Looking beyond the pandemic

Malta’s response to the COVID pandemic was not just a public health success, but a social and economic one as well. Of course, that’s not to say that we did not suffer negative consequences, like all the rest of the world did. The success comes from the fact that on the whole we were able to contain more than most others such adverse impacts on the socio-economic fabric of society.

Let us mention a negative first. According to AMECO data, the EU experienced the third sharpest recession in 2020 with real GDP contracting by 5.9% on 2019. In Malta, the recession was even more severe, with a drop in GDP of some 9.0%, mostly driven by the collapse of the tourist industry. This was the fifth highest contraction in the EU.

In 2021 we saw the beginning of a recovery, but not enough to take us back to the 2019 level. Only 13 of the member states managed to do that, those being of course the countries which were impacted least by the drop in GDP. The growth forecasts for 2022 are more bullish, but again though we should be able to exceed the 2019 outcome, the outcome relative to 2019 will still be the fifth lowest in the EU.

It has to be said that the forecasts for all countries, including Malta, are fraught with significant uncertainty in the wake of the energy crisis, the sharp rise in transportation costs, the continuing disruptions in logistics and supplies, and more recently the surge in inflation. That all these have not resulted in a substantial rise in unemployment and a marked drop in labour force activity rates, as has happened in many other countries, is due to the Government’s support measures. Our unemployment rate in 2020 was the sixth lowest in the EU.

One encouraging sign is the investment outlook. Investment is necessary not only for accelerating labour productivity growth but also for engineering the transition to a decarbonized socio-economic model that the EU aims for by 2050. It is already encouraging that, while in most of the EU there was a downward trend in the average annual growth in real gross fixed capital formation in 2008-2009 compared to 1995-2007, Malta was one of only three exceptions together with Germany and Ireland. But what inspires confidence is that the projected investment growth rate in Malta between 2020-2022 is expected to be the fifth highest in the EU.

It is also good to note that the percentage of people self-reporting unmet needs for medical examination was almost nil in both 2019 and 2020, putting Malta among only five countries that had this impressive statistic

As far as the positives are concerned, one indicator that is surely satisfying is the GDP per capita in purchasing power parity. In 2019 Malta’s result was the twelfth highest and marginally higher than the EU average. That put us in the company of such countries as France and Finland, and higher than Italy and Spain.

If one looks at income inequality at the bottom end of the income distribution and the share of people at risk of poverty and social exclusion (AROP) in 2019 and 2020, one notes some wide disparities between the various EU states. The indicator, which shows the share of persons with equivalised income lower than 60% of the median income (anchored at 2008), either improved or remained unchanged in most EU countries.

However, Malta was one of 16 countries where it actually improved, so much so that Malta had the fifth lowest AROP in the EU.  This contrasts with the increase in France and Austria. In other words, despite the depth of the economic shock, the support programme deployed by the Maltese Government from the beginning of the pandemic worked effectively in cushioning incomes from the impact of the crisis.

On the other hand, the so-called S80/S20 ratio which shows how the top income quintile compared with the bottom one, deteriorated in Malta in 2020. From just over 3, it increased to just under 5, almost reaching the EU average, meaning that the income of the top 20% of the population was almost five times that of the bottom 20%. Compare that with Slovakia’s 3 and Bulgaria’s 8.

During the pandemic, the EU adopted unprecedented economic and social support measures. It pledged financial support to Member States totalling €2.018 trillion, the largest package ever financed through the EU budget. Earmarked for EU recovery, the funding comes via the Multiannual Financial Framework (€1,211bn) and ‘NextGenerationEU’ (€806.9bn), with the temporary ‘Recovery and Resilience Facility’ (RRF) at its heart (€723.8bn).

Malta has of course obtained its fair share of this funding, with €1.9bn under the MFF and €316.4m via the NextGenEU, while it benefited from a pre-financing disbursement of €41.1m under the RRF. The initial disbursement is helping kick-start the implementation of the crucial investment and reform measures outlines in Malta’s recovery and resilience plan.

The EU thus showed emblematic solidarity to manage the consequences of the pandemic, as also visible in initiatives such as the unprecedented suspension of the EU’s fiscal rules and the launch of the temporary “Support to mitigate Unemployment Risks in an Emergency (SURE)” mechanism. This made financial assistance of up to €100bn available to member states, where Malta benefited from a €420m loan, to address the sudden increases in public expenditure.

One unfortunate side-effect of the COVID-19 pandemic, though, was that it disrupted EU social policy-making. This notwithstanding, arguably the most ambitious EU social policy initiative since the start of the pandemic is the Commission’s proposed Directive on adequate minimum wages, which was preceded by a two-stage social partner consultation.

While no less than nine Member States (Denmark, Sweden, Poland, Hungary, the Netherlands, Austria, Ireland, Greece and Malta) had expressed the wish that the Council opt for recommendations and not a directive on the issue, the Employment, Social Policy, Health and Consumer Affairs (EPSCO) Council reached a common position, two weeks after the European Parliament agreed its negotiating position. 

The agreement establishes a framework to promote adequate levels of statutory minimum wages (at least 60% of the national median wage), to promote collective bargaining on wage setting and to improve effective access to minimum wage protection.

According to some observers, the Commission’s initiative is no less than a watershed in the history of European social and economic integration. For the first time, the Commission is initiating legislative action not only to ensure fair minimum wages but also to strengthen collective bargaining in Europe.

Though Malta had expressed reservations, there is no doubt that this was not because the Government had any objection to raising the minimum wage. One should not forget that it was the Labour Government of 2013-2017 that raised the minimum wage after 27 years since the previous rise. It would not be surprising if this were to be one of the measures which the PL will include in its manifesto.

The PL has been engaged in a period of reflection and preparation for coming years. It will surely pay special attention to the poorer layers of society which have suffered the most from the long-term effects of the pandemic, for example in terms of employability and income, as they are most exposed to health risks and gaps in education.

In this context, it is important that in the future a greater emphasis should be put on tackling inequalities and supporting the losers of the pandemic by promoting green growth and employment, targeting vulnerable groups in order to alleviate the negative effects of the pandemic on the children of poor and migrant families, and not rushing to reduce the fiscal deficit (like the PN wants), but trying instead to strike a balance through fair fiscal policies.

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