. The NRP, covering the period 2005-2008 and which was approved by the government and submitted to the European Commission in October 2005, is Malta’s contribution to addressing the Lisbon Strategy’s primary goals related to competitiveness and economic growth.

This report aims to capture the progress that has been registered by Malta over the two years since the publication of its NRP and to demonstrate how these synergise with the Spring European Council Conclusions. To this effect, a thorough stocktaking exercise has been undertaken, in collaboration with all ministries and in consultation with the constituted bodies, to capture the progress that has been achieved for each of the measures that have been proposed. In its NRP Malta had identified five pillars, namely: the sustainability of public finances, competitiveness, employment, education and environment. During the past two years various measures have started their implementation process and a number of these measures have also been adopted.

Macroeconomic reforms

The sustainability of public finances pillar in Malta’s NRP is considered crucial not only from a structural perspective but also in terms of achieving the required convergence criteria. Malta has been working to improve the sustainability of its public finances and such initiatives are already yielding results.

Malta’s biggest challenge this year was its preparation to join the ERM II and the subsequent adoption of the euro. Malta was officially given the go-ahead to adopt the euro on 10 July with conversion due on 1 January. The road to join the eurozone was challenging for Malta considering that, for Malta to be eligible to introduce the euro, a substantial reduction in the country’s fiscal deficit was required. Within this context, Malta has achieved its target of having a deficit ratio of less than three per cent in 2006. In fact, from a figure of 6.4 per cent in 2001 the deficit ratio decreased to 2.5 per cent in 2006. This is an independent certificate in itself of Malta’s achievement. The main highlights within this pillar include:

In 2005 and 2006, GDP grew by 3.1 per cent and 3.2 per cent in real terms. This improvement in GDP growth was sustained further during the first six months of 2007.

Although Malta’s GDP per capita in PPS stands at around 73 per cent of the EU-25 GDP, the fluctuations observed over the NRP period are broadly in line with that manifested in the EU-25.

In terms of real GDP growth, Malta’s has not only fared better than the EU-25 year-on-year but has a growth rate which is consistently higher throughout the NRP period.

Malta’s general government deficit has been following a downward trajectory path and the budgetary consolidation that commenced since 2004 continued in 2006. In fact, the general government deficit declined to 2.5 per cent of GDP in 2006, thus below the three per cent reference value. In 2007 it is expected to have fallen further to 2.1 per cent and according to the 2008 budget projections it should fall to 1.2 per cent next year.

The debt-to-GDP ratio fell from 70.8 per cent in 2005 to 64.7 per cent in 2006.

In terms of general government debt, Malta noticeably reduced its debt by 5.9 percentage points over the period 2005-2006 as opposed to the EU-25 reduction by 1.1 percentage points over the same period. Although at a level which is higher than the EU-25, Malta’s debt is comparable to that of the EU-25 reflecting the positive initiatives taken over the period under review.

Additionally, a number of indicators also demonstrate the importance given by the government to social cohesion as this aspect of Maltese society also helps make Malta an attractive place to work and live, thereby contributing to the goals of the Lisbon Strategy and upholding Maltese and European values. For instance:

Malta’s inequality of income distribution in 2005 stood at 4.1 as opposed to the EU-25’s 4.9. This reflects Malta’s lower pay gap disparities between the extremities of the employment strata.

Malta fares consistently better at limiting the at-risk-of-poverty cohort of its society across gender as well as before and after social transfers. This means that Malta’s care for the weakest elements of society is well above average levels within the EU-25.

Malta’s jobless household rating across all age groups and gender shows not only a constantly decreasing level but also betters the EU 25 scenario.

Microeconomic reforms

From a competitiveness standpoint, various measures addressing different sectors of the economy have been undertaken. An example of such measures is the attraction of Foreign Direct Investment. This measure has proved to be a success story especially when taking into consideration the SmartCity project. This project is not only a direct reflection of the progress that Malta has made in the FDI sector but also contributes towards Malta’s competitiveness within the ICT sector. It is envisaged that through this project an estimated Lm110 million will be invested and 5,600 jobs will be created, making this project the largest ever foreign investment in Malta. Other areas which are highlighted in the report under the competitiveness pillar include: industry and business investment; better regulation; information and communication technologies and eGovernment; tourism, research and development; financial services and port reform. The latter has been achieved without any industrial unrest and has resulted in increased activity, greater efficiency and reduced rates if one compares like with like.

Often enough, competitiveness and environment protection are considered to be forces that pull in opposite directions. In part, Malta’s competitiveness is derived from activities that are complementary with an environment that offers a good deal of protection – tourism being but just one example. Furthermore, geographical and demographic characteristics ensure that the pursuance of environmental measures become complementary to Malta’s drive towards competitiveness. Consequently, environmental measures are featuring heavily in Malta’s microeconomic measures. The main highlights within this pillar include:

Business investment for Malta shows a growth over the period 2005-2006 and is comparable to the EU-25;

Market integration as measured by FDI intensity places Malta (5.4 per cent as at 2006) at a significantly higher level than the EU-25 (1.2 per cent as at 2006). This is even more pronounced when one takes into account that FDI outflows from Malta are negligible when compared to respective outflows. In tangible terms Malta’s FDI inflow rose from Lm 143,273,000 in 2004 to Lm 218,821,000 (a year-on-year growth of 52.7 per cent) and by the third quarter of 2006 this figure had risen to Lm 487,658,000 (a year-on-year growth of 122.8 per cent);

As at 2006, Malta’s level of internet access stood at 53 per cent compared to the EU-25’s 51 per cent;

Malta outshines the EU-25 in terms of E-government online availability with 75 per cent of 20 basic public service available online as opposed to the EU-25’s 51 per cent as at 2006. It is interesting to note that businesses in Malta have taken to the usage of e-government services at a higher rate than individuals;

Broadband penetration rates (ir130) in Malta have grown significantly from 3.5 per cent in 2004 to 12.8 per cent in 2006 and compare favourable with the EU-25;

Malta has also achieved a second place in the Cap Gemini Report in the supply of online public service provision coming second only to Austria;

During the first eight months of 2007 the number of tourists visiting Malta increased by 58,038 to a total of 825,874 while the average amount of nights spent by tourists in Malta increased to 9.8;

The number of visiting cruise passengers increased by 26.6 per cent to a total of 295,220 passengers when compared to the same period in 2006;

Malta’s financial services sector is also registering significant growth progress with a contribution to GDP of 12 per cent (direct and indirect contribution) in 2006 and employing around 6000 people.

Although Malta’s rate of municipal waste generated and landfilled per person is higher than that of the EU-25 cognisance must be given to the fact that developments are currently under way to construct a first treatment plant that will limit the amount of MSW landfilled.

Censu Galea is Competitiveness and Communications Minister

Part II will be published tomorrow