Brussels has once again highlighted the “slow” implementation of pension reforms in Malta, identifying the issue as one that may have repercussions on the long-term sustainability of public finances.
In its Annual Growth Survey for 2014, which initiates the EU’s cycle of economic surveillance of euro area member states, the EU executive once again insisted that pensions and health are two main problematic areas of the Mal-tese economy.
“The sustainability of Malta’s public finances in the long-term remains challenging as projected growth in age-related expenditure remains well above the EU average,” the Commission stated.
“Regarding the reform of the pension system, the ongoing increases in retirement age are too gradual and not linked to life expectancy.”
According to the Government’s plans, Malta is planning to offset this problem through other measures, such as raising the employment rate of women and older workers. But the Commission is not convinced by this strategy, stating that a long-term response is still missing.
The ongoing increases in retirement age are too gradual and not linked to life expectancy
On healthcare – another hole identified by Brussels in the Maltese public finances – the EU executive said that the authorities are putting in place a number of measures to improve the adequacy of the system, “but their financial impact is unclear”.
Brussels has been harping on about the need for major reforms in Maltese pensions and healthcare for a number of years.
However, both the previous government and the current one have so far played down the urgency of these reforms.
In its report on Malta’s priorities in 2014, the Commission also mentioned the need for the authorities to revise two banking regulations that deal with loan-loss provisioning and concentration risk.
Although, according to Brussels, draft regulations are still in the process of discussion, “initial deadlines were already missed.”
It acknowledged that some progress had been made in addressing macroeconomic im-balances arising from the significant exposure of the financial sector to the property market, as “a number of indicators con-tinue to exceed their indic-ative thresholds”.
One particular area, which the Commission had already raised last year, is loan-loss provisioning policies in the banking sector “in view of the continued increase in non-performing loans in the first half of 2013”.
The housing market appears to have stabilised, but it “continues to warrant monitoring given the interlinkages with the domestic banking sector”.
Following the introduction of new EU rules, member states had from this year also submitted their draft domestic budgets for the Commis-sion’s scrutiny.
The Commission is expected to come out with its conclusions in the coming days.