For most people an independent report about the Maltese economy does not stir any emotions. They feel detached from the cryptic statistics on GDP growth, default rates, and employment levels. What really matters is how much money they have in our pockets or tucked somewhere safe.
The most recent IMF report gave a very fair view of what is happening in the real Maltese economy. It acknowledges the successes and warns about possible threats that may undermine future economic growth and wealth creation. It is remarkable that the Maltese economy in not unlike a bride over the troubled water that surrounds us.
The almost total collapse of law and order in Libya that has always been an important trading partner for Malta, the crush of the rouble and the Russian economy that is badly affecting other eurozone economies, and the renewed concern about debt default in Greece are just some of the threats that are undermining economic growth in Europe. Yet the Maltese economy continues to grow at significant rates, thanks mainly to some sectors performing well and ongoing investment projects and strong private consumption. Inflation – a major problem in the past as it regularly overshot the eurozone average – also seems to be subdued.
But the IMF report warns against complacency. It lists very graphically the main areas that need to be addressed with more determination. The reduction of public debt remains a top priority. Realistically public debt is unlikely to be reduced in absolute terms but can be reduced in relative terms if the economy continues to grow in a sustainable way. Depending on public investment projects and private consumption may not be the best guarantee for sustainable growth.
The launching of important infrastructure projects have instilled a new breath of life in the local economy
Pensions and healthcare reforms are other bees in the bonnets of the IMF officials who review the Maltese economy. At some stage the government will have to bite the bullet and introduce the second pillar of pensions reform even if now may not be the right time to do this because it could destabilise the employment market.
Perhaps even more daunting is the public health challenge. Free public health services from the cradle to the grave are a remarkable achievement of past administrations, but they will become unsustainable unless bold decisions are taken to ensure that income and expenditure in the health sector balance out.
I believe that the best strategy would be one where a national health insurance scheme is introduced that would cover everyone and where those who can afford to obtain such cover do so, while those who are vulnerable are exempt from payment of premiums.
Our free health system is in fact only free at the point of delivery. We all contribute with our taxes to support this system but the demand for other public services like education often crowds out financing to our hospitals and health centres. Cost-saving tactics are important but our health system needs proper financing if it is to remain, as it should, free for all at the point of delivery.
Non-performing loans are another issue that affects the competitiveness of our financial services. Entrepreneurs need to take on more risk if they want cheaper financing because in life nothing is free or even cheap – certainly not high-risk lending by financial institutions. Law reforms, as rightly pointed out by the IMF, need to include systems that will help creditors recover their money rather than have to wait for long legal processes that discourage the mobilisation of money from savers to borrowers.
We also need to have good contingency plans in case the geopolitical turmoil that has characterised 2014 becomes more troublesome. Weak political leadership in the eurozone, the belligerence of the Russian leadership, the sudden drop in oil prices, the endemic high unemployment in most EU countries, and underemployment in others including Malta, are just some reasons while more troubled water may pass under our bridge.
In 2014, Malta achieved considerable successes. The restructuring of our energy utility that has brought the cost of electricity to more reasonable levels for both households and industry, the control of the fiscal deficit, and the launching of important infrastructural projects have instilled a new breath of life in the local economy. But there is considerable unfinished business.
The more important aspects of the welfare state are worth preserving as long as we do not harbour any illusions that these social benefits are a birth right that the government must guarantee to all people.
johncassarwhite@yahoo.com