Malta has recently celebrated its 20th anniversary since it became a member of the European Union. Anniversaries offer a good opportunity to reflect on past developments and the way forward. EU membership has represented a paradigm shift towards a more competition-friendly environment, as it allowed the free movement of labour and capital and paved the way for the switch from the Maltese lira to the euro.

GDP at Purchasing Power Standards (PPS) is the Key Performance Indicator (KPI) normally used by economists to assess the effect of EU membership. This indicator looks at GDP per capita adjusted for price level differences across countries, and with all its caveats, serves as the best proxy for standard of living. In 2003, Malta's GDP at PPS stood at 84% of the EU average, whereas by 2023, this had increased to 105%. Except for Cyprus (which was badly hit by the Greek debt crisis), all countries which had joined the EU together with Malta have benefitted from the economic convergence predicted by economic theory. In 2023, Malta topped the list as the "richest" country from this cohort, the only one to exceed the EU average so far. This achievement is remarkable when considering that over the past twenty years the international landscape presented major shocks which threatened to derail a small very open economy like Malta. The country's resilience to the global financial crisis, debt crisis, pandemic, and surge in inflation would not have been possible without the protection, confidence, and tools available to an EU member using the euro.

Three of Malta's present economic pillars, gaming, financial sector, and tourism have also benefitted strongly because of EU membership. The ability to serve other EU countries seamlessly from Malta has been a strong pull for Foreign Direct Investment (FDI). Meanwhile, the common currency lowered interest rates compared to the Maltese lira period and facilitated the record expansion in tourism. In turn, structural transformation has enabled the economy to become more diversified. Furthermore, job creation has been very strong, facilitated by the importation of foreign workers, and leading to a record low unemployment rate.  

Celebrating Malta's success story is important and should act as motivator to meet the challenges ahead. Malta needs to shift gear to meet the expectations from a country that has now been member a member of a leading economic bloc for 20 years. Future economic growth is likely to normalise now that Malta's standard of living has converged to that of the EU. Long term growth can only be sustained through productivity increases, which ultimately depend on human and physical capital deepening and technology advancement.

Some of the material themes over the next years which are likely to pose their own challenges and opportunities include the environmental transition, tax harmonisation, and Malta's net financial balance vis-à-vis the EU. The EU's leadership ambition in the field of climate change implies costs and behavioural change, which can be supported through judicious use of available financial assistance. Commitments towards a fairer global tax system places obligations on the country, necessitating more emphasis on building FDI attractiveness on fundamental economic factors. Possible new expenditures at an EU level, such as on military spending, may increase the bill of EU membership, at a time when more resources could be redirected towards future poorer joiners. This makes it more important to channel future EU funds and other assistance from abroad into the highest value-added projects.

Over the next decades, Malta's international economic dialogue needs to focus on po-active negotiations on justifiable economic issues, such as the country's innate problems of small size and physical barriers, while accepting that a country enjoying an above EU-average standard of living carries its ethical responsibilities.