Scicluna warns of diminishing economic returns without infrastructural investment

Finance minister Edward Scicluna said that the government’s next budget would seek to address the “implications” of Malta’s strong economic growth.

Speaking at a pre-budget meeting with the Malta Council for Economic and Social Development (MCESD), the minister said that the country’s infrastructure was in need of significant investment.

“When you have this level of growth, infrastructure and other sectors can struggle to keep up,” he said, adding that unless addressed, these sectors would result in diminishing returns, and the economy being held back by individual sectors.  

“Investment in infrastructure helps growth, however a lack of investment results in increased costs due to congestion as well as other external costs,” continued the minister.

Turning to the latest available economic markers, Scicluna said that Malta’s growth in 2017 was once again expected to exceed that of other major economies, including the European Union. In fact, the minister said that this year, Malta’s economy was expected to grow by 3.7% of GDP, compared with the US economy which is expected to grow by 2.3% and the EU’s economy which is forecast to grow by 1.9%.

Furthermore, he said there was as yet no indication that inflation in Malta was going to increase due to local factors. Scicluna added that Malta’s labour supply elasticity was greater had been in the past and that this had contributed to inflation remaining low.

Inflation for 2017 is projected to be 1.8% compared 1.6% in the EU and 2.2% in the US.

On the employment front, Scicluna said that while some employers were struggling to find employees, they had not yet started poaching workers from competitors, and wage inflation had not yet occurred.

The minister said that after registered a surplus in 2016, the surplus for the current year also looked set to be greater than predicted, adding that the country was expected to continue registering a surplus for some time.  

As a result, he said the government’s debt would also continue to decrease, and it was expected to have fallen below 50% of GDP by the end of 2018.

The reduction in the government’s debt would allow the current administration, as well as future governments, to have more “wiggle room” for social initiatives.

“It is better for us to be able to use revenue to provide medicines than to pay for expenses from the past,” said Scicluna.

Wages, or the compensation per employee, he said were “not very low nor was it on the high side”. In fact, Scicluna said that given Malta’s size and productivity levels, it was competing well with other European states, noting that it was countries that had much larger productivity than Malta that had significantly higher labour costs.

He also pointed out that Malta had among the lowest rates of social security payments among the 28 member states.

European Affairs minister Helena Dalli stressed that the MCESD would continue were it had left off in the last legislature. She said the council had been democratised further during the last legislature and was now also in a position to appoint more experts to inform discussions on specific subjects.

She stressed that the council would be focusing on the increasing family-friendly measures and well as “giving back” public holidays to workers, as was promised in the Labour Party’s manifesto.