For the past years, prior to the COVID-19 pandemic, Malta’s economic performance blew the charts. The country registered success after another, moving from strength to strength. Being spearheaded by solid industries such as gaming, financial services, tourism, construction and property, very few would have imagined that the country could face significant economic challenges.
In a recent report by Moody’s, although the rating for Malta was maintained, the outlook was changed to “Negative”. Although rating agencies do not have the capacity to predict the future, it is necessary that Government gives this change in outlook its due importance. This is especially so in view of the latest developments surrounding Malta’s economy. The assessment by Moody’s may fuel mixed reactions.
Malta’s solid economic performance over the years and subsequent improvement in public finances allowed the Government to support businesses and individuals generously throughout the course of the COVID-19 pandemic. As one can naturally understand, this was a costly exercise which was only implemented in view of the unprecedented situation.
Malta’s deficit has been earmarked as a major point of concern. This is expected to reach 12.4% in 2021 and is the second highest in the European Union. It is also the highest amongst those that are rated with an “A”. For those who may be less technical in the principles of economics, this significant deficit figure may be less worrisome, however many will understand that the Government will eventually need to explain how it plans to make up for its fiscal difficulties.
The same ratings agency was also bleak on the prospects of normality for tourism, indicating that we may be far off from this target. This contrasts with the optimism sometimes shared by the minister for tourism and Malta Tourism Authority. This is understandable in the context that many people are still hesitant to travel due to the uncertainties surrounding the pandemic. This notwithstanding the solid management in the way Malta is addressing the pandemic.
Another bone of contention is the recent grey listing by the Financial Action Task Force (FATF). This is understood to be one of the main reasons why Malta’s outlook was changed from “Stable” to “Negative”. The ramifications of reputational damage are still yet to be fully understood and the Government has its work cut out for it to prove that refo
In its initial years, the sale of passports scheme seemed to be an asset for Malta, injecting significant funds in its economy. It is believed that the scheme is yet another obstacle for Malta in obtaining a “Stable” outlook from Moody’s.
The issue with continuity
The Government has quite recently emphasised upon continuity. With respect to the latest developments, continuity comes with its own risks. Countries around the world are focusing efforts against tax havens and a negative outcome with respect to harmonisation can dilute Malta’s attractiveness amongst foreign businesses. This highlights the need for Malta to tap into new industries.
In view of the latest economic challenges, the Labour party has remained steadfast in its commitment to not increase taxation. Time will tell about the sustainability of this approach and how the country is set to change to combat these latest challenges.