In the pursuit of stability

A national budget is much more than a financial exercise. It is an economic document which steers the country’s economic direction through a myriad of measures and incentives towards a vision. It remains a key economic document which outlines the way resources are being allocated especially if they are aimed at the short-term or more focused on addressing structural challenges or preparing for long-run goals.

Notwithstanding a very fragile external environment, Malta has performed very well over the past few years, particularly in terms of economic growth. In fact, Malta has come second to Ireland in a classification on European economic performance compiled and published by The Economist. Despite the successes, Malta needs to remain proactive to ensure our long-term competitiveness and attractiveness.

The social dimension was very strong in this Budget, and it can definitely be labelled as a budget with a heart. Government focused on stabilising the economy by protecting the vulnerable groups by supporting their purchasing power and by ensuring they can remain active in the labour market and broader economy. The support given to pensioners, disabled people, and their families as well as to the at-risk-of-poverty cohort are all targeted and aimed at supporting their inclusivity in the economy.

From an economic perspective, the balance weighs towards the continuation of existing schemes. In line with these schemes, the implementation of potential future ambitious reforms and transformation strategies are needed to support this investment. Evidence points to a decreasing performance in terms of productivity.

Productivity is key to supporting high quality and rewarding jobs, and funding public services. Unlocking Malta’s productivity potential will help build a stronger more resilient economy that delivers inclusive and sustainable growth. To this end, one hopes that the numerous schemes and incentives that were mentioned would be focused on enhancing productivity.

Malta’s success in achieving direct EU funding for the semi-conductor industry needs to be applauded and replicated across other sectors. Sectoral transformations in the maritime, aircraft and financial services are also welcome.  Going forward, Malta requires a sustained effort on supporting research and innovation, however the announced venture capital fund is a step in the right direction.

From an education perspective, the Budget focuses on supporting students through increased stipends and renewed investment in educational infrastructure particularly STEM related. In the coming years these need to be supported with measures that emphasise on educational outcomes especially relating to STEM disciplines and Early School Leavers. We also believe that a discussion on the educational system, its reform, and the need to have a more future-proof and industry-ready school curriculum is needed and should be on Government’s agenda if we really want to build a resilient and attractive economy. On health, the investments are broad and infrastructural based. In line with what other advanced economies are implementing, we believe that Malta also needs to focus more on prevention efforts which can contribute to general well-being.

Although several incentives and measures were announced, it is now of utmost importance that these are rolled out and implemented swiftly and efficiently. Resources need to be redeployed accordingly to ensure that such measures truly stimulate the economy and see the light of day as otherwise they will not have their intended effect. Implementation is going to be key and here one would have hoped to see a stronger commitment towards institutional reform, governance transformation and digitalisation especially aimed at improving service delivery.

Another area that the budgetary process needs to embrace more fully is the concept of impact assessments and performance-budgeting. Performance-Based Budgeting aims to achieve more effective and efficient implementation of public functions, higher quality of public services, reduction of general government expenditure and staff costs, and more flexible and less bureaucratic management of the government sector. This will support the discussion on public expenditure, its efficiency and effectiveness.

We are living in highly uncertain and volatile times. This Budget provided a continuity exercise with the extension of numerous schemes and incentives. It continues to aim for the stabilisation of economic activity and the support of domestic demand.

At first glance, this is definitely a budget with a heart and one which pursues stability. The main challenge is how to address the longer-term vision of enhancing productivity and ensuring a competitive Malta.

Dr Stephanie Fabri & JP Fabri are both economists.