Malta must react to Moody’s outlook with competitiveness, growth and change

The Malta Chamber of Commerce, Enterprise and Industry purposely held back from giving an immediate reaction to Moody’s assessment of the Maltese economy. It deemed it important to assess the report carefully and hold serious internal discussions within its various individual sections before commenting on the situation at hand. This process has now been carried out and the Malta Chamber believes it is well positioned to give its reasoned opinion.

It is time to bite the bullet and ditch archaic work practices- Tancred Tabone

Malta has clearly been affected by the severe negative economic international performance. Moody’s believe that our small and open economy remains vulnerable in the light of financial difficulties crippling other eurozone economies and trading partners. To us, this is clear. The country is not – and neither can it expect to be – isolated from the persisting international situation.

At the same time, it is also factual to state that the country has continued to generate growth over the last year or so, albeit at rates which are well under the economy’s true potential. A close examination of Malta’s recent pattern of growth shows that this was largely driven by financial services. This sector accounts for approximately 9,600 highly paid jobs, an increase of about 1,000 jobs since 2007. Employees in the sector have also benefited from this growth as salaries have been increasing at a faster pace than the rest of the economy.

The same cannot be said for the traditional sectors such as retail and manufacturing. These have lagged behind and although they are recovering, it is clear that they need to be more flexible to re-establish themselves as economic growth promoters. These traditional sectors are crucial to the Maltese economy and merit support to fulfil their true potential.

Indeed, during and ever since the global recession, the Malta Chamber has identified a number of bottlenecks to growth which continuously hinder our competitiveness and limit our chances of export-led growth. The country cannot expect to achieve sustainable growth unless we are able to recognise these deficiencies and make a concerted effort to put them right.

This is at the core of Moody’s assessment of our position. Moody’s primary concern for Malta lies with the sustainability of our growth forecasts. These are crucial because with them, rest the sustainability of our public finances. This, in turn, affects our social welfare, health and education structures – the affordability of which is often put into question. Moreover, if our growth projections fail to materialise, the country would not be in a position to sustain adequate investment in the infrastructure which is necessary to foster private initiative. This would risk leading the country into stagnation and into a dangerous vicious circle.

It is clear that policy measures aimed at increasing labour supply are required to bolster Malta’s capacity for growth. Increasing women’s participation in the labour market is an important ingredient. Malta’s female employment rates for those aged 20-49 stands at a modest 55 per cent, compared to the European average of 68 per cent. Some improvement was registered in recent years as a result of various budget measures. Nevertheless, further gains are needed to ensure that a larger proportion of the country’s worker stock is contributing to the nation’s growth through productive activity. At the same time, the country must ensure that it is generating a demand for enough jobs to absorb this increase in labour supply. The official forecasts of 2.5 per cent growth for the coming year would be insufficient to sustain a strong cohort of new entrants in the labour market.

But increasing the labour supply is only half the solution. It must be ensured that Malta’s new and existing human resources are more productive. It is time to bite the bullet and ditch archaic work practices wherever they exist. The country must not let internally-generated matters hamper our future growth prospects. Besides, we must also ensure that our wages are in tune with productivity.

The Malta Chamber, once again, stresses that growth must be placed at the forefront of the national decision-making process and this warning has now been echoed by a principal credit rating institution. We must go beyond rhetoric and political accusations and tackle the situation head-on. The next Budget discussions present a golden opportunity for all the social partners, including the government, to do just that.

Malta is in a vulnerable position because it has a small and open economy. But these same characteristics must be used to our advantage. Flexibility must be our main driver. If the social partners and political leaders can agree on the need for growth and promote this goal in their decisions, the Malta Chamber is confident that the country can continue to prevail even in a tough environment like the current one.

Mr Tabone is president of The Malta Chamber of Commerce, Enterprise and Industry.