The Governor of the Central Bank insisted today that Malta needs to narrow the difference between its rate of inflation and the average rate of inflation in the eurozone.
Speaking at a press conference during which he launched the Central Bank's annual report for 2009, Michael C. Bonello pointed out that Malta's wages were linked to inflation, and as a result, local wages were rising faster than competing countries, undermining competitiveness. At the same time, productivity was decreasing.
Furthermore, in a situation where the eurozone obviously had a common interest rate that was applied to all countries, having an inflation rate that was widely different from that of most of the other eurozone countries was also harmful to the country.
Mr Bonello in a presentation on the Maltese economy also pointed out that as a result of declining competitiveness, export growth was currently the third lowest in the EU.
He insisted that the focus of the Budget should not be on the distribution of wealth, but on the creation of value.
"We cannot go about distributing wealth we do not have," he said. The government's focus, therefore, should be on investment in productive activities, structural reforms to give it better control over its spending, a better business environment and further diversification of the export sector.
He said that the Central Bank's projections for this year pointed to GDP growth of 1.2 per cent, driven mainly by domestic demand. Inflation is expected to be 1.6 per cent, driven mainly by higher prices for energy and industrial goods. GDP contracted by 1.9 per cent last year.
"While the Maltese economy is on the road to recovery, this will be gradual and uneven,"Mr Bonello said.
"The ability to compete in external markets will depend on a more cost-effective use of human and physical resources, higher rates of investment and sustained efficiency gains in both the private and public sector. The achievement of these objectives entails difficult policy choices that can no longer be postponed."
The Central Bank last year made an operating profit of €58.6 million compared to €48.6 million in 2009.