The Maltese economy was very prone to shocks outside Malta’s control, as proved by the adverse effects of the September 2001 attacks on tourism and manufacturing industries here, and the more recent rise in international oil prices, Finance Parliamentary Secretary Tonio Fenech told a conference yesterday.
The International Conference on Small States and Economic Resilience, was organised by the Commonwealth Secretariat and the Islands and Small States Institute of the University of Malta.
The conference follows three expert workshops organised by the Commonwealth Secretariat and the University of Malta on the theme of the vulnerability and resilience of small states. These workshops contributed to further develop the concept of economic vulnerability, defined as the exposure of an economy to shocks, and resilience, being the policy-induced ability of an economy to withstand the adverse effects of shocks.
Mr Fenech said the concepts of vulnerability and resilience featured prominently in the economic policy strategy of the government of Malta.
A cornerstone of the strategy for Malta to overcome the effects of its inherent vulnerability was to seek regional integration through attaining membership within the European Union. “This momentous step opened up a huge market for Maltese exports, facilitated access to import markets, and is allowing Malta to access funds and resources to build its competitiveness so as to be better able to withstand the adverse effects of shocks,” Mr Fenech said.
“Malta’s credibility as an investment location has also improved considerably, as shown by the record amount of foreign direct investment, amounting to over $1.6 billion, attracted in 2006, and new projects in the pipeline including the development of an IT city that is expected to increase the country’s GDP by around seven per cent. In effect, through regional integration, Malta can punch far above its weight in the international arena.”
A critical factor in Malta’s participation in the EU is the adoption of the euro, a step which will further contribute to resilience-building by enhancing monetary and financial stability and easing the undertaking of international business primarily by reducing risks.
Malta further strengthened its economic resilience in the process of preparing for the adoption of the euro, as this required the country to reduce its fiscal deficit to sustainable levels. It is highly probable that in the absence of the spur of international competition and regional integration, the necessary resilience building strategies would have been undertaken at a slower, and probably less effective, pace, Mr Fenech said.
“This is not to say that success came our way in a costless manner. As a small country, the onus of compliance with the requirements of regional integration is proportionately higher, due mainly to the lack of resources and the problem of indivisibilities. These arguments, including that of vulnerability, helped in no small way in securing for Malta relatively high levels of assistance from the European Union and over 70 derogations from its rules, in consideration of the special circumstances of its economy.
“These concessions, however, should not be viewed as an act of charity towards Malta, but merely as necessary conditions for Malta to effectively participate as an EU member state on a level playing field, at par with other larger members within the union. This is a prime example of how well-focused research on the economics of small states can effectively help to secure better conditions for them in the international arena to ensure that they participate as equal players in the international business sphere.”