With practically all indicators showing an excellent performance, there is good reason for Malta to feel satisfied at the rate of economic progress being made. A recent credit rating agency report does speak of some challenges ahead but overall, the country is doing well and the projections point to steady growth.
A Canadian agency, DBRS, as well as Moody’s, have both upgraded Malta’s credit rating.
DBRS said the economy continued to surprise and remained one of the top performers in the euro area. With a 6.4 per cent average gross domestic product growth in the period 2013 to 2017, triple the 2.1 per cent average rate in 2004-2012, it described performance as remarkable.
Quite often, however, government politicians tend to look only at the bright side of the picture, preferring to win political kudos for their government rather than going into any possible challenges facing the country. Indeed, some may give the impression the country is invulnerable.
The truth is different and it would be better if a more critical assessment were to be made from time to time to ensure that the country does not fall into a complacency mode. As the agency has said, Malta’s small and open economy, with some sectors, such as tourism, highly dependent on foreign demand, exposes the country to external developments.
As other agencies have done over the years, DBRS points to pressures from rising age-related costs, which, if unaddressed, could pose a concern for the pension and healthcare system.
Tourism is breaking new records but, as it is quite evident, there is a limit to the number of visitors the island can attract without causing further infrastructural pressures. It would be wiser if the country were to concentrate on attracting higher-spending tourists.
Construction is booming, with its multiplier effect greasing many other small sectors of the economy.
The financial and iGaming sectors are doing well too and, from the revenue raised through the sale of passports, the government is ostensibly also saving up for a rainy day. This is a good move but it would be wiser if the country were to concentrate on trying to diversify further the economic base so it would be in a better position to cushion the impact of any possible adverse circumstances on particular sectors.
The government has been far too slow in moving in this direction. A cash cow like the sale of Maltese passports, over which the government is spending so much time and effort in sustaining and expanding, may be considered very convenient but, even in this case, there is a limit on how much the programme can be extended. This is besides the huge problem it has spawned through the rise in house and rental prices, which has created a social problem that has yet to be tackled.
DBRS brings up other challenges, such as the disproportionate impact possible changes to international taxation could have on the country.
In the agency’s view, downside risks to the outlook largely stemmed from a downturn in Malta’s main export markets and policy uncertainties related to the post-Brexit arrangement and US policymaking.
Unsurprisingly, it also raises the need for further governance improvements. Lack of good governance is definitely one area where the government’s record has so far been abysmal.
This is a Times of Malta print editorial