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Karl Stagno-Navarra
Give him an hour and he will spell out the state of the economy, forecast the expected and suggest the way forward. Outspoken, always backed by figures and well-studied comparisons, Central Bank Governor Michael Bonello has been repeatedly pointing out the structural weaknesses of the Maltese economy, and appealing to government to rapidly implement comprehensive reforms in order to correct “deficiencies” that are hindering Malta’s competitiveness and the country’s sustainability in a far too generous welfare state.
Speaking at a business breakfast organised by sister paper Business Today, Michael Bonello delivered shocking comparisons on the current state of Malta’s economy with Slovenia that has managed to reform so well that it has formally adopted the euro as its national currency.
So is the euro Malta’s answer to our problems? Far from it.
As Michael Bonello clearly put it, the euro will put the country within a guaranteed framework that obliges the deficit/GDP ratio to be below the three per cent mark, and keep inflation low.
For every ordinary citizen the Maastricht criteria that stabilise euroland economies are a threshold for peace of mind, however in Malta’s case the scenario changes completely.
Michael Bonello’s analysis is no new news to government or the social partners who meet regularly within the Malta Council for Economic and Social Development (MCESD). “The writing has been on the wall for a very long time,” argues the Central Bank Governor, only however, he adds, if social partners and government alike don’t keep marking their territory, and refuse to see the bigger picture.
Evidence of this is clearly revealed in Michael Bonello’s presentation where the Slovenians are getting “more bang for their buck”.
Statistics on unit labour cost (ULC) show that Slovenia has managed to become even more productive, even though there was a nominal change in workers’ salaries. In a nutshell, Slovenia gets more out of its workers for what it pays them, than what Malta gets.
Compared to Slovenia’s five years of growth, Malta ULC improved marginally not because of increased productivity, but because salaries remained largely unchanged.
It was here that Michael Bonello expressed his concern at the constant pressures from trade unions for collective agreements that leave no productivity benefits to the economy.
Another noose that strangled the productivity line was the renewed collective agreement within the civil service, that cost a lot in terms of finances and produced no visible positive shift to increased productivity, as summer half-days remained sacred untouchable ground.
Michael Bonello has been insistent with government and the social partners that wage moderation should continue but it must be supported by productivity gains, as in so far Malta has one of the lowest rates of productivity gains in all of the EU.
“We must deliver more value for money,” he insists while adding that in order to achieve this, all social partners must understand that they have a tough responsibility in accepting the reality of what the globalised economy is dictating. “They are the comparisons that matter and that make us worry. They raise the obvious questions that remain unanswered by both government and social partners alike.”
Michael Bonello totally shot down government’s philosophy that in order to kickstart the economy it must engage in large projects. “That just produces a jobless growth, as the procurement for materials must come from overseas, and in reality the jobs created are in those countries where we place our orders,” he explained, adding that from scientific findings it transpired that the job creation through government induced projects was “minimal”.
While government considers health, education and welfare as “don’t touch” areas, Michael Bonello asks however “for how long?”.
“No proper or just means-testing system is draining the country’s finances and it has become unheard of to know of a country that pays students to go to school and be paid for that by the state.”
He argues that rather than being so generous, government should channel stipends as an encouragement to professions the economy will need. Michael Bonello asked if it made sense that this year government is budgeting Lm15 million for education, that includes Lm9 million in stipends for university students.
At the same time, a comparative analysis with Slovenia shows that Slovenia fares with a mere 5.2 per cent in early school leavers, while the figure from Malta is over 41 per cent.
Our female employment rate is down at 33.7 per cent while Slovenia is almost double that at 61.3 per cent.
Comparing Malta to Slovenia in private investment one sees that the Slovenes almost garner 21 per cent of GDP while Malta trails with 14.8 per cent.
While state aid in Malta stands at 3.1 per cent of GDP, in Slovenia they have managed to reduce it to just 1.0 per cent.
In private savings, Slovenians achieved a 21.2 per cent of GDP, while in Malta we trail at 11.4 per cent.
Private investment in GDP percentage stands at 14.8 in Malta, while Slovenians invest almost 21 per cent.
For Malta to bounce back and regain its competitive edge, and seriously address its economic shortcomings, serious and bold decisions must be made, and most of all must be independent of any partisan or sectorial interests, Bonello said. “We must understand that the longer we take to reform, the higher the price will be when we will be forced to make them and regret the delay.”
ksnavarra@mediatoday.com.mt
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