Author: Judith Barare - Economics intern at PKF Malta
Published on Business Now: 18th July 2023

The public sector in Malta includes Government bodies, public corporations and local authorities that provide essential services to the country’s citizens and ensures the well-being of society. The public sector is also a significant employer providing 20 per cent of workers in Malta with full-time employment.

The public sector has garnered several achievements in recent years, including obtaining a high level of trust in public administration, gaining international recognition such as in e-Government, and also the development of smart cities. Despite this, it is alarming that there has been a drop in absolute term of productivity in the public sector even though the number of public sector workers has kept increasing.

How many people are employed by Malta’s public sector?

According to Eurostat, Malta’s public sector employed over 51,000 full-time people by the end of 2022. This number is an increase of 1,000 people over the previous six months, and an average increase of about 20 per cent over the last decade.

Economists and financial advisors have expressed concern that the increase in the number of public servants could contribute to inflationary pressures if it is not accompanied by measures to increase productivity and economic growth. Many argued that the steady rise in the number of civil servants in Malta created a strain on the Government to sustain the workers.

According to Eurostat, it is evident that Malta’s public sector has almost 20 per cent of the total workforce, compared to the European Union (EU) average of 16 per cent. Despite the need for the public sector to have employees at certain levels, the overstaffing experienced could have been the reason for the significant drop in absolute terms of productivity.

How does Malta’s large public sector relate to labour productivity?

Generally, the labour productivity rate of Malta has on average been increasing over the past decade. According to Eurostat, the labour productivity of the country, measured in terms of gross domestic product (GDP), stood at €27.2 in 2020.

This productivity measure was a 1.6 per cent increase since 2019. The labour productivity for Malta often fluctuates but it was below the EU average of €34.7 per hour worked in 2020.

Labour productivity growth has dropped since its peak in June 2020. The data Eurostat shows that Malta’s labour productivity growth was at its all-time high in June 2021 with a value of 13.24 per cent. The all-time low of -17.19 per cent was recorded in June 2020.

Since the all-time high in 2021, Malta’s labour productivity growth has been decreasing gradually despite the steady increase in public sector employment. This could be linked to public sector overstaffing.

It is also important to note that the average remuneration of national civil servants in central public administration has increased by 25 per cent from the year 2014 to 2022. Increased remuneration can occur as a result of several factors, for instance, due to changes in Government regulations and policies, high inflation, or high demand of skilled labour.

Increased remuneration is perceived as a good thing for the economy and only raises concerns when the increase is not directly proportional to the output, which is productivity.

This is since remuneration is justified by increased productivity and improved quality of service.

Measuring the efficiency of the public sector of Malta

Wages of the public sector workers grew by 3.5 per cent between 2010 and 2015. However, this increase has not translated to a direct increase in productivity in the sector. Statistics from Eurostat indicate that the productivity of Malta’s civil servants increased by 1.1 per cent in the same period.

According to Eurostat, the performance of public sector of Malta decreased from 4.77 in 2010 to 4.41 in 2015. The database lacks adequate data to analyse the efficiency but the indicators of productivity growth indicate a relatively low level of efficiency. Besides, the increase in expenditure for civil servants fails to reflect similar growth in GDP.

As noted, the labour productivity rate of Malta has on average increased over the past decade and has only been gradually decreasing since 2021. Eurostat data shows that on average, the productivity of public servants in Malta has decreased by 2.5 per cent in the last year (2022).

This drop does not necessarily indicate a long-term trend, but it is a course of concern and should be closely looked into as it could indicate that Malta’s public service is not performing efficiently. It is therefore crucial to perform an in-depth analysis of the factors that could be affecting productivity such as the changes in the economy, workforce, or technology.

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Author: Judith Barare - Economics intern at PKF Malta
Published on Business Now: 18th July 2023
Get in touch: info@pkfmalta.com