Prime Minister Robert Abela welcomed the excellent rankings given by IMF forecasts, DBRS, Fitch all of which placed Malta as “the fastest growing EU economy this year and the next, with the lowest unemployment rate in both years.

In Abela’s words despite weakening international conditions, the IMF has revised up its GDP forecast for Malta to 3.8% and sees us as the fastest growing EU economy this year and the next, with the lowest unemployment rate in both years. Wage growth has been fuelled by labour market shortages and an increase in the cost-of-living adjustment (COLA), which is awarded to all employees.

The government remains committed to limiting fuel and electricity price increases; therefore, we expect a zero contribution from energy prices to inflation over the forecast horizon. Good to note that Credit rating agency DBRS Morningstar has confirmed an “A“ rating with a stable outlook, saying energy subsidies have helped the country cushion the impact of war in Ukraine but warning that it should be clear about when subsidies will end.

Economists remind us how such success can be contrasted in a background of rising rates. Consider the yield on the 10-year US Treasury note. This jumped to just below the 4.9% level last month being the highest level since 2007. The increase of 150 basis points implies a significant downturn in the price of US Treasuries.  Closer to us, one wonders how Italy’s benchmark 10-year bond yield surged to almost 5% recently for the first time since Europe’s sovereign debt crisis raged 11 years ago.

No surprise that a substantial change occurred to the yield on 10-year Malta Government Stock (MGS). This is currently at 4.2% certainly a high rate which is yielding super profits to banks. The fly in the ointment is that our deficit is among the EU’s highest, albeit national debt is just under the 60% of GDP top limit.  All this cornucopia of good tidings justifies a smirk on Abela ‘s face when he stoically addresses the party faithful.

Forget hubris, since Malta registered strong economic growth of 6.9% in 2022. This marked the end of expensive furlough grants to all and sundry and a bevy of €100 personal cheques to all households. Indeed, almost €2 billion was ploughed back during the extended Covid interlude. This sugars the pill of lockdowns, zombie companies and zero tourism.

In October's edition of the World Economic Outlook, this year‘s projection for Malta was set at 3.8%, the highest growth in the EU. In the April edition, the IMF had predicted a 3.5% growth this year, and 3.5% next year.  However, in October’s edition, IMF revised the 2024 forecast down to 3.3%, which is still the highest in the EU, along with Ireland. The rabbit out of the magician’s hat is low unemployment rates hovering around 8,500 persons.

Add to this euphoria a high propensity by major tourist operators clamouring to invest in mega tourist/residential towers.  We cannot omit to mention the Austrian owned airport operator. Notice how major works are underway on the €40 million Apron X project, with Phase 1 of the project set to finish by summer 2024 with the first three parking stands expected to be in operation by then.

Meanwhile, the airport’s second runway, RWY 23-05 will be getting a €14 million overhaul with works expected to start in the fourth quarter of this year.  After all this is ready, works will start on the airport’s main runway, the RWY 31-13. These projects will include resurfacing and lighting replacements.

More capital investment in the tourist sector follows the announcement of a renowned hotel chain, Fortina Group baptizing a waterfront hotel as a fully refurbished and transformed 5-star hotel located in the central town of Sliema.  Another heavyweight in the tourist kingdom is the db Group. They registered an after-tax profit of €12.4 million for the financial year ending 31 March 2023.  It posted a cool €70.8 million in revenue.

In the food and beverage sector, the db Group almost doubled its figures, reaching a turnover of €25.4 million compared to €14.1 million in the previous year.  This was mainly due to the exponential performance of Starbucks, as well as the opening of new restaurants - LOA in St Paul’s Bay, Tora and Manta in Sliema, and Verani at the Malta International Airport. Another maverick, is Melita Limited - this time a tech company. It is investing €50 million in its networks to deliver the next generation of internet speeds and an unprecedented level of reliability that promises to lift the island’s digital future.

Melita claims to have joined the United Nations’ Science Based Target Initiative, which aims to achieve the goals of the Paris Climate Agreement by reducing greenhouse gasses to limit global warming to 1.5 degrees Celsius. A real reduction in energy use ensures a dual benefit for the environment due to lower CO2 emissions as well as cost effectiveness.

But the economy is not a rose garden. The Malta Chamber is aware of a high influx of cheap TCN’s labour mainly handled by massive agencies who recruit them in thousands, pay their relocation costs and procure work permits (against a charge).  Such arrivals are paid below the commercial rate while they have to rough it at night sleeping 8 to a room.

As can be expected, they save money to sustain families back home. To assure mobility and not a closed shop regime, the Chamber proposed that when a TCN has been employed with the same company for more than a year, employment should shift to the company providing the job, while employment licences should be extended for an additional three years after the first successful year of employment with the same employer.

By contrast, local pensioners feel threatened by the licensing of TCN’s by Malta Identity fearing their entitlement for State increases is challenged. They argue the country imports heavily on TCN’s at a low wage while able-bodied and experienced pensioners are penalized if they continue working after reaching 61 years.  There is no free lunch.

Financial success comes at an ecological cost as a constant increase in the influx of tourists is exerting unrelenting pressure on Malta’s infrastructure, including water, energy and waste systems. This will be more visible in the coming years due to the physical risks associated with climate change and power cuts. The policy to exploit inexpensive foreign non-EU labour, which was the rule of thumb during the “Aqwa Zmien” years, needs to be curbed.

Finally, with bated breath, islanders are curious to see the proverbial rabbit jumping out of the red box. In conclusion, we have to be careful what to wish for.

Author: George Mangion -Senior Partner at PKF Malta
Published on Business Today: 19th October 2023