Thursday, 17 January 2013

First things first, Tonio

 Tonio Fenech smiles
as the economy heads down

Most people I met just laughed out the PN's claim that Labour and Muscat are responsible for S &P downgrade.

Really it is no laughing matter but when you see the Minister of Finance blaming his failures, certified by international rating agencies, on the Leader of the Opposition you have to make a choice between laughing and crying.  And being optimists most people I met decided it is best to laugh it out.

Minister Fenech should however take the S & P downgrade report very seriously as it constitutes a Diploma of his incompetence in financial budgeting.

On 28th November 2012 he presented in parliament the Budget for 2013 .  In his presentation the Minister said that the deficit for the whole of 2012 (of which 11 months had already passed and the Minister should have had a clear picture for the remaining 33 days left), would amount to 2.2% of the GDP resulting  in a deficit of EUR 180 million.  

Just two weeks later, the National Statistics Office issued the report on government budgetary situation as at end November 2012, i.e. just 2 days after the Minister read his Budget Speech in parliament.   The deficit till November  2012 was EUR 342 million.   Which means that if the full year 2012 deficit has to hit the figure that the Minister had indicated in parliament on 28th November 2012 than government finances for the month of December 2012 will have to be cash positive to the tune of EUR 162 million.

Now it is true that December is generally a seasonally cash positive month but never to the extent of EUR 162 million.   We will know the final outcome for the whole of 2012 somewhere towards the end of March 2013 and by then a new government would have been voted in and the electorate would not have had the benefit of such information before it votes.

My best estimate is that if December 2012 would be as cash positive as December 2011 then Minister Fenech would have missed his budget estimate by some EUR 100 million and this in just 33 days.

S & P in their downgrade make similar assumptions that they

  "expect that the 2012 deficit at just under 3% of GDP will exceed the target of 2.2% of GDP.   Malta has a high government debt burden ( estimated at 75% of GDP in 2013) ....."

This Mr Minister is why S & P downgraded Malta's rating, not because the Opposition voted against the Budget as any opposition in any democracy normally does.

According to S & P the Minister is missing the 2.2% of GDP deficit  target and getting 3% of GDP, a variance of 0.8% of GDP in just 33 days.  That means that the Minister can't project forward accurately even for just 33 days.    0.8% of the GDP amounts to EUR 54 million which is less than the EUR 100 million I estimate but a gross miss considering that the Minister was projecting forward  just 33 days.

With such record what credibility does the Minister have when he insists that the Capital Expenditure needed to execute Labour's investment for its energy plans will cost EUR 600 million, nearly twice what Labour has indicated?

If anybody wants further corroboration on the Minister's incompetence in budgeting forward one should refer to the estimates he made when he presented his first Budget for 2009, in full knowledge of the international financial crisis which exploded in September 2008, whereas the Budget for 2009 was read in parliament in November 2008.

In that presentation he had projected forward government finances for the years 2009 - 2011 and he had budgeted  that by end of 2011 the general government debt should amount to EUR 3,683 million equivalent to 56.30% of the GDP.    Actual result for 2011, with Tonio Fenech in charge of our finances throughout the period, the general government debt amounted to EUR 4608 million being 71% of the GDP.

Over a 3 year period the Minister missed the debt target by EUR 925 million.   With EUR 925 million we could have financed twice over Labour project for efficient energy generation with change to spare.

Minister Fenech, leave long term budgeting to others more capable, simply explain to us why you cannot even budget forward for 33 days.

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