Last week's contribution dealt with information published by the National Statistics Office on a number of economic indicators for the years 1995-2003. They point to a changing Maltese economy in line with international developments. Some of these changes were evidently for the better, while others were not.
Moreover it is equally evident that for the last nine years the change process has been very similar to a work-in-progress situation, and it is still so. This implies that we should expect further adjustments in the coming years. It is for this reason that we require consistency in the approach to this change.
The contribution of last week focused on labour. This week, it will focus on the external aspect of the Maltese economy: international trade, the balance of payments, the exchange rate and external reserves. The underlying feature in all this is that the Maltese economy is to a significant extent a very open economy. This high level of openness exposes firms operating in Malta to greater pressures to maintain competitiveness at an international level, which in turn requires us to adopt strategies that help firms maintain such competitiveness.
The data published by the NSO puts the level of competitiveness at 1.7 in 2003. This is computed by adding the exports of goods and services to the imports and dividing the resulting figure by the gross domestic product. The average for the period 1995 to 2003 is between 1.8 and 1.9. It stood at 2 in 1995 and hit a peak in 2003 at 2.2. In the other years it moved between the 1.8 and 1.9 level, hitting the lowest level of 1.7 in this period.
This implies that the increases we have experienced in our nominal gross domestic product over the last three years have been essentially due to an expansion in internal demand rather than an increase in the level of international trade that we have had.
The argument may be put in another way. The decreases that we have had in our real gross domestic product (that is, after accounting for inflation) have been mainly due to a decrease in the level of exporting and importing activity. Even so this still leaves the level of openness of our economy at a very significant level.
The data on the balance of payments provides further indications on the openness of the Maltese economy and its dependence on its ability to earn foreign exchange. The balance of trade of goods has always been in the negative in this country. It was between -Lm250 million and -Lm300 million during this nine-year period.
This shortfall was partly made up for by a net positive figure in the international trade of services. This immediately indicates that a liberalisation of trade in services worldwide would be of benefit to Malta, in the same way that trade in goods has been liberalised.
Net income from trade in services has moved between Lm135 million and Lm186 million during this nine-year period. It now stands at just under Lm162 million, and the underlying trend appears to be a positive one.
One positive figure in the balance of payments is net property income from abroad. In 2003, it stood at Lm15 million. On the other hand, net transfers from abroad show a negative figure for the last two years after seven years of positive figures. The end result is a negative current account balance. The figure for 2003 is very close to the average for the nine years leading up to 2003.
The negative balance on the current account of the balance of payments represents -5.9 per cent of the gross domestic product. In most years the figure was higher than this. Moreover it is about half what it was in 1995 and 1996; hence an important improvement over the years.
External reserves have continued to increase and in 2003 were around 85 per cent higher than they were in 1995. This is further accentuated by the fact that the current level of external reserves can sustain 7.3 months of imports while in 1995 it could sustain only five months of imports.
Data is also presented on the exchange rate of the Maltese lira against a number of currencies. During the nine years leading to 2003, there were a number of short-term currency movements. Over the long-term, the Maltese lira appreciated against the euro, the Japanese yen and the Swiss franc but depreciated against the pound sterling and the US dollar.
Movements in exchange rates are important because they can impact on the competitiveness of firms operating in Malta even though their costs may not have changed. Obviously in a number of years' time this could all become very academic as we come to form part of the euro, like most other members of the European Union.
Some may view the significant openness of the Maltese economy as a disadvantage, more so during this period of globalisation of most economic activities. However, as our economy has opened up, we have performed better and not worse.
There is no doubt that the fact that we have an open economy represents both opportunities and threats to Malta-based firms. There is also no doubt that our economic growth has to be export-led. It is therefore a case of exploiting fully the opportunities that arise from international trade. This can happen only if we adopt a pro-active approach to this change of our economy.
The proverb that time waits for no man is very apt in this circumstance.