Update 2 | Economic growth came fast, Malta wasn't prepared for it - Finance Minister

Updated at 6pm with correction

Malta’s unprecedented economic growth is forecast to slow down in the coming years as government embarks on a prudent approach, Edward Scicluna has said.

The Finance Minister said Malta was not prepared for the sudden high level of growth of the past few years and the country's infrastructure was beginning to feel the pressure of the unprecedented expansion.

Scicluna, who was speaking at the Labour Party's Annual General Conference on Wednesday, said the government was preparing to send its financial forecast to the European Commission.

“We would be happy to retain the 6% growth per year, but we are forecasting 5.7% growth,” Scicluna said, adding this was one way of remaining prudent and ensuring the country lived within its means.

“Many sectors weren’t ready for this type of economic expansion and it has presented the government with new responsibilities,” he said.

READ ALSO: It’s a surplus after all, even without passport money

Despite this, he said Malta was following a model of sustainable growth and that he was still wholeheartedly backing the economic route the government had chosen.

In 2018, the Maltese economy experienced a 7.1% growth rate, which Scicluna described as having happened far too quickly.

“We grew consistently from 2013 onwards and have now seen that last year ended with the third surplus in a row. By 2020, however, we are forecasting slower growth,” he said.

Scicluna said income elasticity was a tangible issue facing the country today. “As the economy keeps doing well, people start expecting the best out of the health and educational institutions on the island,” he said, adding that inflation was at a record low at present.

The finance minister insisted that investments would remain the government’s priority, since this would prepare Malta for possible inflation in the future. “We want to keep investing the money that the government is generating. We don’t want to create expenses from which we never get our money back."

Rebutting the Nationalist Party’s claims that the number of poor people in Malta was increasing, Scicluna said he knew of no country that didn’t have its own cases related to the issue of poverty. “You should judge the government on how it minimised poverty. In fact, people at risk of poverty went down to 19.3%,” he said.

“Since such a lot was said on Individual Investors Program and its contribution to economic growth, it’s important to point out that revenue generated from the passport scheme has been cut by half, so that the net growth of the IIP is just 0.5% of our surplus,” Scicluna added.

He said the general government debt as a percentage of the GDP had gone down to 46% and that this was important for future generations.

“Every measure that the government has put into place aimed to hit four targets: that poverty is reduced by creating employment, that low incomes are addressed, that low pensions are dealt with, and that vulnerable persons are helped.”

This was done via tax refunds, free school transport, affordable housing benefits, an increase in the minimum wage, free childcare services, enhancing service pensions, and tax exemption on pensions among other measures, he added.

Partit Demokratiku warned of runaway economy dangers

Partit Demokratiku welcomed the finance minister's remarks, it said in a statement. The statement also said that the small party noted a contrast between Joseph Muscat's "optimistic remarks" and the former's prudent speech.

PD insisted that without the IIP, Malta would have a primary deficit and that the effects of government's increase in 12.7% recurrent expenditure is compared to only 6.3% increase in recurrent revenues.

"A primary account surplus of €251.5 million is registered before interest and capital expenditure. If the latter two parameters are to be accounted for, Malta's consolidated deficit for 2018 would amount to €70.2 million," the statement read.

“Malta is clearly exposed after reductions of IIP coupled with the fact of an eventual, inevitable slow-down in economy. It is not easy for government to reduce recurrent expenditure in the short-term, so a future significant growth will be worrying. We have an unsustainable economy,” said party leader Godfrey Farrugia.

PD remarked that the government has doubled its infrastructure expenditure in 2018 and is fuelling an economy that was already fully employed.

“Rather than building a war chest for fighting an eventual slow-down, government chose to spend now, fuelling growth in the number of migrant workers.

“It seems that the main increases in expenditure have been in programmes and initiatives and contributions to government entities. Where exactly is the money going to?” the statement asked.

PD said that a government that holds Malta dear would tighten on spending during an economic upturn and spend more on capital expenditure during a slow-down. Our economy is unsustainable, given the huge increase incurred in unproductive recurrent expenditure and government’s dependence on IIP.

Correction: A previous version of this article quoted the minister saying that economic growth "needs to slow down". This was incorrect and should have read that government was forecasting slower growth at 5.7% in 2020.