While Malta’s external sustainability has improved, access to alternative sources of finance for SMEs is still limited and competitiveness can further benefit from the removal of structural bottlenecks, the European Commission’s country specific report for Malta states.

The report says that the emergence of export-oriented services has boosted net external trade, resulting in a surplus in the current account balance.

It says that the public debt ratio is lower than the euro area average and approaching the 60 per cent-of-GDP threshold, but the sustainability of public finances remains a challenge in the long run.

It says there is still untapped potential in the labour market to foster economic growth, notes that Malta has one of the lowest unemployment rates in Europe but says that activity rates continue to be among the lowest in the EU, particularly among women.

“The supply of skills has not fully adjusted to labour market requirements. To offset this, reliance on supply of skills through foreign labour has increased in recent years.

“The authorities have been investing significantly in the education and training system in recent years. This notwithstanding, education and training outcomes are still below targets, perpetuating the low skills levels in the population.”

The report notes that access to alternative sources of finance for SMEs is still limited with SMEs relying heavily on debt financing, with implications for the firm indebtedness in the economy. However, SMEs benefitted from a better financing environment than many EU peers.

On competitiveness, the report says that this could further benefit from the removal of structural bottlenecks in network industries and the public administration.

“The authorities aim to diversify the energy mix and bring an end to oil dependency in electricity generation.

“The reform, however, has yet to be finalised. Import dependency will remain a challenge in the absence of more focused efforts on boosting domestic production of renewable energy and raising energy efficiency,” it says.

It notes that the transport system continues to be characterised by high economic costs caused by significant road traffic congestion.

“The authorities have yet to present their strategy to tackle the issue.

“The low efficiency of government administration and of the judicial system continues to pose challenges to Malta’s attractiveness to investors.”

The report also notes that apart from one-off projects, investment was muted reflecting structural changes in the economy and bottlenecks.

The report in full may be read in the pdf link below.