Evaluating Malta’s economic revival | PKF Malta

In order to arrive at the General Government sector’s positive balance for 2018, adjustments are made to the balance of the Government’s Consolidated Fund which in fact registered a deficit of €70.2 million – a decrease over the surplus of €182.7 million recorded in 2017


With only a few weeks to go for the European and local council elections, the government is doing its best to showcase its economic performance.

The Central Bank of Malta report lauds the administration for its stellar performance and provides statistics to back this assertion.

It’s main line of contention is the achievement of a modest surplus which has surfaced in the past three years compared with chronic deficits in the previous 30 years.

This surplus peaked in 2017 at €387.2 and has slowed down to €250.8 in 2018. The surplus is calculated as the difference between total revenue €4,783.2 million and expenditure €4,532.4 million of General Government.

One may laud the administration in its policy of fiscal control which over the past six years has seen debt as a share of gross domestic product continue to decline. This peaked at 72% in 2012 and has now eased to 46%.

One needs to explain that according to the Maastricht Treaty, the gross nominal consolidated debt should not exceed 60% of GDP otherwise an excessive deficit mechanism status will be triggered and laggards have to suffer punitive fines until the situation is regularised.

In September 2018, the stock of general government debt amounted to €5,512.0 million, down by €234.8 million when compared with June 2018. This was largely due to a €233.1 million decrease in the stock of long-term securities.

Comparing 2018 over 2017, total revenue increased by €353.8 million, while total expenditure increased by €490.2 million. One notes that the decrease in general government debt was more pronounced than the surplus recorded in 2018 which as stated earlier had decreased from the record level achieved in 2017.

In order to arrive at the General Government sector’s positive balance for 2018, adjustments are made to the balance of the Government’s Consolidated Fund which in fact registered a deficit of €70.2 million – a decrease over the surplus of €182.7 million recorded in 2017.

One can explain this situation as follows.

This positive change is attributed to the accrual basis of accounting demanded under the Brussels rule, in which case accounting for the full proceeds (not the statutory 30% portion) from Investment and Passport scheme.

Obviously, this is a contributing factor which one expects to be of a temporary nature given the constant pressure from the Opposition to stop it.

Having briefly visited the salient economic achievements of our economy, one may ask how this growth compares with other countries which have also leaped ahead of the curve.

The first champion in the group of ex-Communist countries is Poland. It is the 8th biggest economy in the European Union. The country’s industrial base combines coal, textile, chemical, machinery, iron, and steel sectors and has expanded more recently to include fertilisers, petrochemicals, machine tools, electrical machinery, electronics, cars and shipbuilding.

Since 1989, it has increased its GDP per capita by almost 150%, more than any other country on the continent. Since 1995, it has also become the fastest-growing large economy in the world beating even the Asian tigers such as South Korea, Singapore and Taiwan.

Poland’s ongoing GDP growth performance is reaching 5% in 2018 and a projected 3.5-4% growth in 2019 and 2020. Other economic athletes are Czechia and Slovakia. These pose an unsmiling challenge to Malta’s own performance.

In fact, only 1.5% of young employed Czechs and 3.8% of young employed Slovaks were at risk of poverty in 2017.  In the Czechia, the at-risk-of-poverty rate among young employed people reached a peak of 5.2% in 2012, and the following year in Slovakia (6.1%).  As of January 2019, the unemployment rate in the Czechia was the lowest in the EU at 1.9%.

This compares with the rate in Malta of 3.5% in the fourth quarter of 2018.  One is surprised to read that Norway’s unemployment rate matches that of Malta at 3.8% but hit a record low of 2.4% in 2007.

An Asian champion is Singapore. This country is reputed to thrive on latest innovation and regularly funds start-ups and its SME’s to reach higher rates of economic success. It is no exaggeration, that its stellar growth is the envy of many EU countries and Malta could do well to learn some lessons from its commercial acumen.

Singapore’s seasonally adjusted unemployment rate stood at 2.2% in the first quarter 2019. It remained the highest jobless rate since the second quarter of 2017, amid signs of external economic headwinds and uncertainties in 2019.

Moving on, we meet the success of Japan where its jobless rate increased to 2.5% in March 2019 from a five-month low of 2.3%.

Having seen the picture of economic successes registered by competing countries, one cannot rest on our laurels even though it appears that Malta has started the righteous path to a stable recovery.

Our industry is still suffering from low technology and the country needs to double its contribution towards innovation and training of its workers to meet the exigencies of the so-called 4th industrial revolution.  Having said that, one lauds the government’s debt strategy. This ensures that the financing needs of the public sector are met at the lowest possible costs and that its debt service payment obligations are met in a timely manner.

The other positive aspect is that the debt levels (mostly local government stocks and bonds) remain sustainable while simultaneously minimising interest rate risk.

The cost of servicing debt is gradually diminishing yet one cannot overlook the fact that there is no sinking fund to repay such bonds. Reducing debt by a primary surplus, depends solely on the turnout of higher exports and the continued flow of proceeds from the IIP scheme. Quoting the Central Bank reports, it states that both components are expected to mitigate the upward pressure that interest expenditure once the build-up of debt recedes.

One appreciates the pressure on government to think out of the box in order to maintain economic growth and achieve its social responsibility to improve the well-being of citizens. More funding is needed to provide affordable social houses given the recent meteoric rise of property prices (this exceeds that of Hong Kong) and government aid to address the creeping cost of living for the low-income groups and pensioners.

Otherwise, the isle of milk and honey can aspire to move forward to meet its quest in reaching the top position as one of the gifted economic achievers.

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