Malta

Outstanding growth will normalize, but still well above the Eurozone average

Strengths & weaknesses

Economic overview

The economy continues to recover, despite prolonged challenges

The post-Covid-19 GDP rebound was strong both in 2021 and 2022 (+12.4% and +8.2% respectively) and continued during 2023 (we forecast +6.1%) despite multiple challenges affecting the Eurozone.

The general government deficit-to-GDP ratio is estimated to have declined only slightly to around 5.0% of GDP in 2023. We also expect the government balance to narrow a bit further in 2024-2025.

To ensure growth, structural reforms are needed

Malta's economy is oriented towards services (tourism and financial services) but also towards exports in the manufacturing sector, particularly in electronics and pharmaceuticals. The onslaught of the pandemic has severely underlined the need for structural reforms, notably (i) investment in research and development (R&D) and (ii) improvement of the governance framework. Increased investment in R&D is needed to boost productivity and attract human capital to fill the skills gap. The improvement of the governance framework is also essential to ensure the increase and maintenance of foreign investment flows and the stability of the country's financial situation.

Malta's Recovery and Resilience Plan (RRP) will help to address some of the structural policy challenges. The RRP had an initial value of EUR344.9mn, while its amended plan is worth EUR336.3mn. Under the EU's Recovery and Resilience Facility (RRF), at the core of the NGEU instrument, Malta's RRF grant allocation decreased from EUR316.4mn to EUR258.3mn. In April 2023, Malta submitted a request to amend its NRRP, to which it added a new REPowerEU chapter with an additional grant allocation of EUR30mn. It also requested to transfer a portion of its share of the

Brexit Adjustment Reserve to its plan (EUR40mn. The plan includes the measures to help the country's green transition, accelerate the digital transition (primarily focusing on the public sector), increase the resilience and sustainability of the health sector and address challenges in education, labor markets, pension systems and the judiciary system.

Business environment and political developments

Malta was in the bottom of the first half of the 2020 World Bank Doing Business ranking: 88th out of 190 economies. The country achieved top rankings in enforcing contracts, trading across borders and protecting minority investors. In 2020, the country improved the reliability of its electricity supply by upgrading its grid and setting up a grid-operations control center. In June 2022, the Labor Party that has ruled the country since 2013 won the general election. In January 2020, prime minister Joseph Muscat stepped down as members of his government and staff were implicated in the murder of an investigative journalist. He has since been replaced by Robert Abela. The government will continue to face challenges including concerns over good governance, criticism over the “golden passport” scheme and the high cost of living.