Malta in 2020 and beyond
The Malta economy continues to register good results, but several weaknesses and challenges became more evident in 2019 which should impact the economy in the near future.
The highs and lows of 2019
Throughout 2019, the Maltese economy grew at a fast pace and topped the European tables of economic growth in the European Union. In addition, the economy continued to operate at close to full employment with a resulting low unemployment rate. Public finances remained strong with a substantial fiscal surplus being registered. Also, a number of investment programmes and projects were launched both by the government and in the private sector confirming Malta’s economic health. This was further confirmed by a redistributive national budget which placed social investments primarily on fixed and low-income earners. However, several key challenges and weaknesses were highlighted throughout 2019. Institutional weaknesses were highlighted especially through the flagging of critical issues by international agencies such as MONEYVAL and the Venice Commission. These reports, through not economic in nature, highlighted critical areas and weaknesses, which if not addressed, would weaken Malta’s economic attractiveness in the years to come. The political and institutional crisis towards the end of the year amplified these concerns. Also, the further downsizing of US Dollar correspondent facilities is also a key challenge that became evident in 2019. Failure to rectify the situation will jeoperdise Malta’s standing as an international trading and financial hub in the region. Finally, weaknesses emanating from Malta’s fast growth are also becoming evident particularly upward pressures on wages, limited human resources and increased property prices.
Economic trends for 2020
Economic issues and trends that will impact the Maltese economy in 2020 and the decade to come are varied and emanate from various sources. However, for ease of identification and analysis the main issues or trends are categorised as either external or internal.
- Global economy – various indicators and global agencies are pointing to a gradual slow-down and possible global recession. Being a small open economy and highly vulnerable to global economic movements, Malta’s economy can be negatively impacted by a global economic recession
- Brexit – Apart from the direct economic and tourism effects from Brexit, Malta will be losing a strategic partner at the European Council which might also negatively influence the islands’ alliances within the European context
- Global US dollar de-risking – various global banks that used to provide US Dollar correspondent facilities have embarked on a de-risking policy. This has impacted various Malta banks limiting the availability of US dollar banking facilities
- Regulatory changes – Changes in regulations can impact directly various economic sectors in Malta. The gaming sector has seen several such changes in various European countries which diluted the attractiveness of the Malta license
- Reputation – Malta’s reputation has been hit following the various allegations that surfaced throughout the past few weeks. This might negatively impact investor perceptions towards Malta
- Compliance & regulations – following various international agency reports such as MONEYVAL, Malta requires to embark on a reform and institutional strengthening exercise and which might influence the performance of several key sectors including financial services
- Institutions – Malta requires a new institutional order based on a revamped constitution in order to make its institutional back-bone future-proof and robust enough for the new ever-changing environment it operates in
- Banking – the local banking sector is under considerable stress with limited dollar capacity and de-risking processes underway. This might also impact the development of various ecosystems and the attractiveness for international business
- Property prices – the steep increase in property prices and rental might also be a limiting factor for foreign workers and might also result in wage pressures
- Ageing population – Malta continues to have an ageing population and this is expected to put more strain on our social security and welfare systems
- Resources – Malta has a limited talent pool and this explains the surge in international workers moving to Malta. Further efforts in educational attainment, especially in reducing early school leaver rates is necessary
- Infrastructure – the fast development has heightened the limits of Malta’s infrastructure and in order to remain attractive, Malta needs to invest in reinforcing its infrastructure
- Environment – following the boom in construction, Malta’s environment has been major casualty and it is now time to focus on protecting the environment whilst focusing on regeneration
- Research – the future economy is going to be determined very much by a country’s ability to invest and promote research & innovation ecosystems. Malta lags behind in this aspect and policy measures need to be directed towards them.
Focus areas to strengthen the economy
Although there are varies elements that require focus, I believe that the unifying theme or dimension that captures everything is the need to think in terms of ecosystems and not silos. This is the age of connectedness and even policy making and investments need to be connected to each other to ensure that synergies are exploited. Also, there needs to be a growing realisation that the success of any economic sector depends not only innovative laws or regulations, but on the robustness and deepness of its supporting ecosystems. Therefore, economic success depends on the availability of finance, banking solutions, human talent, institutions and infrastructure. I believe that our capacity to create new ecosystems has weakened. This needs a coordinated approach to policy-making which is both strategic and tactical in nature. Before being launched, new economic sectors need to be seen whether they have the supporting environment to develop and thrive. I believe that there are various initiatives and elements in place however more coordination between them is required.
There are many elements contributing to a heightened risk outlook for Malta’s economy. The current political economy will impact the Maltese economy through a number of channels but mainly through uncertainty which will also be the initial impact though reputational damage might also reduce Malta’s international attractiveness. The interplay of these forces has increased Malta’s risk outlook, primarily on the negative side, however, this notwithstanding the economy is still expected to perform well, albeit at a slower pace than that registered over the past couple of years.