Labour-intensive economic growth model approaching its limits, IMF warns

Updated at 4:57pm with PN statement

Malta’s labour-intensive economic growth model appears to be approaching its limits, the International Monetary Fund (IMF) has noted.

In its report on Malta, the IMF acknowledged Malta’s impressive economic growth, but noted that the current labour-driven economic model “is reaching its limits due to infrastructure constraints, population density, and tight labour markets, underscoring the need for a strategic pivot toward productivity-driven expansion.”

The report stresses that Malta can no longer rely on a continued influx of foreign workers to sustain momentum, noting that the island now faces a population density 15 times greater than the EU average.

On the fiscal front, the IMF commended Malta for a narrowing deficit, which fell from 4.4% of GDP in 2023 to an estimated 3.2% in 2025, with a target of 2.6% by 2026.

While public debt remains sustainable and stable at around 47% of GDP, the IMF recommends phasing out untargeted energy subsidies, which cost about 0.8% of GDP in 2025, to create space for critical investments in infrastructure and the green transition.

The IMF stated that Malta’s financial sector remains resilient, but urged vigilance regarding the banking system’s high exposure to real estate. Lending to construction and real estate now accounts for 72% of the private loan portfolio.

Structural challenges, particularly in the labour market and judiciary, remain a drag on the business climate. Currently, 68% of employers in the services sector report labour shortages, a figure significantly higher than the EU average of 24%. The report advocates for a more strategic, skills-based migration policy and increased domestic upskilling.

According to the IMF, the outlook for the economy remains positive but is subject to downside risks primarily stemming from external factors. Geopolitical tensions and regional conflicts could disrupt trade and lead to renewed spikes in global energy prices, which would impact Malta’s open economy.

PN says it will make Malta's economic model a priority

In a statement on Saturday, the Nationalist Party reminded that it had long warned that the time has come to change Malta's economic model.

"The Labour Government did not need to wait for an international report to confirm this reality. Had it truly been listening to the people, it would know that this is a major concern," the PN quipped.

The PN committed itself once again to make the economic model a priority should it be elected.

"A PN-led Government will focus on quality, skills and the real needs of the country, through a serious and credible Labour Market Study carried out properly – unlike what the Labour Government claimed to have done, yet to this day it remains unclear whether such a study was ever truly conducted or what its findings were."

The statement was signed by PN MPs Darren Carabott and Ivan Castillo.