Malta faces long-term sustainability challenges, Brussels says

26th February 2020 

In its latest Country Report, the European Commission notes that recent reform efforts in Malta helped encourage investment in important areas, however, several long-term structural challenges persist.

The European Commission said that among the long-term structural challenges that remained were the fiscal sustainability implications of ageing, low skills levels and governance vulnerabilities.

In addition, it added, demographic and economic growth were expected to put further pressure on Malta’s infrastructure and natural resources. In its opinion it was key that the island strengthened long-term resilience through innovation, improved infrastructure quality and took more steps towards a climate-neutral and environmentally sustainable economy.

Brussels is expecting economic growth in Malta to slow down, noting that the government was running fiscal surpluses although at a lower level than in previous years.

The banking sector remained healthy but was exposed to risks, the European Commission continued.

“Investing in innovation, natural resource management, skills and infrastructure are critical to sustaining Malta’s economic growth,” the report pointed out.

Brussels said that the composition of Government revenues could “dent” the fiscal position in the medium term. Furthermore, it warned that pubic finance would come under increasing pressure from the costs of ageing.

It cited economic evidence suggesting that the island’s tax rules were used for “aggressive tax planning purposes”. The European Commission particularly mentioned the absence of withholding taxes and the design of the investor-citizenship and investor-residence schemes, saying they were a cause for concern.

The Maltese economy, the Commission noted, remained vulnerable to money laundering risks.

The report also referred to the “unabated growth of residential house prices”, a tightening labour market, poor educational outcomes, higher risks of poverty faced by certain groups, increasing difficulties experienced by companies when accessing finance, and the limited role in the economy played by research and innovation, among other issues.

Brussels commented that it was still a challenge for Malta to strengthen the institutional capacity.

It highlighted the fact that EU funds and programmes contributed to addressing structural challenges in the Maltese economy.

On the positive side, Brussels noted that the economy in Malta kept growing faster than the EU average, supported by a thriving services sector. Inflation continued to be moderate and was expected to rise only gradually. Wage growth started to accelerate in 2018 and was expected to remain strong this year.

Malta’s current account surplus was among the highest in the EU and public finances were expected to remain in good shape in the coming years.

In a statement, the Government said the Country Report was another certificate of trust in Malta by foreign institutions. Although the document indicated areas where more work needed to be done, the main conclusion was that Malta was living a success and that the Government was implementing a plan that ensured more positive results for the country to move ahead.

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Malta faces long-term sustainability challenges, Brussels says