Malta expected to continue outperforming many European economies, but risks remain: IMF report

International Monetary Fund report praises Malta’s economic performance but highlights several challenges the country must address to ensure long-term sustainability

Malta (File photo)
Malta (File photo)

Malta has experienced “remarkable” economic growth over the past decade, driven by its thriving tourism and online gaming industries, an International Monetary Fund report published on Thursday showed.

While growth is expected to slow slightly, it will still rank among the highest in Europe.

The IMF concluded its yearly review of Malta’s economy. It praised Malta’s economic performance but highlighted several challenges the country must address to ensure long-term sustainability.

Inflation has eased to around 2%, but some price pressures persist in the service sector. This strong growth has been fueled by an influx of foreign workers and tourists, which has led to increased population density and put pressure on infrastructure and public services.

Concerns are growing over whether this labor-heavy growth model is sustainable, according to the report. Despite these challenges, Malta’s financial system has proven resilient in the face of global economic shocks.

Economic outlook

Malta is expected to continue outperforming many European economies in the coming years. However, risks remain. Regional conflicts, including the war in Ukraine and tensions in the Middle East, could impact the global economy and hurt Malta’s growth. On the domestic front, rising wages could lead to higher inflation, while faster-than-expected growth in tourism could strain infrastructure further.

The IMF welcomed Malta’s commitment to reducing its budget deficit, which is projected to shrink to 2.75% of GDP by 2029. Public debt is expected to remain stable at around 50% of GDP, well below the EU’s 60% limit.

However, Malta still spends heavily on energy subsidies, which account for a significant portion of its deficit. The IMF recommended phasing out fixed energy prices and introducing targeted subsidies instead. The savings could then be reinvested in green initiatives, public services like healthcare, and innovation, the IMF said.

The IMF also urged Malta to plan for reforms to corporate and personal income taxes. These reforms are needed to align with EU regulations and ensure the country remains competitive while avoiding revenue losses to other jurisdictions.

Malta’s financial system remains strong, but the country’s reliance on real estate poses risks. The IMF advised closer monitoring of the property market and stricter regulations to prevent overexposure by banks. It also called for continued efforts to strengthen cybersecurity in financial institutions.

Climate goals and sustainability

In its report, the IMF said Malta has set ambitious targets to cut emissions by 19% by 2030 compared to 2005 levels. The IMF urged the country to take additional steps to achieve these goals, including updating its climate adaptation plan and encouraging public behavior changes to support sustainability.

The IMF highlighted the positive advancements in the energy, water and waste sectors and notes the direct challenges that arise from rising temperatures.

It confirmed that Malta has enough power capacity to meet its current demand whilst investments are underway to prepare for future needs.

The report sheds light on Malta’s vulnerability to climate change due to rising temperatures and geographical size. Similarly, it acknowledges the significant potential opportunity for offshore wind farms. This could reduce reliance on imported electricity and fossil fuels.

Reacting to the report on X, Prime Minister Robert Abela said the IMF not only concluded that Malta will “continue outperforming over European countries”; they argue that “Malta excels in digitalisation” and that Malta is “well-positioned to harness the potential benefits of AI”.

“Malta Vision 2050 will propel us towards a new prosperity,” Abela said.

Welcoming the report, Environment and Energy Minister Miriam Dalli said it is positive at the government’s proactive measures, such as the investments in the network distribution system, innovative projects supporting renewable energy, the 10-year water National Investment Plan and waste management strategies have been acknowledged by the IMF as demonstrating a clear commitment to sustainable development.

The Minister noted that policy initiatives undertaken are bearing fruit.