A flawed economic model
Malta’s significant economic growth, improving fiscal dynamics and low unemployment levels are impressive. However, they can never be the only criteria to judge whether the present economic model will deliver long-term benefits to Maltese society.
The latest International Monetary Fund and European Commission reports on the Maltese economy lay bare the risks it is facing and that need to be addressed with more determination to underpin growth with sustainability. The fundamental flaws in the country’s socioeconomic model are evident to anyone who believes that sustainable growth is ultimately what matters to society.
The Commission report spells out the challenges ahead when it says that risks to Malta’s future growth and attractiveness to potential investors include infrastructure bottlenecks, constraints on natural resources, low skill levels, an ageing population and vulnerabilities in the government framework.
Malta’s open economy is dependent on internationally-oriented service industries as well as on construction and public and private consumption. Both the IMF and the Commission report highlight the increased risk of money laundering that some of these industries entail. The reports do not refer to recent incidents that have tarnished Malta’s reputation.
The alleged money laundering scheme by a locally-registered bank involving Venezuela and Iran, the trafficking of smuggled Libyan oil through companies registered in Malta, the alleged tuna quotas abuses by ranchers operating from Malta and the laundering of the proceeds of organised crime by some locally-registered e-gaming companies have damaged the island’s international reputation.
The IMF rightly urges the government to safeguard financial integrity by continuing the reforms and swiftly re-medying the deficiencies in the implementation of the anti-money-laundering framework. More significantly, the IMF insists that the long-term operational independence of the financial services supervisor and the beefing up of supervisory resources should be guaranteed. Informal networks that involve the legislative and executive arms of government, the regulators and the economic operators should never be allowed to jeopardise the independence of thought and action that should underpin all regulatory functions.
The Commission report also dwells on one of the major infrastructural weaknesses that threaten long-term economic sustainability. Poor educational outcomes may limit growth prospects as economic activities are increasingly dependent on imported labour.
Investment in educational outcomes remains poor, not so much because the country is not spending enough on education but because it has the wrong strategies. Early school leaving is among the highest in the EU and participation of the low-skilled in adult learning remains low. This phenomenon is increasing the disparities linked to the socioeconomic background of students.
Malta’s lack of sufficient available land is giving rise to sustainability challenges as a result of growing infrastructural pressures. Traffic congestion is a major issue as it has significant economic, social and environmental costs. Road improvements on their own will never be enough to mitigate this problem.
The government needs to address these issues with determination rather than appeal to people to accept these risks as a part of the cost to secure economic growth. Effective long-term socioeconomic planning is not only possible but indispensable if the current trend in economic growth is to give the best outcome to people’s lives.
The ossified official views expressed from the political pulpit that what matters is more and more economic growth is challenged by the sobering comments made by the IMF and Brussels.
This is a Times of Malta print editorial