Malta’s low public debt is ‘insurance policy’ in case of downturn, economist says

The lowering of Malta’s public debt is a key achievement which provides Malta with a safeguard in case of a shock to the country’s economy, according to economist Gordon Cordina.

He was speaking at a conference on employment market sustainability organised by The Malta Business Weekly in collaboration with the Malta Federation of Professional Associations, where he said the importance of the country having reduced its government debt shouldn’t be underestimated.

“In a period of seven years, we will have reduced our public debt from a worrying 68% in 2013 to almost 40% by 2020,” he said. “This is a key achievement in our macro-economic stability.”

“Should something ever happen to our tiny economy this is where we have a buffer to recover from a bad economic shock which might impact us.”

Had Malta maintained a high level of public debt, he highlighted, the government would not have had the flexibility to push the economy back on its feet in the event of a downturn. “It is our insurance policy for the future,” he emphasised.

An engine with many moving parts

Malta’s economy is an engine with many moving parts, Cordina said, and it, along with Ireland’s economy, has expanded in a way which created the right balance between growth itself and the change in the employment rate – the number of jobs being created.

He said that a number of other European Union countries were basing themselves on jobless growth, because they had supply constraints, while others were focusing on creating jobs, but had stagnant growth.

“You need a balanced approach in the medium term between growth and employment generation – this is key to success,” he stressed.

He underscored that retail and tourism remained a key driver of growth and remained Malta’s “bread and butter”. Cordina acknowledged, however, that the country might now be approaching its capacity limits in terms of the number of tourists the island can take, making it essential to focus on quality.

“Where do we go from here when it comes to tourism? We must focus on the quality and the experience we offer, and on longer-hauls.”

Unfortunately, he said, productivity in this sector remained low. On the upside, however, it had been registering improvements in this regard, he said.

Touching on manufacturing, Cordina said that the sector had maintained a stable level of employment, and had increased in productivity, leading to higher salaries.

As for the construction sector, he said that although this remain very important, its share in the economy has been decreasing, because other sectors are growing faster.

“Let’s focus on responsible development… along side with the issuance of permit, we need a much more responsible attitude towards how we are building. This will be key towards sustaining employment in the sector.”

Cordina added that the country should aspire towards having workers who are currently in construction eventually managing to be transformed into higher-productivity workers in offices.

The availability of Labour, he said, persisted as constraint for Malta. “And it is likely to remain so until we upscale our country product and residential attractiveness,” he said.

“Part of the growing debate these days is related to excess demand – there is the demand for output, but there are not enough workers, infrastructure and services for tourists,” he said.

Malta had to try to balance the demand for labour with the supply, and this is connected to investing in quality of life and residential attractiveness, which in turn contribute towards employment sustainability, he underlined.

“We need to focus on where we are going in terms of quality of life… Investment in this will increase the demand in our country and improve the supply side too.”

Amongst other areas, Cordina also spoke of the public administration sector, saying that although this had definitely expanded, if it was necessary for it to grow for the country to keep progressing, then "so be it." "I am not a fan of trying to limit this," he said.