A lot has been heard in the news about Malta’s peculiar and even perhaps unique economy lately, with the conclusion being that the country can sustain growth in the upcoming lean period, albeit at a slower rate.

The International Monetary Fund’s health check on Malta concluded that our economy, like most others, will face a slowdown in 2008-09, reflecting the unfavourable global scenario. But, it said, if the current administration continues to work diligently for increased productivity and not get complacent, things will ease in 2009.

In its report, the IMF said that the Maltese authorities must be commended for the successful adoption of the euro back in January, which it described as a crucial landmark in the growth-oriented reform agenda. But this is not the end of it; it is merely the beginning. The IMF said that while Malta did exceptionally well in adopting the euro, adhering to the Maastricht treaty criteria, it cannot afford to rest on its laurels and more emphasis must now be placed on increasing productivity and cutting out inefficiency and waste.

One of the main areas which need attention is the public sector. One does not need the IMF endorsement to realise that Malta still has a very bloated public sector, largely due to mass civil service employment prior to the 1987 general election by the incumbent Labour administration.

We are still struggling with that legacy today. Although we have seen some improvements, there is still a long way to go when it comes to full efficiency. What is worrying, however, is that when the country does need an induction of workers, such as the recent increase in healthcare employees, it shows up like a sore thumb on the graph, so much so that the IMF pointed it out. The public wage bill comprises 13 per cent of GDP, quite a substantial chunk.

In fact the IMF said direct public sector involvement in economic activities has been scaled down in the key areas of telecoms, postal services, airport and port services, though there remains a “large unfinished agenda”.

The report also warned that labour costs rose ahead of productivity in 2007, hence contributing to inflation. This, coupled with euro appreciation, caused competitiveness losses in unit labour costs relative to trading partners. What the report is saying is that one cannot expect wages and salaries to increase without an accompanying increase in productivity and efficiency.

With the current central scenario, growth will decelerate to 2-2.5 per cent of GDP in 2008-09. The increase in the price of oil products, commodities and food will keep inflation relatively high through most of 2008, although it will ease in 2009. Rising prices and already visible tighter credit conditions will curb domestic demand growth.

The IMF believes Malta’s greatest risk is complacency over reforms against the backdrop of an increasingly competitive global environment. The IMF said that if complacency sets in, Malta would risk falling back into a protracted period of economic stagnation as happened in other euro area states.

Yet, there is hope. Malta was one of 13 economies in the world highlighted by a Growth Report as having registered high sustained growth in the post-war period. Our economy was labelled an economic miracle. We live on a rock in the middle of the sea with no natural resources and hardly any natural water. What we do have, however, is a very stoic and adaptable character as a nation – proving that if we truly want something, we strive until we get it.

Our downfall is that we only push the pedal to the floor when it is almost too late. This time the government was forward looking and we seem to be relatively safe in view of the global slowdown. As the report said, we cannot afford to be complacent – after all, we are more vulnerable to shocks than many others.