Malta surplus could improve in 2018, European Commission forecasts

An economic forecast from the European Commission has said risks to Malta’s fiscal outlook remain balanced as snap elections will see higher government spending, adding that any budgetary slippages will be compensated by cash from citizenship sales.

According to the spring forecast, in 2017 Malta’s fiscal surplus – currently at just over €100 million after a boost from citizenship sales – will be expected to decline to 0.5% of GDP.

In 2016 taxation and higher-than-expected proceeds from Malta’s citizenship programme (1.7% of GDP) contributed to the fiscal surplus.

While tax revenues will increase thanks to robust economic growth and a strong jobs market, lower proceedings from the citizenship scheme will slow down overall revenue growth.

“Malta’s economy performed better than expected in 2016. Real GDP growth expanded by 5%... Growth was driven primarily by services exports, in particular gaming and professional services. Private consumption expenditure also drove growth, fuelled by gains in disposable income and declining unemployment,” the EC said.

Spending could also increase due to the renewal of the public sector wage agreement and costs associated with Malta’s presidency of the EU, while public investment will stay unchanged as the implementation of EU-finance projects and IIP revenues slow down.

In 2018, the budget surplus is projected to improve further to 0.8% of GDP. National debt, which fell below the 60% threshold in 2016, is forecast to decline further to 52.5% in 2018.

Malta’s strong economic performance is closely informed by rising labour market participation and employment, in particular among women, with jobs growth averaging 2.9% in 2017-2018, while the unemployment rate stabilises at just below 5%.

While wages will increase, rising productivity is expected to keep labour costs contained. But price inflation is also projected to gradually increase due to rising fuel prices and higher wages.

“Strong economic growth could spur private consumption and investment further, albeit somewhat offset by increased uncertainty due to the announced elections. The launching of the Malta Development Bank could provide an additional boost to investment. The decision to increase the minimum wage may support private consumption further, although the impact on GDP growth could be offset by higher costs for employers,” the EC said.