While the deficit had been reduced from almost 10% of GDP in 2003 to 2.2% in 2007, it widened in the following two years and the latest projections, those of the EC, suggest that the shortfall will increase further to 4.3% this year, before declining to 3.6% in 2011. 9 These projections imply that the debt-to-GDP ratio in 2011 will stand at roughly the same level as in 2004, around 72%. These ratios are higher than those contained in the Government’s Stability Programme since the EC follows the “no policy change” rule and also because of differing macroeconomic assumptions. A credible fiscal consolidation strategy involves achieving a primary surplus that is sufficiently large to place the public debt on a stable, and eventually declining, path. For this purpose, additional measures beyond those announced in the latest Stability Programme would be required in order to comply with the recommendation under the Excessive Deficit Procedure to bring the deficit below 3% by next year. This accelerated consolidation is also necessary in view of the anticipated increase in spending on health care and pensions associated with an ageing population. Life expectancy in Malta in 2008 was 76 years and 81.1 years for men and women, respectively, and the population aged 65 or over as a proportion of the working age population is expected to rise progressively from 21.2% today to 59.1% in 2060. 10 Looking ahead, the ability of the economy to benefit from the incipient recovery in external demand through export growth hinges on its competitiveness.
Credit measures amount to some 15% of GDP, mainly around a medium-term liquidity facility to banks conditional on credit expansion. This provides 4-year loans at the 0.5% policy rate, conditional on growth in corporate and consumer lending, increasingly weighted towards SMEs. This has provided the liquidity match to a government scheme providing guarantees to working capital lending under favorable financial terms. c. Liquidity and other market-stabilizing measures add up to some 7% of GDP. These include a mediumto long-term asset purchases that also provide unconventional monetary policy tools. Page 2 of 3  Central Bank of Chile June 2020  d. The response of bank credit to the Central Bank’s FCIC and the government-funded FOGAPE guarantees has been largely positive. Corporate lending has been growing at 10% year-on-year over the last three months, making it the first case of countercyclical lending in recent history. e. In particular, banks have used liquidity to allow the drawdown of credit lines by corporations, 1.2 million rollover operations and 120,000 working capital loans with a SME share largely above historical averages. f.  Long-term interest rates have responded well to monetary policy decisions, forward guidance and non-conventional tools. After the June monetary policy meeting and the release of our Monetary Policy Report, 10-year bond rates dropped some 40 bp. g. Central Bank measures extend well beyond the immediate emergency and are likely to foster economic recovery once containment measures begin to roll back.