The First Annual Progress Report for the National Reform Programme was submitted to the EU Commission before the 15 October deadline.
The National Reform Programme 2005-2008, is one of the government’s key strategic documents through which the country’s socio-economic development challenges will be addressed. It is primarily intended to address Malta’s national competitiveness in terms of the re-launched Lisbon Strategy.
The Lisbon Strategy was re-launched last year with the aim for Europe to become, by 2010: “the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion and respect for the environment”. The strategy focuses on two main priorities – economic growth and jobs. The EU is pursuing a Community Lisbon Action Programme while all member states have been asked to prepare National Reform Programmes based on a set of guidelines.
The National Reform Programme (NRP) with a governance structure based on a three-year cycle, commenced in 2005 (to be subsequently renewed in 2008), aims to set out a comprehensive strategy to deliver growth and jobs in line with the re-focus of the Lisbon Agenda agreed to in the Spring European Council. Several political, economic, social, technological and environmental factors affect Malta’s economic growth and international competitiveness and hence, the island’s employment growth potential. Malta has chosen five strategic themes, which form the pillars of its NRP. These are: the sustainability of public finances; competitiveness; employment; education and training; and the environment. These themes were chosen following a wide consultation process and discussions with the commission.
The First Annual Progress Report
This First Annual Progress Report aims to capture the progress that has been registered by Malta a year after the publication of its NRP. In addition, the Annual Progress Report demonstrates how the measures being implemented synergise with the priority areas agreed to during the Spring European Council 2006, namely: investment in knowledge and innovation; unlocking business potential, especially SMEs; employment; and, an energy policy for Europe.
To this effect, a thorough stocktaking exercise has been undertaken, in collaboration with all ministries under the coordination of the Management Efficiency Unit, in order to capture the progress that has been achieved for each of the measures that have been proposed. A whole-day meeting was held with a commission delegation last June where the state of play on NRP implementation was discussed in detail. The report was reviewed and approved by the Cabinet Committee on Competitiveness and subsequently by the Cabinet.
During the past year, various measures have started being implemented and a number of these measures have also been adopted. Budget 2006 included several NRP measures and Budget 2007 provides further impetus in Malta’s involvement in the Lisbon Strategy in that the measures announced therein contribute significantly to employment and economic growth.
Sustainability of Public Finances
The government is committed to remove barriers to economic growth and to implement the fiscal consolidation process. Under this strategic theme, the NRP includes specific measures aimed at:
• stimulating economic growth
• reducing expenditure and maximising resource utilisation in the public sector
• ensuring a sustainable protection system to address the impacts of social-demographic trends
From a macroeconomic perspective, our economy has grown by 2.2% in real terms in 2005. This improvement was sustained in the first two quarters of 2006, registering GDP growth rates of 2.6% in real terms. Malta has managed to further reduce the ratio of budget deficit to GDP which is already below the 3% benchmark in 2006 as outlined by the Prime Minister during his Budget Speech. In addition, the debt ratio has also started to reflect a declining trend. These results are encouraging and have been achieved through a number of initiatives which the government has embarked upon over the past years.
Such initiatives include the consolidation and better management of human resources within the wider public sector which are yielding significant cost savings. It is also worth mentioning the progress made within the pensions reform whereby parliament started debating the Bill amending the existing Social Security Act with a view to creating a sustainable pensions framework. The taxation measures announced in Budget 2007 are in full alignment with the NRP’s strategic thrusts and contribute to stimulating economic growth and increasing employment opportunities.
Competitiveness
Putting in place a sustainable macroeconomic environment is the foundation for any national strategy as a basis for other national competitiveness improvement measures. The government’s role in the economy is being focused on the regulatory aspect, facilitating rather than participating as an operator in economic activities. Within this context, the NRP aims to further improve:
• enterprise and industry
• tourism
• the nation’s infrastructure, especially, ports
From a microeconomic point of view, mobilising investment and reinforcing an entrepreneurial culture, removing as much as possible unnecessary obstacles or burdens to business growth acquire strategic importance. In line with the Spring European Council Conclusions, Malta’s future growth potential lies more in the development of knowledge-based industry. Furthermore, a National Strategic Plan for Research & Innovation 2007-2010 was launched as well as other measures such as the reform of the Malta Council for Science & Technology and the set-up of EuroMedITI.
Following the establishment of the Better Regulation Unit, the government has announced in Budget 2007 the implementation of a simplification action plan targeting both citizens and businesses. The plan specifically identifies processes and forms which will be simplified, further eGovernment services and ICT improvements, consolidation of entities and setting up of one-stop shops and obsolete legislation which needs to be revoked.
In addition, the government has published various legal notices aimed at enabling business activities. Another achievement attained by the government is the increase in FDI with special reference to the development of the SmartCity@Malta project which is expected to translate into 5,600 jobs. The government has also presented an Industry Strategy for Malta 2007-2010 with the aim of enabling industry to achieve quality high value-added and productivity growth. This was also one of the measures proposed in the NRP. Work is in progress on the port reform and the upgrade of key heritage sites as part of our tourism product development.
Malta’s competitiveness standing as measured by the World Economic Forum Global Competitiveness Index 2006-2007 Report has advanced five places in the list of the most competitive economies in the world, ranking 39th. The same report shows that Malta’s position has also improved when compared to other EU countries. It now ranks 19th – higher than Italy, Greece, Hungary, Cyprus, Lithuania and Poland. Malta ranked as the 21st country in the world (of 125 surveyed) which is most technologically-ready, up from 30th place the previous year. This is underpinned by the high level of penetration of mobile telephony, PCs and internet subscribers, as well as its strong commitment towards eGovernment.
Employment
The Lisbon Strategy clearly places job creation and economic growth in all its member states as the keystone of its objectives. Labour market performance is seen as being critical to the island. The NRP focuses on:
• youth employment
• measures to increase female participation in the workforce
• supporting transitions in occupational status
In 2005, one finds that the private sector registered an increase of 1.4% with more than 90,000 full-time employees. Various initiatives have been undertaken by the government among which we find a tax credit of e1,600 for two consecutive years to women who return to work after being absent for five years and an amendment to the Income Tax Act to extend the applicability of lower tax on part-time work to spouses working only part-time where their spouse is in full-time employment. In order to support transitions in occupational status, a significant number of training programmes for the unemployed have been launched.
Education and training
The NRP subscribes to the government’s strategy in developing a highly-skilled workforce by providing for life-long education for all to improve the country’s competitive edge and to address the nation’s competence needs. The specific measures planned till 2008 aim at:
• implementing inclusive education policies for adult learners and reducing the number of early school-leavers
• ensuring attractive, accessible and flexible learning pathways for all
Given the lack of natural resources, the level and standard of education play a crucial role in the Maltese economy as the collective human capital is our major resource. Steps taken by the government include setting up a Commission for Higher Education aiming to guarantee the quality of higher education. Moreover, life-long learning is being promoted through the regulation of the vocational educational sector and the provision of incentives in the form of scholarships at Masters and Doctorate levels. The establishment of a Community Technology Learning Centre and the continual investment in the physical and organisational infrastructure of educational institutions also substantiate the government’s efforts to strengthen compulsory education.
Environment
Environmental measures are featuring heavily in Malta’s NRP since the government believes that this is closely related to Malta’s competitiveness and to improve the general quality of life. Upgrading the nation’s environment and the pursuit of sustainable development are key aspects of the NRP which focuses on:
• promoting biological diversity
• fighting against climate change
In fact, various initiatives to improve the Maltese environment are taking place. The Environmental Technologies Action Plan is currently being finalised. A green public procurement plan and Green Office label have been launched.
Energy is becoming an increasingly prominent issue. Following the Spring European Council, the commission launched an Energy Policy for Europe. Similar developments have taken place locally. An energy policy for Malta and a draft renewable energy policy have been released and subject to public consultation. Economic and financial instruments related to energy efficiency introduced last year have been expanded in Budget 2007.
Many of the measures in the Maltese NRP require a substantial amount of funding and thus the best use of EU funds allocated to Malta is deemed crucial. To this effect, the link between the NRP and the National Strategic Reference Framework (NSRF) is a determining factor and the recently released NSRF document reflects this agenda. Furthermore, the report contains a detailed Assessment Grid showing the state of play of the identified measures.
The commission will shortly be commencing its reviews of the member states’ Annual Progress Reports and the Community Lisbon Action Programme so as to prepare the second annual report on the re-launched Lisbon Strategy. This will provide an input for the Spring European Council 2007.
Overall, the government is satisfied with the results obtained in the first year. Implementation is progressing as planned and the government is encouraged by the progress being achieved in the NRP policy areas. The measures the government is taking to put the country’s economy on a sounder footing, while improving the quality of life of the Maltese, are having the desired results. The NRP represents an important yardstick by which the government’s performance and the Maltese citizens’ quality of life can be measured.
Censu Galea is Competitiveness and Communications Minister