The Central Bank quarterly reports on the performance of the Maltese economy are closely watched by economists as well as politicians who, from different perspectives, try to interpret what the clinical economic figures say as well as reading between the lines of the narrative.
The latest CBM report for the third quarter of 2016 confirmed that the Maltese economy grew by three per cent – double the EU average. Similarly inflation is on the increase while unemployment is well under the EU average. This is all good news. But economists with their feet firmly on the ground need to ask some questions to see whether the long-term economic prospects are just as good as the current short-term figures indicate.
Malta’s economic growth in the last few years has been driven mainly by the services sector and by property development, with manufacturing continuing its slow but sure decline. Admittedly, some new investment in manufacturing, like the new banknote printing project part of which is guaranteed by government, shows that there is still space for manufacturing investment.
Malta’s low-tax regime is possibly the most important competitive advantage that has attracted investment in financial services as well as the electronic gaming sector. The knock-on effect of the rapid growth in these sectors has meant that the benefits of this investment has cascaded to other sectors like the renting and sale of property, as well as other services especially in the hospitality industry.
What worries some economic analysts is whether Malta can maintain its low tax regime for long when some other major EU member states are labelling Malta’s tax system as ‘unfair’. Another issue is the degree of scrutiny that is being undertaken when new investment in Malta is approved by regulators as well as banks. Recent high-profile allegations of financial crime abuse by some companies based in Malta are a cause of concern for many honest operators in the services sector.
The CBM report also gives some socio-economic indications of how the Maltese are spending their money. This is important as international organisations like the IMF and rating agencies have been warning that Malta needs to address its slow burning issues relating to a free healthcare system, free education, and insufficient progress in pensions’ reform.
Private consumption is an important factor behind good economic growth. Last year the Maltese spent more on ‘clothing, housing, utilities and health’. It is difficult to decide whether such growth is an indication that the cultural changes that the country needs to overcome the long-term challenges mentioned earlier are beginning to be addressed, at least by ordinary people if not by government. Malta has one of the highest home ownership statistics in Europe. This is indeed encouraging. It also seems that with improved income more people are resorting to private health care as the stress on the public health system is increasing.
What the latest CBM report does not tell us is whether the government’s long-term strategy for free education, free healthcare especially for the elderly, and the sustainability of an adequate pension systems are being underpinned by robust financing models. Similarly, the CBM report says little on how effective the measures are to protect Malta’s reputation as a respectable financial centre.
It is when an economy is performing well that true statesmen address long-term socio-economic issues that will affect people’s lives in the next decade or the one after. This is what really matters in the long-term.