Brussels warned that the current economic growth registered by Malta needs to be accompanied by substantial reforms if it is to remain sustainable over the long-term.
Identifying key challenges in its annual assessment of Malta’s economic and social performance, the European Commission insisted on real progress needed to tackle reputational problems connected to corruption and money laundering, shortfalls in skills, labour and education attainment levels and in-creased investment in infrastructure and the environment.
Noting that despite its recommendations last year that the island needs to strengthen its governance framework and tackle healthcare spending and pension reforms, the EU’s assessment notes that there has been limited progress on all fronts.
“Regarding the governance framework, some steps have been taken to strengthen financial supervision and anti-money laundering enforcement, but shortcomings in the anti-corruption framework persist,” the Commission noted.
“Efforts to ensure that the healthcare and pension systems are sustainable remain limited,” it added.
Acknowledging Malta’s strong economic performance in 2018, with GDP levels expected to rise by 6.2 per cent, the Commission highlighted various risks which the same growth can be producing particularly if the government does not take timely action.
“Risks to Malta’s future growth and attractiveness to potential investors include infrastructural bottlenecks, constraints on natural resources, low skill levels, an aging population and vulnerabilities in the governance framework.”
On corruption and the prevention of Malta being used for money laundering purposes, the Commission made it clear that it is expecting much more from the island.
Stating that recent investigations have revealed shortcomings in Malta’s anti-money laundering enforcement, the Commission said that “ensuring higher standards of anti-money laundering supervision and actual enforcement remains a challenge”.
According to the Commission, Malta has a growing reliance on service sectors that are considered particularly vulnerable to money laundering practices.
Emphasising particularly that despite the legislation, “sanctions are rarely imposed”, the Commission noted that while Malta is making improvements, “the size of the challenges requires particularly high standards of anti-money laundering supervision and better enforcement”.
The Commission also noted other increasing gaps in Malta’s economic development, particularly the lack of results in the education sector despite the vast amount of money being spent.
Warning that poor educational outcomes may limit the island’s growth prospects, the Commission said that, “educational outcomes remain poor, with major disparities linked to socioeconomic background, disability status and type of school”.
“Early school leaving is among the highest in the EU and participation of the low-skilled in adult learning remains low.”
On the buoyant housing market, a key driver of the current economic growth, the Commission said that while price hikes are expected to continue, “if recent trends continue they may lead to potential macro-financial imbalances”.
In a reaction, the government insisted that it is fully aware of the challenges ahead as a result of “exceptional economic growth rates”.
“The government reiterates its commitment to implement in the main the bulk of the Venice Commission proposals (on good governance), which are meant to continue the work it has already undertaken concerning the strengthening of the institutions, after many years without changes,” a government statement said.