calls for a specific buffer linked to the gap between provisions and npls. safeguarding fiscal stability by expanding growth … competitiveness is key economic and financial stability also require fiscal consolidation, so that the deficit progressively declines towards the fiscal compact target. the debt - to - gdp ratio is expected to reach a plateau and then start declining, as planned by the government. budget figures project the debt - to - gdp ratio at 73 % in 2013, along with a deficit ratio of 2. 7 %. an exit from the excessive deficit procedure is essential. bis central bankers ’ speeches indeed, the fiscal compact involves strict budgetary commitments and places limits on the government ’ s deficit. moreover, even in the absence of the obligations under the fiscal compact, public debt cannot be allowed to accumulate persistently as this could lead to unsustainable debt dynamics. gdp growth reduces the debt ratio first by automatically raising tax revenues and reducing government spending. second, it expands the denominator of the debt - to - gdp ratio. obviously, resolving fiscal excess through an expanding gdp is less painful. to sustain economic growth, the economy needs to offer products and services with high value added and at competitive prices. the alignment of wages and productivity is crucial for competitiveness, particularly at a time when neighbouring economies are undergoing an internal devaluation. because of this correction, unit labour costs in the stressed economies have plateaued and are now converging with those in the better performing countries ( refer to chart 4 ). while unit labour costs in malta have been lower than in other euro area countries, it is crucial to ensure that higher productivity supports wage growth, thereby safeguarding the country ’ s competitiveness. conclusion – malta as a regional hub in the recent past, our economy was able to attract sectors and niche markets, such as financial and business services, and the aviation maintenance sector. further investment promotion calls for continued efforts to identify new areas of growth, and to develop a labour force with the necessary skills and qualifications. the financial and other service sectors have been crucial for economic stability and growth. recent expansion in the financial services sector can serve as a springboard for further development in view of new opportunities in the mediterranean region. further diversification of the range of financial and other services will provide opportunities for malta to develop further as a regional hub for various activities. proficiency in the english language, a sound legal system, the high standards of the legal and accounting professions and the mantle of eu membership offer fertile ground for those

above example ). proponents of more government spending should also bear in mind that even in the absence of the euro adoption factor, malta would still have to abide by the stability and growth pact ( sgp ). you might recall that even the british government, which has no immediate plans to adopt the euro, was called to order by the eu council some time ago because of its growing budget deficit. then again, sound public finances are fundamentally a matter of economic common sense and prudence. so much so that in recent years there have been repeated calls on the government from all quarters to reduce the deficit and the public debt. is it not strange, therefore, that just when headway is finally being made in this very direction, we hear calls for a reversal of this policy and for engineering what would at best be a short - term boost to growth? one should also bear in mind that malta ’ s main challenge is to become more internationally competitive. in this respect, an increased fiscal deficit will not solve anything. malta needs quality growth, preferably resulting from foreign direct investment, which brings with it capital, technology and markets. and that kind of investment tends to go to countries with sound economic fundamentals, including a budget that is balanced over the course of the business cycle. more immediately, if we renege on the convergence programme targets, there would be a real risk of a drop in investor confidence. this is confirmed by recent developments in interest rates and in bond markets in central europe, where markets have started to punish countries who risk delaying euro adoption. it is indeed relevant to point out that malta ’ s current ‘ a ’ rating is predicated upon the continued pursuit of fiscal consolidation. there is an additional short - term gain from staying on course. as i have mentioned, fiscal restraint also helps to reduce the country ’ s external imbalance, and this, in turn, could allow a cut in the interest premium that investors require in order to hold maltese lira assets. this would mean lower interest rates. on balance, therefore, the outcome of a u - turn on fiscal policy is unlikely to be positive. 4. last year ’ s entry in erm ii has been described as hasty and premature. why the rush to join the euro? does it not rule out any possible adjustments to the value of the lira? one of the arguments made in support of this view is that our euro adoption calendar does not allow government to run a higher deficit and thus promote faster growth. i