While international institutions are consistently revising downwards their economic forecasts for the euro area and other large economies, experts from the International Monetary Fund (IMF) have yet again revised upwards their forecasts for Malta.
Despite the challenges of the current international situation, the IMF changed its economic growth forecast for Malta in 2023 from 4% to 6.25%. Furthermore, it claims that the Maltese economy will grow by 5% in 2024. This is about ten times the rate that most European economists are predicting for the euro area.
In its annual report on Malta, the IMF states that “Malta experienced an impressive recovery from the pandemic”, while noting that growth will be “among the highest in Europe”. Among the factors that led to this assessment was the fiscal support provided by the Government as well as the decision to keep energy and fuel prices stable. In contrast to claims that the Government is not adopting the right economic policies, the IMF experts say that “Malta’s policy direction has been broadly in line with past staff recommendations”.
The IMF report also notes how Malta’s unemployment rate is at historic minimum levels and that inflationary pressures are decreasing. It also predicts that in 2023 the deficit was 4.75% of GDP, or better than stated in the Budget speech. Even for the coming years, the IMF is more positive than the Maltese government: it expects that, by 2027, the deficit will have fallen below 3% while the national debt will always remain below 60%.
There is one area where the IMF disagrees with the Maltese government’s plans. The Fund’s experts are of the opinion that the support on electricity and fuel prices should be removed. This is mainly because it constitutes 40% of the deficit. But, in its report, the IMF notes that if two-thirds of the subsidies were reduced over two years, inflation would increase by one percentage point. This is a price that the Government has insisted time and time again that it is not willing to impose on families and businesses.
The IMF report mentions the fact that Malta’s 2024 Budget contains several social support measures. It also commends the actions of the Maltese authorities in favour of financial stability as well as the work conducted to strengthen governance. The IMF stresses the need to further improve productivity, as well as to accelerate the digital transformation and the decarbonisation of the Maltese economy. At the same time, it commends the implementation of the country’s Recovery and Resilience Plan.
Finally, the IMF experts conduct an in-depth analysis of productivity trends in Malta. They claim that “the accumulated growth of real labour productivity in Malta has been 20 percent between 2004 and 2022, compared to 12 percent in the EU”. The IMF also says that “labour productivity growth averaged 1.9 percent per annum in Malta in 2014-19, much higher than that in other tourism-dependent Mediterranean countries”. At the same time, the IMF notes that foreign workers have helped the Maltese to move to better-paying jobs.
Photo: Som Thapa Magar