Malta Finance Minis­ter’s Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
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Malta continues to be one of the best economic performers in Europe. Growth remains robust, with real GDP expanding by 6.7% in 2018, only marginally below the rate of growth recorded in 2017. Growth was largely driven by private consumption, while imports outpaced the growth in exports. From a sectoral perspective, services – notably remote gaming, professional and business services, and tourism – expanded robustly. Activity in the construction and real estate sectors accelerated, whereas the manufacturing sector continued to expand briskly.

The labour market remained buoyant. Employment grew by over 5%, while the unemployment rate fell further to 3.7%, one of the lowest rates in Europe. Increased participation rates and continued inflows of foreign workers mitigated labour supply constraints arising from population ageing, which dampened upward wage pressures. Although wages increased slightly more rapidly than productivity, growth in unit labour costs, at 0.8%, remained contained. Price pressures continued to pick up during the year, driven principally by services. The annual rate of inflation accelerated from 1.3% in 2017 to 1.7% in 2018, though this still remains below the Eurosystem's target.

Against this backdrop, the budget recorded a surplus for the third year in a row, with a positive balance of 2.0% of GDP. A primary surplus, falling interest expenditures and rapid nominal GDP growth led to a further reduction in the general government debt to 46.0% of GDP. Malta also registered a positive external balance, with the current account of the balance of payments running a surplus, largely reflecting robust exports of services.

Economic growth is projected to moderate gradually to 5% by 2022. Over the coming years, the government will continue to target a budget surplus and further reductions in government debt to 33%. This implies that the government has recovered sufficient space to be able to use fiscal policy as a countercyclical tool when needed. This is particularly important given that Malta should not rely on monetary policy to cushion adverse idiosyncratic shocks.

Rapid economic growth has given rise to challenges with respect to Malta's infrastructure, notably in transport and waste management. At the same time, the influx of foreign workers and strong growth in tourism making use of private accommodation services has added pressure in the housing market. The government's fiscal plan aims at addressing these issues, as well as challenges related to skill shortages. In line with developments across Europe, combating tax evasion and money laundering is also very high on the government's agenda.

From an institutional perspective, the Government of Malta is implementing measures to reform the judicial system. It is also enacting reforms to address recommendations made by the Council of Europe's Venice Commission.

The Maltese government is also concerned about the rise in protectionist sentiment worldwide, which is already having a negative impact on global trade and growth. This presents a downside risk to Malta's prosperity, given its high degree of openness, although a diversified production and export base makes Malta more resilient to such risks.