in the quoted prices. The Balanced Funds retreated slightly as bonds are becoming under pressure given that there is more perception that interest rate cuts are probably consigned to history for the foreseeable future as the US economy is throwing up consistent signs of gearing up for revival.

No changes were made to the portfolio.