Government ministers waste no opportunity to “welcome” any positive economic indicator that comes from the National Office of Statistics or from Brussels. Nothing strange in that as every administration is inclined to do the same to keep its political fortunes up but it is well not to ignore disquieting signs that may develop into problems unless they are addressed in time.
News from the NSO that the gross domestic product in the first quarter this year rose by four per cent conforms to the positive trend in the performance of the economy. But there are other figures that are far from “welcome”.
What particularly stand out are the drop in manufacturing, by six per cent, and the decrease in gross fixed capital formation, down by €65.9 million in nominal prices and by 18.3 per cent in real terms.
The NSO also reports that real exports and real import decreased.
Particularly worrying, unless this is explained by circumstances that are not yet immediately apparent, is the drop in gross fixed capital formation in machinery and equipment, down by €32.9 million. What does this represent?
The Finance Ministry did not go into this when it “welcomed” the NSO figures on the GDP growth . The ministry stuck to the trend, saying, for example, that it expected the strong economic growth to be kept up throughout the rest of the year. It is good news to learn from the ministry that “the strong momentum exhibited by the Maltese economy during 2013 and 2014 is set to continue during this year”.
Sounding very much like patting itself on the back, the ministry points out that the growth “was even more remarkable when compared with an average growth of one per cent registered in the euro area for the same period”. Like the ministry, the European Commission believes that economic growth is expected to remain robust but in its most recent report for Malta it also highlighted matters that need attention.
It remarks, for example, that despite improvements, Malta’s competitiveness continues to be hampered by structural challenges in the business environment and innovation framework. The length of public procurement procedures had been reduced considerably but still remained somewhat above average for the EU.
It even brings up the situation at the law courts, pointing out that the reform in the judiciary “has yet to adequately tackle inefficiencies in the system”.
While, seemingly quite justifiably, the government boasts that it is bringing down the deficit in its finances, it does not mean that there are no remaining problems to be overcome. The Commission makes it clear that “challenges remain with regard to the quality and sustainability of public finances”. It finds, for instance, that the tangible impact of the ongoing measures to improve tax compliance and fight tax evasion are not yet clear and the pace is slow, notably on the merger of the tax departments. Why is this taking so long?
When, for months on end, the government has been talking so much about the work it has done to cut bureaucracy, it is painful to find that the situation is not exactly as it should be.
Despite some policy measures, says the Commission, structural features continue to hinder the friendliness of the business environment. “A burdensome administration, slow public procurement proceedings and an inefficient judiciary continue to represent challenges to Malta’s attractiveness for foreign investors.”
The biggest threat to continued progress is complacency, something the government will have to guard against at all costs.