MFAC urges government to move away from labour-driven growth

The Malta Fiscal Advisory Council (MFAC) recommended that the government shift away from economic growth driven by an expanding labour force and move towards a more productivity-centred economic model.

In a statement on Wednesday, the MFAC endorsed the government’s latest economic forecast, announced by Finance Minister Clyde Caruana before the election. It warned that Malta’s current growth pattern is placing increasing pressure on infrastructure and public services.

The government is forecasting economic growth of 3.7% in 2026, which the MFAC described as a strong figure when compared with other European countries. The council further explained that growth is expected to remain largely driven by domestic demand, particularly private investment, supported by a strong labour market and higher household incomes.

The MFAC also noted that the forecasts were released against a troubling backdrop, after international agencies adjusted growth predictions downwards and inflation forecasts upwards following the outbreak of war in the Middle East earlier this year.

However, the MFAC said this growth is partly being driven by a larger workforce and inward migration. While acknowledging that this has boosted economic activity, the council warned that it has also intensified pressure on infrastructure and public services, including roads, housing, healthcare and other essential services.

The MFAC also recommended that government should focus less on short-term expenditure and more on productive investment, particularly in education, digitalisation, research and innovation, skills development, and stronger infrastructure.