Central Bank flags agencies over increased government running costs

Growth in government’s discretionary spending is harder to explain and is significantly driven by autonomous public agencies on which detailed information is lacking.

This results from a recent analysis of government spending carried out by Central Bank of Malta economist Laura Bigeni. She called for more detailed information on the operations of government agencies, technically known as extra budgetary units (EBUs).

The analysis, titled Decomposing The Largest Government Expenditure Items, was published as part of the Central Bank’s CBM Staff Insights 14/2026. It was prepared by Bigeni, senior economist in the Fiscal Affairs and Reports Office within the Economic Analysis Department of the CBM.

The analysis says that while much of the increase in government expenditure is linked to clear policy objectives, growth in more “discretionary” types of spending, particularly daily running costs, is harder to explain and is significantly driven by these autonomous units.

To improve fiscal transparency, the Central Bank suggests more specific information on EBUs should be included in regular official publications such as the Economic Survey and the Half Yearly Report.

What are EBUs?

Extra budgetary units are separate government entities that maintain their own accounts and own goods or assets in their own right. They have the authority to enter into contracts and incur liabilities. While some may have their own revenue streams, they differ from other public sector institutions because they do not sell their output at market prices for profit.

Malta’s EBUs cover a wide range of public services and regulatory functions. Examples include Infrastructure Malta, Transport Malta, the University of Malta, the Malta College of Arts, Science and Technology (MCAST), WasteServ Malta Ltd and Malta Enterprise Corporation as well as all regulatory authorities.

EBUs, together with central government ministries and local councils, account for the three largest categories of government expenditure: Compensation of employees, intermediate consumption, and social benefits.

Together, these categories accounted for more than two-thirds of total government spending and around 29% of Malta’s Gross Domestic Product (GDP) between 2022 and 2025.

Sharp rise in daily running costs

The fastest growth was recorded in daily running costs, technically known as intermediate consumption. This includes spending on services needed to provide public services such as healthcare and education. This category increased by 56.8% between 2022 and 2025, reaching more than €2 billion.

EBUs and local councils accounted for around 36% of the annual increase between 2023 and 2025. Much of this spending relates to operational needs such as cleaning, security and consultancy services.

Wage bill increases

Government’s total wage bill increased by 31.1% over the same period, reaching around €2.4 billion in 2025.

The increase was driven by higher recruitment in health, education and public administration, as well as new collective agreements.

The 2024 agreement for educators had a significant impact due to substantial backdated payments, while a 2025 agreement affected around 33,500 civil service employees.

Growth in pensions and social support

Spending on social benefits increased by 29.2%, reaching almost €1.99 billion in 2025. The increase was mainly driven by cash payments, particularly pensions. The number of people receiving the main retirement pension increased by around 2,000 annually, reaching nearly 64,000 by 2025.

Other factors included higher student stipends and a new cost-of-living benefit for low-income households.

Spending on unemployment benefits remained stable, reflecting record-low unemployment levels and reforms encouraging people to return to work.

The Central Bank said that providing more detail on the “discretionary” budgets of government agencies would help ensure a clearer understanding of Malta’s public finances.