When an agency like Moody’s downgrades the debt rating of a country it is inevitable that a political debate erupts with the government and the opposition giving different interpretations on the causes and effects of such a move. The sobering reality check that Moody’s made about the Maltese economy and its decision to downgrade the debt rating by one notch should motivate the political parties to avoid partisan bickering and instead engage in a meaningful debate on how best to improve things.

The causes behind Moody’s downgrade decision are clear enough: sluggish international economic growth pros­pects that limit the Maltese economy’s likelihood of growth; weak debt metrics and insufficient economic growth that failed to meet the country’s own optimistic targets when it joined the EMU; and significantly high debt levels that amount to 80 per cent of GDP “when Malta’s guaranteed debt is added to the total of actual debt”. It is wrong to interpret these factors as being solely the result of external economic weaknesses that inevitably affect a small open economy like that of Malta. Undoubtedly, a slowdown in economic activity in the markets where we sell our goods and services has a massive effect on the economy. But there are other factors that can affect economic prospects and that are strictly within Malta’s control.

The medium- and long-term sustainability of public finances has often been questioned not just by the rating agencies but also by the European Commission and the IMF. It is evident to any clinical economic observer that the country’s “free” health and educational systems are not being financed adequately. The less generous pensions’ system is neither sufficient nor sustainable in the long-term. Social security provides some support to those in need but may also be discouraging some people from seeking gainful employment rather than depend on government handouts.

So far, neither the government nor the opposition have spelled out their detailed plans on how they are going to address these weaknesses in public finances. Repeating the mantra that health and education will remain free for the foreseeable future is no substitute for a sensible strategy that shows how this can be achieved.

Another area that Moody’s has highlighted as a matter of concern for future economic growth prospects is the deterioration of Malta’s competitiveness that is behind the fall in productive private investment in the last few years. Needless bureaucracy, the high cost of energy services provided by government corporations and low levels of educational attainment are still a threat to future economic growth, especially as other countries that joined the EU with Malta, like the Czech Republic and Estonia, are proving to be more attractive to potential foreign investors.

As this country approaches another electoral test in a year’s time or so, the risk of sweeping these debilitating issues under the carpet is significant. So is the pressure to increase the wage bill of the public sector as a new collective agreement comes up for review. But sanitising economic management is a long-term task that must not be hindered by short-term measures of political expediency.

The responsibility for putting things rights falls squarely on the shoulders of the political leaders whether they sit on the government or opposition benches. Moody’s has made a sobering reality check on the country’s economy. It is now up to the politicians to compete on how best to put things right by adopting the most sensible economic strategy. That is done through serious debate not rhetoric or scaremongering.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.