Central Bank Governor Michael Bonello yesterday urged the social partners to restart talks on a social pact, especially in view of the prevailing international economic situation.
A last-ditch attempt to agree on a social pact fell through in November 2004 in the face of objections, particularly by the General Workers' Union, to some of the key points of the 22-measure economic plan proposed by Victor Scicluna, the then chairman of the Malta Council for Economic and Social Development (MCESD).
That had been a golden opportunity for unions, employers and the government to subscribe to a first-ever national agreement aimed at improving the country's productivity, competitiveness and general economic situation, Mr Bonello said.
Addressing a business breakfast organised by The Malta Business Weekly at Le Meridien St Julian's, Mr Bonello said the time was right for the social partners to resume discussions on a social pact, given the international situation.
"In today's circumstances, Malta cannot afford to be less competitive than other countries also in the eurozone and we have to do something about it as soon as we can. The social pact would be a good answer to this problem. This is an appeal to the social partners because we cannot continue to increase wages every time prices go up. We must find a way of striking a balance between compensation received by workers and their productivity," he said. In his presentation, during which he launched the Central Bank's annual report for last year, Mr Bonello gave an overview of the country's economic situation last year, adding his suggestions for improvement throughout this year.
According to the Central Bank's projections, the Gross Domestic Product in this year is expected to grow by 2.6 per cent as opposed to last year's 3.8 per cent. This, he said, is due to a projected decline in private consumption and, subsequently, a decrease in imports.
Moreover, the Central Bank is projecting an inflation rate of 3.7 per cent as opposed to the 3.1 per cent rate last year. Since last December, this rate continued to accelerate due to steady increases in food and energy prices, largely reflecting international price movements. This was compensated by a downward trend in unemployment and a growth in job vacancies. Malta's international competitiveness recorded a small improvement last year.
In 2003, Mr Bonello explained, the unit labour costs rose but productivity dipped. Since then, there has been a decline in labour costs but this still remained well above the eurozone.
When compared to Germany, unit labour costs in Malta increased dramatically last year when compensation went up by 23 per cent, compared to the increase of just three per cent in the productivity rate.
The contribution of net exports is forecast to improve, in part due to slower growth in imports, while the pace of investment and government consumption is projected to recover next year "if everyone makes an effort".
Looking at the way forward, Mr Bonello said price stability is a necessary condition for sustainable growth and job creation. The government must continue in the path of its objective of achieving a balanced budget by 2010.
"If we slip, we will have an increase in debt but this would damage Malta's reputation with regard to investment. It needs to continue channelling more resources from the public sector to the private sector and give due importance to cost containment, especially with regard to growth in wage and price levels since it would lead to a deterioration in competitiveness," he said.
Mr Bonello said Malta has to focus on better exploiting the benefits of being in the eurozone saying this is the only way to preserve and improve the welfare state and the social model.