2010: Hopes for the economy, resentment over utility rates
As Malta begins the year in recession - the economy contracted for three successive quarters in 2009 - the government's main priority in 2010 is to create the conditions for economic growth and job creation.
Prime Minister Lawrence Gonzi said last year that he expects the country to exit the recession by the third quarter of this year - that would be almost a year after the eurozone as a whole exited the recession. This might seem a bit cautious on the part of Dr Gonzi, but that is probably his intention: Should Malta witness economic growth before the third quarter of 2010, it will be portrayed as the result of the government's sensible economic policies.
The government will be hoping that the measures announced in November's Budget for 2010 aimed at boosting economic growth and job creation through support for industry and small enterprises will materialise.
Of course, the international economic climate will have an impact on the speed of Malta's recovery. The government will be relying on the global situation continuing to improve and hoping that Britain - which is Malta's main tourism market - will get out of its recession.
Tourism remains a major challenge for the government this year. The MHRA has said it expects tourism to improve in 2010 after a bad year and Dr Gonzi will be trying to generate growth in this important pillar of the economy. However, the MHRA has already urged the government to reconsider the recent utility price hikes and the 50 cents per night per guest tax as of April. The MTA has been allotted additional funds for 2010 and new air routes are expected to be operational later on this year. Louis Farrugia, the new MTA chairman, enters office at a time when expectations are indeed high.
Keeping public finances in check is another challenge for the government. Finance Minister Tonio Fenech has projected a deficit of 3.9 per cent of GDP for 2010 and a figure of 3.8 per cent for 2009. However, the shortfall between recurrent revenue and total expenditure between January and November 2009 increased by €139.5 million to €410.5 million, so the government's targets will not be easy to reach.
Job creation is another important task for the government. In November 2009 the number of registered unemployed reached 7,588, an increase of 988 during the same month last year. So, while unemployment levels are nowhere as high as in some of our EU partners, the trend has been a cause for concern, and the government will no doubt be concentrating hard on getting additional foreign direct investment into Malta.
We can expect clashes between the government and unions and the private sector over the increased utility rates which took effect this month. Although the government announced a one-off subsidy for families this January to compensate for such increases, this is unlikely to satisfy at least one of the main trade unions, namely the GWU, and we could very well witness mass street protests. The tariff increases have also been criticised by the private sector, mainly the Chamber of Commerce and Industry and the GRTU, and we can expect both these organisations to remain critical of the government for some time.
The government will be keen to complete the privatisation process of the Malta Shipyards this year. Fourteen bids were received last year for the four different units that the shipyards have been divided into and preferred bidders have been selected for two of the facilities. It will be interesting to see just what the new buyers of the various shipyards units have in mind for their new investment.
The government will be under pressure to do something about the problem of the rise in the cost of living, something no administration in Malta has really managed to tackle.
The increase in the utility rates will obviously not help at all. However, the government will be hoping to a certain extent that the amendments to the competition laws will better enable its agencies to combat inflation. There are now to be two entities, an Office of Fair Competition, which will take the role of an authority, and an agency which will look more at consumer protection. The latter will be along the lines of the NECC during the transition to the euro. It will inform consumers, take initiatives to give consumers a fair deal and indentify those shops that give the best prices to consumers.
In its attempt to control inflation the government is also likely to focus on the fresh fruit and vegetables segment where prices are high compared to European prices.
We can expect SmartCity Malta to continue making the headlines, especially in view of Dubai's difficult financial situation and the fact that the project's first tenants are expected later this year, and a decision to be taken - if the global economy continues to improve - over the future direction of the Malta Stock Exchange. The government might even take a decision - again, if the international climate improves - over the sale of its remaining shares in Bank of Valletta.
There are bound to be more bond issues this year and last year's bond issues were all very successful as companies find it easier to raise capital from the public than from the banks. Discussions on the reform of Mepa are bound to continue and hopefully concrete results will be achieved this year.
Politically, it will not be an easy year for Prime Minister Lawrence Gonzi. This is the third year of the legislature and the one when most of the most difficult decisions will have to be taken. Whatever the government does in the following two years will always be influenced by the fact that the general election is around the corner. So Dr Gonzi will have to take some hard decisions in 2010 while keeping an eye on his restless backbench. This state of affairs, coupled with the new utility rates and a fragile economic situation presents quite a daunting challenge for Dr Gonzi.