Saturday, 26 March 2005


The Malta Independent 


Resurrection is the direct consequence of death.` There can be no resurrection without death. To have the economic resurrection we need, we must either be already economically dead or we must economically die first.

As for many things in life, things may first have to get worse before they can get better. And this week they got as worse as they could.` We have received a clear certification that we are economically practically dead.

A study conducted by a credible London based EU research organisation has classified the 25 EU member countries and the two candidate countries, Bulgaria and Rumania, to measure their progress in terms of the criteria set for the Lisbon agenda. These are the criteria meant to measure the state of competitiveness of each member/candidate country so that the EU as a whole can achieve the Lisbon agenda objective of becoming the fastest growing knowledge based competitive economy in the global village by 2010.

These targets were set in Lisbon in the millennium year and an interim review was conducted last week at the EU head of states meeting. The Lisbon objectives were re-affirmed and countries were given a road map to check their progress along the Lisbon objective route. The target date of 2010 is clearly unrealistic and has been practically abandoned. During the last five years the EU relative rate of economic growth has quite deteriorated rather than improved and the EU is still as far from the Lisbon objectives as it was five years ago.

In the study Malta placed 27th out of 27 countries. We are behind backwater countries of Bulgaria and Rumania who have yet to make it to the EU.` We have the least competitive economy of the whole EU.

This is an economic fiasco of gigantic proportions expertly manufactured by our expired PN government as it has wastefully spent tax and debt revenues to protect us artificially from normal economic cycles.` To gain our political patronage it bestowed us with a let`s pretend standard of living nearing that of` developed countries, which is however based on unsustainable debt financed consumption rather than on a knowledge-rich, competitive and efficient economy.

I just can`t imagine how with a certificate like that our politicians can still speak seriously of making it into the Euro with the first batch of new entrants into the EMU somewhere in 2007/2008.` I fully agree that this would be an ideal objective if we can wear upon us the necessary discipline to restructure and regain the lost competitiveness in time to meet such deadlines. But can anyone seriously believe that in the last half of the legislature leading to elections in 2008 the government has the political will and the economic energy to do what it has neglected doing for the last eighteen years`

Let us well and truly understand the severe economic consequences that would befall us if we were to presumptuously attempt to join the Euro before we actually render our economy globally competitive and reach a more respectable place in the league table of progress towards the Lisbon Agenda objectives.

Joining the Euro would mean that the only economic tool left at our discretion would be fiscal policy and given our structural imbalances we are unlikely to have much leeway to manoeuvre around with fiscal policy and still stay within the boundaries of the Growth and Stability Pact for the Euro. If we were to join the Euro in the economic mess we are in, it would be like betting our life to win a race we are totally unfit for. We could risk collapsing not very far from the start line or possibly even during the warming up before the race starts.

We have had many pious statements of the wishful thinking about the wisdom of joining the Euro in the first batch. Nothing to complain about if we can really be ready for it just as it would be nice if I were to run the 100 metres in less than 10 seconds. But try doing that with all my 100 kilos and without serious, disciplined and extreme training!

In deliberating the Euro decisions our politicians should ask themselves a basic question. Now that the first two years of the legislature are up with very little to show in terms of real re-structuring, are they seriously minded to take the hard measures which are necessary to conduct effective re-structuring to restore our competitiveness in the last three years` Are they prepared to sacrifice their electoral chances at next elections by taking the economic medicine which effective as it may be in economic terms in the fullness of time, is not exactly a magic formula for electoral popularity`

My opinion is that irrespective of the nice words uttered by the Prime Minister in his defeat conceding press conference following the last local elections, words to the effect that his government is minded to continue doing what is right and not what is popular, this government is doing neither what`s right nor what`s popular. Given that for the general elections they have to make a choice they could well be tempted to restore popularity rather than righteousness.

This would exponentially increase the risk of joining the Euro purely for the prestige of sharing a common currency. The Euro Growth and Stability Pact rules have been revised to render the pact quite toothless in exerting fiscal discipline on participant countries. So many broad exceptions have been built into the new rules to depart from the hitherto rigid benchmarks that is now flexible enough to fit all circumstances. So if we want to join the Euro on the new rules we can probably justify many exceptions to join without coming into shape to be able to withstand the competitive pressures following membership.

I am extremely worried that if government tries to approach the Euro membership as an election ploy of prestige without actually getting economically ready for it, the very fact of merely attempting to do so, could remove the only feeding tube which is artificially keeping us economically alive:` the excess saving which makes it easy for government to finance its deficit cheaply and on a long term basis.

If we are not careful the warming up to the Euro project could be our passion and death.` The optimists may see this as an unavoidable route to the consequential resurrection.

Sunday, 20 March 2005

What a Cheek

The Malta Independent on Sunday 


The local council election results are what they are. They leave little room for interpretation. The electorate is unimpressed with government's performance in office and those who voted, as well as those who stayed away,` delivered a clear warning to government that it has over-promised and under-delivered.

It would be wrong to read into the results much more than this. The relevance of local election as a reliable prognosis for the next general election is limited; both because of the substantial time gap between the two and the fact that voters' motivations in a general election could be quite different than in local elections.

If it is true that one week is too long in politics than three years must be eternity. Whilst Labour have every reason to celebrate last week's result which must be beyond their best expectations, it would be irresponsibly dangerous to jump to undue conclusions regarding the general election.

Rather than focus on what the MLP is now going to do to ensure they build on this momentum till next general election, it is proper to ask what is government going to do for the rest of this legislature. It is most unfair for government sympathetic The Times to demand editorially that Labour expose their detailed plans to persuade us that they merit to be considered as an alternative government.

We have a government that has been in office for a continuous period of 18 years (bar 22 months) and yet has no real detailed plans for the three remaining years of this legislature. What a cheek to expect the opposition to explain in detail their plan which they could only put into effect three years hence if they win the election, and then stop short of demanding same from government in office.

The bad motives behind such call are clear. The Maltese economy is a sick patient. Voters at a general election will have to choose between tasking a Labour doctor or a PN doctor to engineer some sort of recovery.

The choice is between the PN doctor who by benign neglect over an extremely long period of time has landed us in a economic mess and keeps reassuring us that all is under control and according to plan as we sink deeper into debt, economic stagnation and loss of global competitiveness. The alternative Labour doctor has plenty of academic degrees but by virtue of being out of government for 18 years cannot furnish proof of practical savvy for the challenges that await it if it is tasked into office.

Labour can however provide a comfort which the PN cannot. Being free of the guilt of commission for the present situation, the Labour doctor can look at the economic problems more objectively and devise more effective, though not painless, solutions.

On the other hand the PN doctor is prejudiced by his own guilt in minimising the size of the economic problems that need to be addressed and wastes scarce and valuable resources in hiding the problems rather than in addressing them.` The PN doctor contradicts himself in the same breath in demanding a national effort to address the problems (remember` the appeals for a social pact) but simultaneously pretending that we are about to be snowed under new investment which is on its way to regenerate the economy and put us back on a fast growth path.

In such circumstances an objective electorate at next general elections ought to deliver a clear verdict against the PN. They have had much more than their fair chance to deliver. They are clearly unable to get us out of the rut as their guilt of commission cannot allow them to be perceived as an honest broker in putting together a national effort to address the issues without further delay.

Labour's lack of experience still offers some prospect of engineering a successful recovery whilst the PN's obstinate non-performance offers none. Between now and next election Labour will have to impress the electorate that they are fully aware of the size of the problems that await them if they are tasked to govern , that they have the energy, ability and willingness to solve the problems and re-modernise the country` rendering the economy more flexible and competitive, and that they can make the electorate focus on the benefits of the cure rather than the unavoidable pain of the remedial measures.

Appeals for Labour to provide details of their plan so prematurely could have only the motivation to depict the measures in their darkest colours, shifting the focus of the electorate from the benefits of the cure to the pain of the measures, hoping to scare-off the electorate from trying out the Labour doctor so that we can continue with the utterly ineffective PN doctor who is borrowing from future generations in order to extend its long expired economic life.

And the cheekiness was also evident in the off-handed way the Prime Minister dismissed the drubbing his party suffered as normal mid-term legislature blues. Granted, a government has to take unpleasant measures in the first half of the legislature hoping to reap the benefits by the end before facing the electorate for its judgment.

But was that not the situation in 1998 when Labour was forced to seek renewal of its mandate after less than two years when it could only expose the pain but not the gain` So how can the PN remain credible if they consider last week`s drubbing as the normality of midterm blues but then label Labour's 1998 loss of government as incompetence to govern`

Was that not also mid-term blues, with the proviso that the election was forced to come in the mid-term, as a direct result of electoral gerrymandering,` giving the 1996 Labour government a much smaller parliamentary majority than the people had willed`

There is much validity in Labour's call for revision of election laws to ensure that the next government to be tasked to engineer a painful economic turnaround is comforted by a parliamentary majority that accurately reflects the will of the people`s vote.

Friday, 18 March 2005

Deciphering the Vote

The Malta Independent 


Though not entirely unexpected the size of the victory registered by MLP at last Saturday`s local election must be at the top end of their expectations and probably below the bottom end of the PN`s.

Deciphering the local elections vote is always trickier than that of a general election. Not only because it is a one-third sample of the electorate but also because different convictions and motivations are at play.

How much does the result reflect local realities which will have no bearing at general elections and how much does it reflect wider national issues which will shape voting patterns when in three years time we will have to re-decide the formation of a new national legislature`

The complex intermingling of these two related but distinct influences make deciphering local election results far from straightforward.` If the voters in Mqabba and Sta. Venera decided to change their local administration from PN to MLP than certainly it has something to do with the unimpressive performance of the outgoing council in these localities led by a PN mayor. If voters in marginal localities like Zebbug and Mellieha chose to re-confirm with a much wider majority a Labour-led council than it must be a show of endorsement to the work done by the outgoing councils. The same can be said of Zurrieq, Pembroke and Xewkija where Labour have consolidated their existent strong majorities. Taken individually, locality by locality, results must somehow reflect local realities.

But taken collectively, the size of the voting sample is big enough to have some meaning to voting preferences at national level.` And the crystal clear message of relevance to the PN in government is that the people are grossly unhappy with their performance and that given a real choice people will gladly consign them to the opposition side of national parliament. A margin of 9% for MLP over PN in a local election with localities tilted in PN`s favour by their obscene manoeuvring to avoid a contest in Labour strongholds of Zejtun and Marsa, leaves no room for any other interpretation.

I would add that this local election result added to the result of last year`s local and MEP elections held in June 2004, both handsomely won by MLP barely 15 months after losing the general elections of April 2003, should convince the PN that they are in government on borrowed time due to Labour`s` mishandling of the EU membership issue and referendum.`

Whilst the message to the PN could not be clearer the message for the MLP is less evident. Because the MLP has been here before. In the local elections of 2002, in the very same localities as those contested last Saturday but including Marsa and Zejtun,` MLP scored a 9% point advantage over the PN.  With an election merely 13 months away the MLP fell in a dangerous bout of over-confidence and totally misread the strength of the EU issue in shaping national election voting preferences far differently from local election preferences.

In fact if one interprets these local election results in a wider context of the performance since the unique events of 1998 which have cut short, too short, the life of a democratically elected Labour government, a curious but very evident trend has taken shape.

Interpreting trends requires skills of technical analysis and mathematical regression to establish the correlation over a period of time between distinct factors and present such correlation in trend lines which could be extended into the future to predict future result on the basis of such correlations.

And the correlation which screams out from the figures of all elections held after that 1998 mind-setting event, is that the Maltese electorate is keen to re-mandate Labour back in national government to continue the aborted mandate of 1996. Labour has won with an increasing margin every election held since that date except for the general election of April 2003 and the referendum and local elections held in March 2003. These are a digression from an otherwise very clear trend-line.

Rather than re-commit the same over-confidence mistake following the local elections of 2002 and assume that the next general election is all but wrapped up, MLP ought to keep their feet firmly on the ground and read well into this trend line.

Is a pattern being set where the Maltese electorate is happier to share democratic rights by having Labour majorities at local elections and nationalist majorities at general elections Why is Labour finding it so easy to persuade the electorate at local level and so difficult to win majority support at national level as shown by the general election of 1998 and the referendum and general elections of 2003`

Could it be that whilst the electorate knows fully well that Labour makes better stuff than the fatigued PN who have difficulty in addressing problems they themselves created, the electorate faints and retracts from giving Labour the support they deserve when such support would translate itself in having Alfred Sant again as their prime minister`

Whichever way I try to decipher the local election results, the conviction grows that Alfred Sant`s negative experience as prime minister is becoming a surmountable last barrier between Labour and the next government. The momentum of growth in Labour`s vote is impressive.

Alfred Sant has` three years grace to prove that he deserves to be re-mandated.` He would do well to re-focus on his pre-1996 vision to re-modernise the country from the prejudices and cobwebs which an expired PN administration keeps spinning in contradictions when speaking with both sides of their mouth.

People are tired of the PN who whilst assuring us that all is moving to plan and is under control as the economy brims with confidence of imaginary new investment, the voters` everyday life unfolds as a continuous struggle with new taxes and cost of living increases that are threatening the standard of living they had taken for granted. The country badly needs a change of administration.

No government can be popular in the first two-years of a legislature when the hard measures have to be taken, justified himself the Prime Minister to explain why the PN fared so badly. By the same analogy, voters should remind themselves of the unfairness of judging Dr Sant after less than two years of his term as Prime Minister. On the other hand Dr Sant owes it to labourites and the country to persuade the majority of his merits to be re-mandated as the next Prime Minister by preaching the benefits of his plan rather the unavoidable pain of its measures.`

Friday, 11 March 2005


The Malta Independent - Friday Wisdom

Federal Reserve Chairman Alan Greenspan last month described the phenomenon of long-term interest rates failing to respond to persistent increases in short-term interest rates as a conundrum – a puzzle he was finding difficulty to understand.

How could the markets trading in long-term treasuries ignore the persistent rises in short-term interest rates, which went up in several gradual measured steps from one per cent in June last year to 2.5 per cent by January 2005? How could fixed mortgage rates for long-term house loans fall when short-term interest rates were going up sharply?

Since he spoke the markets have started taking note of Mr Greenspan’s concern and long term interest have indeed started to respond. However, this was also in reply to subtle signals from Asian Central Banks which expressed an interest in diversifying their monumental holdings of foreign reserves from their over-concentration in US dollars, mostly US treasuries. The signals are that unless the markets respond with higher interest rates in order to keep in check the tendency of the US dollar to fall on the foreign exchange markets since operators are concerned by the sustainability of huge US balance of payments deficit, their willingness to continue buying US treasuries could be called into question.

While central banks have direct influence on short-term interest rates, at the long end of the curve, interest rates are market-driven and central banks can at best exert moral pressure to move interest rates in the direction and up to the level they consider desirable.

Participants in US long-term treasuries have been caught up between mixed signals. The determination of the Federal Reserve to continue rising short term interest rates in order to remove the excessive monetary accommodation extended to the economy between January 2001 and June 2003 (in order to cushion the shock from the tech bubble aftermath and the political instability caused by terrorist attacks on US home ground and the Iraq war) could not but have pressure to move up long term interest rates as well.

On the other hand, the markets noted that there was no pressure resulting on the inflation front at retail price level or at investment asset price level (real estate and equity markets) – as a result, these questioned the need for long term interest rates to rise to account for a non-existent inflation threat.

On the contrary, some long-term treasury participants considered rises in the short-term interest curve as an important measure to pre-empt the development of inflationary pressures so that the threat of rising inflation in the long term need not be accounted for by rising long-term rates.

Personally, I have always found these arguments unconvincing and tend to lean to the view that an economy growing at four per cent per annum could only sustain 10 year rates at four per cent by exposing itself unduly to the risk of developing underlying pressures on inflation at asset price level if not at retail level, which would have to be addressed by higher future interest rates if timely precautionary measures are not taken.

With this in mind, I have been in favour of reducing exposure to US fixed income securities at the long end of the interest rate curve with the exception of High Yield and Emergent Economies securities which have equity like features and are less sensitive to interest rate rises than investment grade bonds. However, now that the margin on such High Yield and Emergent Economies securities has narrowed so much that rising interest rates could reduce their attraction at such narrow margins. Moreover, it probably is time to reduce exposure thereto as well.

The same, however, does not apply to euro fixed income securities where the risk of rising interest rates on the euro is being pushed further into the future as the US dollar fall on foreign exchange markets puts pressure on the competitiveness of euro area producers who depend on exports for their growth which is in any case less than half of the growth being experienced in the US. The European Central Bank would be failing its “growth” duty if it were to consider rises in euro interest rates before the euro exchange rates normalise against the USD from its current over-valuation, something which is not quite in sight unless there is a sharp rise in US interest rates.

Where does this leave our own monetary policy? Since December 2002, the Central Bank has reduced the benchmark rate from four per cent to the current three per cent and has kept interest rates steady at this low level since June 2003. In the press releases justifying its interest rates decision, the Central Bank regularly refers to the need to restructure the Maltese economy to make it more globally competitive and its strong believe that monetary and exchange rate policy have no role to play in such restructuring except in providing stability.

The mission of the Central Bank is indeed “to maintain price stability and to ensure a sound financial system, thereby contributing to sustainable economic growth”. Its principle objective is to implement monetary policy decisions “designed to influence aggregate demand in the economy contributing to the creation of a stable environment that is conducive to sustainable and balanced long-term economic growth”.

Do we have a local conundrum here? Are the Central Bank monetary policy decisions effectively leading to the desired stability and growth at a time when we are clearly losing our international competitiveness and have an unquestionable asset price inflation – fuelled by the low interest environment – in our real estate and capital assets equity market?

Maybe it is good to ponder these issues in the silence of pre-election day.

Sunday, 6 March 2005

Legalised Pyramid Schemes

The Malta Independent of Sunday

Pyramid schemes are illegal. They are financials scams where intelligent, crooked minds sit at the top of a scheme and roll it out, extending its base where an expanded lower level make payments to the narrow levels on top as they engage a new wider base layer.

In theory, such pyramid schemes could keep going on in perpetuity if the base always keeps adding a new broader layer. But in practice it never works that way. At some point the momentum slows down and when it would be impossible to engage a fresh broader base layer the whole scheme collapses. The large majority of the late entrants will lose their money invested with foolish greed, while the few on top count their riches.

Strange as it may seem we are witnessing two situations which have some features similar to illegal pyramid schemes but which are not only legal but essentially promoted by governments.

Let’s look at the largest of these schemes promoted by the sole superpower, the
United States of America. Everybody who has the slightest economic knowledge agrees that the current level of US deficit in public finance and in the balance of payment is unsustainable. Commonly referred to as the twin deficit they re-inforce one another.

The Bush administration has switched the budget surplus inherited from the
Clinton era into the largest public finance deficit ever. But in the process it has cushioned the economic downturn resulting from the tech bubble aftermath, and has primed the US economy to grow at a consistent four per cent p.a. creating jobs and attracting investments which leaves developed European economies gaping as they struggle with high unemployment and low growth.

The strength of the US economy creates a huge gap between investment and savings, which translates itself into a monumental deficit in the balance of payments, producing contra balance of payments surpluses mostly originating under the rising Asian sun, not least China.

Normally such huge imbalances are self-correcting through fluctuating rates of exchange mechanisms. This time however, something like a pyramid scheme is being created to beat the market. Most Asian countries running surpluses in trade balances with the US, mostly Japan, China and Korea, have either completely pegged their currencies to the US dollar or, in case of Japan, force their Central Bank to intervene regularly in the foreign exchange markets to keep their currencies tracked with the US currency.

In order to keep their domestic economies growing on export demand to the
US, these countries are quite willing to continue buying US dollar finance paper at low interest rates, knowing that they could incur currency losses as the value of the dollar is crushed by the weight of the external deficit. For these Asian countries the benefit of stable, weak exchange rates exceed the costs of reserve accumulation. China relies on rapid export-led growth to absorb labour surplus of hundreds of millions of low-skilled workers from its vast agricultural sector into the modern industrial traded sector.

In turn, the US, fast economic growth and accelerated investments is cheaply financed by Asian countries accepting to buy US dollar paper at low interest rates, keeping long term rates stable or indeed falling; forcing the Federal Reserve Chairman Alan Greenspan, on unstoppable trend to increased short-term rates slowly but consistently, to label such a phenomenon of non-responsive long term interest rates as a conundrum.

How long can this artificial anti-market arrangement keep its cosy scratch my back I scratch yours arrangement going on? No one really knows. Views vary from a whole generation to just a few months. When ultimately the currencies of surplus countries in Asia will have to respect market pressures and unpeg from the dollar in order to contain domestic inflation raising domestic interests in the process ( China has a domestic interest rate of just 2.5 per cent whilst it is growing at nine per cent!) these Asian central banks will incur exchange losses running into several hundred billions on their US dollar reserves. Losses so huge could blow their economies away.

Last week the mere mention by the Central Bank of Korea of their desire to diversify their reserves away from the over-concentration of the US dollar brought a sharp instant fall of two pwe cent in the value of the US dollar until the same Korea bank clarified that they have no intention to start selling their dollars but that diversification will be sought through future accumulations. The international pyramid schemes being operated by the
USA and the exporting countries of Asia has become as fragile as that.

We have a similar pyramid scheme going on domestically with government debt and the Maltese lira. We have a poor government among quite a prosperous population. When I say poor government I refer to the organisation not to the individuals who run it. When I say prosperous population it does not mean that everyone is prosperous but that on average the population has a decent and improving standard of living.

How does the pyramid scheme work here? The poor government organisation feeds the prosperous population by annually spending one hundred million plus liri more than it can resource through its normal inflows. This continues to enrich the population who are only happy to lend the deficit back to the government so that the latter can continue to spend and enrich them. In the process the people running the government can gain political support from the majority of the population who mistakenly believe that the pyramid scheme can continue forever and that they can continue to lend the poor government and suck it back into their bank account with no time limit.

How long can this go on? How long will the prosperous population remain willing to lend back their riches to the poor government as they see the economy stagnant and the government selling its family silver purely to plug its gaping financial holes? It could go on until doubts creep in on the sustainability of the pyramid scheme. And this sustainability issue could be given a huge shock in our attempt to join the Euro.

Unless we can do within a short time what we have neglected to do over a long time, unless we cut the very essence of the pyramid scheme with the poor feeding the rich, we will never make it to the Euro and the pyramid scheme will collapse as people start shifting their Maltese liri to Euro whether or not we decide to join.

Pyramid schemes, by whatever name they are referred to, whether legal or illegal, have one thing in common. In the end they collapse and the many will be hurt while the few will count their riches. It will not be any different here or globally when the US dollar and deficits unravel.

Friday, 4 March 2005


The Malta Independent - Friday Wisdom

Credit is due to the National Statistics Office (NSO) as the national organisation charged with collecting, processing and publishing statistics which enable us to keep track of all aspects of the Maltese way of life, be it economic, social or demographic.

Their output has become more useful and reliable in that it is issued with impressive timeliness, it is well explained and has been expanded both in quality and frequency. Their up-dated website is user-friendly and easy to navigate. Moreover, their archives are a much useful tool, saving time and energy to researchers who need to dig up old data.

Even their direct one-to-one service is commendable. Whenever I needed an explanation or an elaboration on some point in their publications, I normally get an e-mail which is to the point within 24 hours.

Over the last few years the NSO updated their methodologies so as to come in line with Eurostat standards. All this was done with minimum fuss and a very impressive yet down to business approach.

It is important to appreciate that NSO publishes strictly historical data and their duty is to report factual information as emerging from their consistent approach in processing raw data obtained from different sources in society. One of the major sources is of course the government itself and in so far as public finances are concerned the government, basically, is the sole or main source of such data.

Consequently NSO cannot prevent government manipulation of data, on the part of the government, aimed to make the end result artificially fit pre-set objectives. And this, I suspect, is happening every December, when the government has to close its books in order to shape the annual deficit in line with what was announced in the budget a few weeks earlier, generally in the latter half of November.

Take a case in point. NSO’s improved service is now giving us monthly results of the government finance record even in the first few months of the year. Until a few years back this was not so since we, generally, would have got the results for the first three or four months of the year grouped together somewhere in April or May.

The release of such statistics was purposely delayed until the government had crystallised its financial position as at the previous year-end and such final outturn for the previous year got published before interim results for the current year.

Thanks to NSO this is no longer so. We now have the January 2005 figures for public finance that were published on 22 February even though the final result for 2004 is not yet there.

What is striking about the January figures is that there is a marginal 5.4 per cent drop in revenue over January of last year but a stark 24 per cent increase in expenditure over the same month last year resulting in doubling of the deficit for the month from Lm19 million to Lm38 million.

While interpreting a single set of figures for one solitary month has its obvious limitations which defeats the scope for drawing any firm conclusions, one cannot but raise an eyebrow at the size of the swings and suspect that there has been purposeful manipulation of data shifting transactions from December to January in order to massage the figures for the last financial year to fit whatever was planned before.

While the drop in revenue could be explained by a four million reduction in profits received by the government from the Central Bank, the rise in expenditure is much less transparent. Capital expenditure for the month was relatively stable and public debt servicing was slightly lower than last year.

This means that all the jump in expenditure, 17 million of it, is in recurrent expenditure which given its nature should normally show more features of stability.

The conclusion is obvious that recurrent expenditure has been manipulated to cross the dividing calendar line to massage the year-end financial figures to government’s wishes, making in the process a mockery of our national statistical service.

Lest you should think that this is the work of a dirty mind and has never happened before, let me reproduce an extract from the Auditor General Report for Public Accounts 2003 pages 16 and 17:

“Warrant No. 3 was issued by the Minister of Finance on 8 January 2003 for an amount not exceeding Lm8,500,000 in order to process and effect payments during 2003 related to various Votes of expenditure until the corresponding Vote of expenditure in the Consolidated fund is identified”.

It results that, “vouchers amounting to Lm8.5 million raised by Ministries/Departments and forwarded to the Treasury Department during December 2002 were authorised for payment in January 2003 and therefore accounted for in the financial year 2003 (with) Treasury acting upon instructions from the Ministry of Finance”.

The good work of the NSO can only be enjoyed by the consumer of statistical information if the input data stops being manipulated by the government.

High time for the government to move to accrual accounting where income and expenditure start being recognised at the point they occur or incur rather than at the point of the actual cash execution of the transaction which is conveniently subject to calendar manipulation.