Malta needs to complete its pension reform as soon as possible, and to continue with its programme of consolidating its public finances with a particular emphasis on reducing its debt levels.
The accomplishment of these important challenges, according to the EU, will guarantee the sustainability of the country's public finances. These are the main two conclusions from a report approved last week by the European Commission analysing the 25 member states' public finances and their long-term projections.
According to its analysis, the Commission classified Malta as being in the medium risk category. The report divides EU member states into three categories with regard to the risk to the sustainability of their public finances in the long term. These categories are based on their current budgetary position and the projected increase in age-related costs.
According to this classification, Malta is joined by another nine member states, including large states like Germany and the UK. The worst performing countries placed in the high-risk category are the Czech Republic, Cyprus, Greece, Hungary, Portugal and Slovenia.
The Commission's report penned by the directorate-general for economic and financial affairs shows that the projected increase in age-related spending in Malta is well below the EU average, rising by only 0.3 per cent of GDP between 2004 and 2050.
"This is mainly due to a projected fall in public expenditure on pensions by 0.4 per cent of GDP, as a result of the specific design of the Maltese pensions system which, in effect, puts a cap on the level of both pensions and contributions, which are projected to fall as a share of GDP between the 2020s and 2050. The increase of expenditure in healthcare is projected to be 1.8 per cent of GDP, close to the average of the EU, while on long-term care and increase of 0.6 percentage points of GDP is projected, below the average in the EU."
According to the report, on the basis of the current budgetary position and the projected budgetary changes over the long term, Malta does not have a sustainability gap and the long term budgetary impact of aging is close to zero (0.3 per cent of GDP) and is the third lowest in the EU, influenced notably by the design of the pension system. However, the EU still emphasises that Malta needs to reduce its current debt levels.
"Ensuring a reduction of debt to below the 60 per cent of GDP reference value at a satisfactory pace is necessary so as to strengthen the resilience of the public finances to adverse shocks and to reduce risks to public finance sustainability."
Noting that the pension reform announced by the Government earlier this year has not been enacted, the Commission states that this is one of the main keys to assure a reduction in risks to the sustainability of public finances.
According to statistics accompanying the report, Malta's population is set to rise to half a million by the middle of the century with 40 per cent of the population aged over 65. Life expectancy in 2050 is projected to reach 81.8 years for men, from the current 76.2, and 85 years for women from the current 80.7.