Ukraine war will cost Malta €200 million in subsidies and cushion for inflation

Finance minister Clyde Caruana has said the war in Ukraine has already cost Malta €200 million in projected price increases, forecasting that government proposals to keep consumption buoyant will probably have to be replicated in the year.

Caruana told an audience at the Malta Chamber of Commerce that the impact of war in Ukraine was “not small”, and that “saving the economy” had once again become an existential challenge for the island.

“We were budgeting €200 million for the rise in prices this year from COVID-19’s effects on the economy. The war, this week alone, will cost us €200 million from economic retaliations... meaning we have to budget another €200 million on top of everythin... in fuel price increases, the increase in prices of cereals and grains as Ukranian fields are deserted by workers fleeing the country... it means global inflation,” Caruana said.

But the minister insisted that Labour’s economic proposals for the election were especially valid in the shadow of war, saying measures to keep consumption buoyant and providing a cushion for business will have to be replicated in 2022.

“We’re not just out there chasing votes... we are monitoring a serious situation and we have to be on ball. The lesson we learnt from the 2008 financial crisis is that countries that focused solely on finances, lost the battle on jobs and could not bounce back.

“The pandemic cost Malta money but our labour market is in place – the Chamber’s members’ headache is finding workers, a ‘nice’ problem to have. So the war will cost us but it would be a mistake not to focus on fiscal expansion. Our proposals are not just electoral stunts.”

“It’s no longer a war of bombs, but an economic war, whose impact will not be small. And we’ll do whatever it takes to save the economy – I say this because I am conscious of the massive impact all this is creating.”

Caruana also doubled-down on guarantees that businesses will not face price increases in fuel costs, saying government will budget aid for these costs.

Nationalist candidate Graham Bencini opined that while it was crucial to cushion rising business costs, the reality was that there was a limit on the government resources for such subsidies.

“If people do not calibrate their expectation of consumption to the reality of war, if there is no such rationalisation, the prospect of providing this cushioning forever is just not realistic. So the devil is in the detail here,” Bencini said.