The Malta Fiscal Advisory Council (MFAC) was set up by the Minister for Finance in January 2015 in terms of article 48 of the Fiscal Responsibility Act which was passed in August 2014. The primary objective of the MFAC is to carry out fiscal surveillance in an independent manner in line with the requirements of the Financial Responsibility Act, 2014 and the Stability and Growth Pact. In particular, the Council’s role is to assess and endorse, as it considers appropriate, the official macroeconomic and fiscal forecasts prepared by the Ministry for Finance for the annual Budget and stability programme, to assess the sustainability of the fiscal stance, and to monitor compliance with fiscal rules under the EU fiscal framework.
On 30 April, the MFAC presented to the Minister for Finance the report on its first assessment of the Government’s macroeconomic projections as published in the Update of Malta’s Stability Programme for 2015 – 2018 which was sent recently to the European Commission.
In its report, the Council concludes that the headline GDP figures (both in nominal and real terms) as forecasted by the Ministry for Finance for the years between 2015 and 2018 may indeed be achievable. The projected growth rate for 2015 by the Ministry for Finance is in line with the forecasts presented by other institutions, particularly the Central Bank of Malta and the European Commission Winter Forecast, whereas the Ministry’s 2016 growth forecast is slightly higher. Of significant importance for the attainment of these forecasts for 2015 and 2016 is the projected growth rate for final domestic demand, especially gross fixed capital formation which is expected by the Ministry for Finance to be underpinned by a number of both public and private investment projects. A certain degree of risk is thus associated with the GDP forecasts in relation to the expected developments within the overall domestic demand components and their associated spill over effects on the net export component of the economy.
The Council positively notes the sound methodology and procedures applied by the Ministry for Finance in the preparation of the underlying forecasts. In particular, the MFAC took note of the detailed and well-structured processes adopted at the forecast preparation stage to ensure that a reliable set of assumptions are incorporated within the general modelling structure and that every effort is made to ensure that all available information to date is taken on board in the preparation of the forecasts.
On the treatment of inventory changes, the MFAC’s opinion is that the practice employed by the Ministry for Finance, in assuming a zero contribution rate of stock-building to growth over the forecast horizon, is viewed as plausible given the high volatility exhibited by this variable over time. The Council, nonetheless, feels that further improvements in the treatment of this variable would be desirable and of benefit to the overall accuracy of the forecast exercise.
As regards the deflator forecasts, the Council’s opinion that whilst one recognizes the difficulty in accurately forecasting deflators, more effort should be made to ensure a better quality and reliability of these estimates in the light of the considerable impact such deflators can have within the context of analyzing the performance of the economy in real terms.
Finally, the MFAC acknowledges the very positive feedback and full collaboration extended by all the public sector entities involved in the meetings held by the Council during the course of its assessment exercise. It, however, feels that there is a need for more streamlining and coordination between the different entities which provide their input and contribution to the forecast exercise.
The full report, entitled “An assessment of the macroeconomic forecasts for the Maltese economy prepared by the Ministry for Finance in April 2015”, is available on the website of the Ministry for Finance www.mfin.gov.mt.
The Council Members
The Council consists of three members including the Chairperson. The members are appointed by the Minister for Finance on the basis of their experience and competence in domestic and international macroeconomic and fiscal matters. The term of office of a member of the Fiscal Council is for four years, unless otherwise provided. A person may not be a member of the Fiscal Council for more than two consecutive terms of office but shall otherwise be eligible for reappointment. Members may not be removed from office unless a resolution is approved by the House of Representatives. Members shall not seek or receive instructions from public authorities or from any other institution or authority.
John Cassar White
John Cassar White joined the banking profession in 1972 and retired in 2008. He occupied various senior executive posts at the Bank of Valletta including those of Chief Officer Finance. He set up the Risk Division of the bank and served as Chief Risk Officer for eight years. He also chaired BOV’s Credit Committee and Risk Committee for seven years.
Between 2013 and 2016 he was chairman of BOV. At this time he led the bank’s project to join the Single Supervisory Mechanism as a result of which BOV now falls under the joint supervision of the ECB and the Malta Financial Services Authority. Mr Cassar White served as director of various companies in the financial services industry and other business enterprises. Between 2008 and 2013 he lectured in business studies in the Malta College of Arts, Science and Technology. He also worked as a business consultant to a number of private and public companies.
Dr Carl Camilleri is a Lecturer at the University of Malta within the Department of Economics (Faculty of Economics, Management and Accountancy). Over the past 10 years Dr Camilleri has been lecturing Econometrics at the Department of Economics. Over the recent years Dr Camilleri was also involved in the lecturing of a number of other courses, in particular: Applied Macroeconomics, Health Economics and the Economics of Ageing and Pensions at the same university. Prior to joining the Department of Economics, Dr Camilleri served in the public service within the Economic Policy Division (Ministry of Finance) for 10 years and held the position of Senior Economist within the same Division. Dr Camilleri was mainly responsible for macroeconomic forecasting within the division and during his stay at the Economic Policy Division, Dr Camilleri was involved in the modelling and analysis of pension reform systems within the Maltese economy. Dr Camilleri holds a Master of Science degree in Econometrics awarded from Queen Mary and Westfield College (University of London) in 1999 and has been awarded the Degree of Doctor of Philosophy in Economics from City University (London) in 2015.
Ian P. Cassar
Ian P. Cassar
Dr. Ian P. Cassar is a Lecturer at the University of Malta within the department of Economics (Faculty of Economics, Management and Accountancy). His main teaching areas include introductory macroeconomics, intermediate macroeconomics, applied macroeconomics and mathematical economics. His research interests include input-output analysis, social accounting matrices, computable general equilibrium modelling, and the economics of tourism. He graduated with a Bachelor of Commerce (Hons) in Economics from the University of Malta in 2006. Subsequently in 2007 he obtained a Master of Science degree in Economics from the University of Edinburgh. In 2013 he was awarded a Ph.D. in Economics from Heriot-Watt University (Edinburgh). Over his period at Heriot-Watt University Dr. Cassar was also employed as a research assistant and was part of a team of economists who worked with BP plc to produce their “BP Statistical Review of World Energy”, one of the most widely respected and authoritative publications in the field of energy economics.
Dr. Cassar has also served as director of the Malta Statistical Authority and currently occupies the position of associate editor for Economics within the academic journal of Xjenza, which is the official journal of the Malta Chamber of Scientists.