Business Today - Wednesday, 13 May 2009
The European Commission last Monday 4th May 2009 confirmed that it was going to restart the Excessive Deficit Procedures against Malta for its high Budget deficit in 2008, which reached 4.7 per cent for last year, 1.7 per cent in excess of the EU’s budget deficit limit under the Stability and Growth Pact. Business Today’s CHARLOT ZAHRA spoke to Labour candidate for the European Parliament elections Edward Scicluna on the significance of this procedure, what effective measures the government should take in order in order to curb this deficit, and the different forecasts issued by the different financial institutions in Malta, among other things.
What is your reaction to the Excessive Deficit Procedure Deficit against Malta? Do you think that it is justified in view of the high budget deficit reached by Malta last year?
What was surprising was not the Excessive Deficit Procedure which was slapped on us this time, but the strange decision that we were let off scot-free some weeks back because the EU believed our government, that the reported deficit was a one-off. Any local or foreign economist familiar with our economy could see that this was not so. We are now among the three laggards in the Euro zone. Definitely it is not a situation to write home about.
In your view, what concrete action should the Government take to curb the budget deficit that Malta has incurred last year and likely to incur this year as well?
It all started in October 2007 when Government budgeted an unprecedented revenue forecast unrelated to the expected outcome of the economy. It was clear to me that if this revenue forecast would not materialise, our public finances would revert back to an over 3 per cent deficit/GDP ratio. I am getting annoyed that what could be evaluated using a back of the envelope calculation was not caught on the EU radar screen with their sophisticated economic models. But then I am not yet sure they are taking us seriously. Or else we are misreading their style of evaluation. It looks that each time they just want to call our bluff and when we are caught in our own trap, they pounce. For our own good I just wish they would act much earlier. For the government, local economists are a bunch of gloomers and doomers. The EU can afford to be neither. But when the government transgresses the EU rules, we still have to see how they would look like.
In view of the fact that the European Commission is now saying that the GDP for 2009 will actually shrink by 0.9 per cent and that budget deficit for 2009 will reach 3.6 per cent, do you think that Finance Minister Tonio Fenech is still able to reach the targets set out in the 2009 Budget of 2.4 per cent growth rate and 1.65 per cent budget deficit rate for 2009? How?
This woolly and opaque way of reporting and forecasting must stop. It is an insult to the intelligence of all Maltese and Gozitans living on this island. How can we state with a straight face we have an international financial centre on the island and then let this fireworks of meaningless economic and financial figures be allowed to be banded about as if it is business as usual. The three public agencies must get their act together. I am referring to the NSO, the CBM and the Ministry of Finance. I am more than sure they can do it. I know they have qualified people. Their data must converge to the EU’s own estimates and forecasts. It does not necessarily need to be a replica but some convergence is required. It is quite disquieting that it is not.
What is your reaction to the latest economic forecast announced by the European Commission on Monday, especially with regards to the forecast for GDP contraction in 2009 and a budget deficit of 3.6 per cent for this year?
I think that the Government has never to date been in such a difficult situation with regard to the economic management of our economy. You have to either inflate or deflate. Either way, in our situation Government will have to pay a very high price whichever way it goes. Unfortunately it painted itself in a corner with no exit in sight. It cannot say it was not forewarned.
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
12.5.09
Employment predictions
by Prof. Edward Scicluna, Malta Today on Sunday - Sun 10th May 2009
There is no doubt that Mr Vince Farrugia attempted to attack my economic and statistical credibility when he tried to misrepresent the results of my model regarding the employment implications of a fall in our exports. He said and I quote: “With a 20% drop in exports according to his predictions we should by now have already suffered 15,000 job losses. The country would have been in a state of panic were his prediction to have come through.”
The results of my model were presented during a GRTU conference given last 16 December in the presence of the Prime Minister. Mr Farrugia was surely not paying attention to the mathematical caveats appearing on the same slide of the powerpoint presentation (PPP), which I included with regards to this multiplier. I did say that: A 2% annual fall was a simulation exercise of an across the board fall in all export-oriented industries including tourism. If this were to happen this would translate into an over 1,000 full-time equivalent job losses directly and half as much again indirectly. Furthermore this Leontief model is estimated for a given year and so the ratio of full-time equivalent jobs is to nominal value of exports in a given year.
The slide also said that the labour-intensive industries such as tourism, transportation and recreational and similar services are affected more, while the more capital intensive industries are expected to have a much lower employment multiplier effect than the estimated average of 1,000 persons.
Mr Farrugia ought to know that up to the end of 2008, according to the NSO national accounts statistics and as confirmed by Eurostat the percent fall in nominal exports of goods and services was of 5.6% and not of 20% as wrongly stated by Mr Farrugia. Furthermore the industry mostly affected was manufacturing and in particular ST Microelectronics and similar highly capitalized industries, which according to my model have a multiplier much lower than 1,000.
If he applied these obvious observations he would predict that the employment loss expected over the long run for the reported fall in exports would be more in the region of 2,000 direct and 1,000 indirect rather than the 15,000 exaggeration implied by Mr Farrugia.
Where shall we look for these expected 3,000 full-time equivalent lost jobs. Surely not just in the unemployment register. Unemployed persons according to Eurostat comprise employable persons who are without work during the reference week, are available to start work within the next two weeks, and have been actively seeking work in the past four weeks. Data are presented in seasonally adjusted form. Eurostat reports that between September of last year and March of this year there was a 1,500 increase in persons unemployed.
Where are the other 1,500 predicted by the model? Mr Vince Farrugia should know that full-time equivalent jobs are not persons but man-hours lost divided by 40 hours of work a week. This includes all overtime work and part-time work which has now been terminated. It includes jobs which were terminated by some early retirement scheme or other. It includes workers working on a four-day week which amount to over 2,000 in the formal sector and much more among the GRTU self-employed members who are finding themselves on a less than a four-day week. It includes workers in a number of companies with whom government has reached an agreement to retain workers and or revert to a five-day week (ST, etc). Taking all these working hours lost together we would be fair to translate these into at least another 1,000 full-time equivalent persons unemployed.
These total figures fall short of the 3,000 full-time equivalent predicted by the model and leave a balance of about 500. But everybody knows that next month and the in following ones unemployment is expected to rise further. The reason being that unemployment is a lag not a lead indicator. It takes many months of loss of sales during which first it will be profits that are eaten away. Only after that would employers resort to the unfortunate shedding of their staff. During the last three months of 2008, firms saw a fall of about €65 million in their profits. With that money they would have paid for 6,000 jobs.
I do hope that we get serious with statistics. I cannot understand why persons who enter politics should pretend they have a licence to start playing around with figures. I can assure the reader that whether in politics or out of it, I will never betray my academic training by using statistics frivolously.
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
There is no doubt that Mr Vince Farrugia attempted to attack my economic and statistical credibility when he tried to misrepresent the results of my model regarding the employment implications of a fall in our exports. He said and I quote: “With a 20% drop in exports according to his predictions we should by now have already suffered 15,000 job losses. The country would have been in a state of panic were his prediction to have come through.”
The results of my model were presented during a GRTU conference given last 16 December in the presence of the Prime Minister. Mr Farrugia was surely not paying attention to the mathematical caveats appearing on the same slide of the powerpoint presentation (PPP), which I included with regards to this multiplier. I did say that: A 2% annual fall was a simulation exercise of an across the board fall in all export-oriented industries including tourism. If this were to happen this would translate into an over 1,000 full-time equivalent job losses directly and half as much again indirectly. Furthermore this Leontief model is estimated for a given year and so the ratio of full-time equivalent jobs is to nominal value of exports in a given year.
The slide also said that the labour-intensive industries such as tourism, transportation and recreational and similar services are affected more, while the more capital intensive industries are expected to have a much lower employment multiplier effect than the estimated average of 1,000 persons.
Mr Farrugia ought to know that up to the end of 2008, according to the NSO national accounts statistics and as confirmed by Eurostat the percent fall in nominal exports of goods and services was of 5.6% and not of 20% as wrongly stated by Mr Farrugia. Furthermore the industry mostly affected was manufacturing and in particular ST Microelectronics and similar highly capitalized industries, which according to my model have a multiplier much lower than 1,000.
If he applied these obvious observations he would predict that the employment loss expected over the long run for the reported fall in exports would be more in the region of 2,000 direct and 1,000 indirect rather than the 15,000 exaggeration implied by Mr Farrugia.
Where shall we look for these expected 3,000 full-time equivalent lost jobs. Surely not just in the unemployment register. Unemployed persons according to Eurostat comprise employable persons who are without work during the reference week, are available to start work within the next two weeks, and have been actively seeking work in the past four weeks. Data are presented in seasonally adjusted form. Eurostat reports that between September of last year and March of this year there was a 1,500 increase in persons unemployed.
Where are the other 1,500 predicted by the model? Mr Vince Farrugia should know that full-time equivalent jobs are not persons but man-hours lost divided by 40 hours of work a week. This includes all overtime work and part-time work which has now been terminated. It includes jobs which were terminated by some early retirement scheme or other. It includes workers working on a four-day week which amount to over 2,000 in the formal sector and much more among the GRTU self-employed members who are finding themselves on a less than a four-day week. It includes workers in a number of companies with whom government has reached an agreement to retain workers and or revert to a five-day week (ST, etc). Taking all these working hours lost together we would be fair to translate these into at least another 1,000 full-time equivalent persons unemployed.
These total figures fall short of the 3,000 full-time equivalent predicted by the model and leave a balance of about 500. But everybody knows that next month and the in following ones unemployment is expected to rise further. The reason being that unemployment is a lag not a lead indicator. It takes many months of loss of sales during which first it will be profits that are eaten away. Only after that would employers resort to the unfortunate shedding of their staff. During the last three months of 2008, firms saw a fall of about €65 million in their profits. With that money they would have paid for 6,000 jobs.
I do hope that we get serious with statistics. I cannot understand why persons who enter politics should pretend they have a licence to start playing around with figures. I can assure the reader that whether in politics or out of it, I will never betray my academic training by using statistics frivolously.
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
10.5.09
Gozo needs a generous Public Service Contract
Gozo needs a generous Public Service Contract in a soon-to-be liberalised inter-island transport sector
For every one million Euro reduction in fares charged by Gozo Channel, Gozo's economy gains about five to seven million Euro in visitor spending, which would mean two to three million Euro in additional wages and profits.
This was revealed by Professor Edward Scicluna, Labour Party candidate for the MEP Elections while addressing a conference "Vision for the Development of the Island Region of Gozo" organised today by the Gozo Business Chamber.
The grounds for a generous public service obligation (PSO) are economic and not just social, Prof. Scicluna argued in his speech.
This could be arranged through a public service contract (PSC) even in a liberalised transport sector between the two islands. However, this contract must not discriminate between community ship owners, according to the PL candidate.
Professor Scicluna said that the time has come for the setting up of a Gozo Enterprise with a strong business promotion policy and programme covering high value added manufacturing, niche tourism and back office administration.
"Gozo needs special EU funding no less than other Island Regions in the European Union. Although the government seems to have missed the boat for the 2007-2013 budgetary period contrary to what had been promised, a socio-economic study needs to be carried out with urgency in consultation with all Gozitan stakeholders including the Gozo Business Chamber, the Gozo Tourism Association, the NGOs Association, the Church in Gozo and the Gozitan local councils, to establish the real needs of Gozo," Prof. Scicluna said.
Rather than empty slogans of eco-island, the island of Gozo needs sustainable development, Prof. Scicluna concluded.
For every one million Euro reduction in fares charged by Gozo Channel, Gozo's economy gains about five to seven million Euro in visitor spending, which would mean two to three million Euro in additional wages and profits.
This was revealed by Professor Edward Scicluna, Labour Party candidate for the MEP Elections while addressing a conference "Vision for the Development of the Island Region of Gozo" organised today by the Gozo Business Chamber.
The grounds for a generous public service obligation (PSO) are economic and not just social, Prof. Scicluna argued in his speech.
This could be arranged through a public service contract (PSC) even in a liberalised transport sector between the two islands. However, this contract must not discriminate between community ship owners, according to the PL candidate.
Professor Scicluna said that the time has come for the setting up of a Gozo Enterprise with a strong business promotion policy and programme covering high value added manufacturing, niche tourism and back office administration.
"Gozo needs special EU funding no less than other Island Regions in the European Union. Although the government seems to have missed the boat for the 2007-2013 budgetary period contrary to what had been promised, a socio-economic study needs to be carried out with urgency in consultation with all Gozitan stakeholders including the Gozo Business Chamber, the Gozo Tourism Association, the NGOs Association, the Church in Gozo and the Gozitan local councils, to establish the real needs of Gozo," Prof. Scicluna said.
Rather than empty slogans of eco-island, the island of Gozo needs sustainable development, Prof. Scicluna concluded.
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