The above conclusion is not mine. It was reached in the recent somewhat under-reported European Commission Assessment of the 2011 national reform programme and stability programme for Malta in a detailed 23-page Commission Staff Working Paper.
While the report mentions a number of positives, in my opinion – although diplomatic language has been used – it highlights various problem areas and also shows concern about certain slackness and shortcomings.
These are the main areas of concern that saw the light of day in the report, which was published earlier this month.
• Malta’s growth performance has been volatile, reflecting its vulnerability to external shocks.
• Prior to the global economic and financial crisis, Malta experienced mixed economic fortunes. The decline in exports, together with the sharp retrenchment of investment and the depletion of inventories, were the key drivers of this decline.
• A negative trade balance, in particular for goods, has been the main feature of Malta’s external account deficit since 1995.
• Domestically oriented banks have experienced an increase in the share of NPLs – non performing loans – from 4.9 per cent in 2008 to 7.3 per cent last year. These remain vulnerable, given the difficulties in the real estate market, namely the recent correction in residential property prices, the possible oversupplying of housing units, the predominance of floating rate mortgage loans and relatively low coverage ratios.
• Real GDP growth is expected to decelerate in 2011-2012.
• In the medium term, Malta is expected to see slightly lower growth than that prevailing in the past decade.
• Various structural bottlenecks weigh on Malta’s growth potential. These relate to the long-term sustainability of public finances; competitiveness; labour potential; the diversification of the economy and the business environment and competition.
• The low participation of older workers and women in the labour market, and the prevalence of undeclared work, are likewise adding to the scope of the challenge.
• While Malta’s unemployment rate remains relatively low, its employment rate currently stands at 59.9 per cent, making it among the lowest in the entire EU.
• The employment gap is particularly large regarding women, with only 41.4 per cent aged 20 to 64 working in 2010, mainly due to their low participation in the labour market. For older workers aged between 55 and 64, the employment rate was 30.2 per cent.
• In addition, undeclared work is a widespread phenomenon.
• The size of Malta’s economy lends itself to market imperfections, with competition being very limited in some markets, leading to high mark ups, for instance in the electricity sector.
• In addition, administrative and regulatory burdens, particularly inefficiencies in the administration of support programmes and the non-transparency of existing regulation, are weaknesses that characterize Malta’s business environment.
• The share of energy from renewable sources remains marginal, as energy supply relies heavily on imported fuel, which makes the country particularly vulnerable to increases in oil prices.
• Employment is projected to decelerate this year at a faster pace in the programme than in the spring forecast.
• Wage growth per employee is much less dynamic in the programme than expected in the spring forecast.
• HICP inflation is projected to peak this year, even though it may ease next year.
• Government gross saving turned out more negative than budgeted.
• The MTO – medium term objective – programme does not mention a target year for achievement of the MTO that is to be reached after the programme period.
• The decline in the revenue ratio in 2014 is not explained in the programme.
• The budgetary outcomes could be worse than targeted throughout the programme period, mainly due to the lack of information on the broad measures behind the planned consolidation.
• In addition, expenditure overruns, linked to weaknesses in the budgetary framework at execution stage, have occurred in the past.
• The same risks highlighted for the budgetary targets apply to the programme’s pan for the debt ratio.
• Unless these are addressed, the budgetary stance in the programme might not be sufficient to bring the debt ratio back down on a firmly downward path.
• Malta is at high risk with regard to the long-term sustainability of public finances. The long-term cost of ageing is clearly above the EU average.
• Malta’s fiscal framework is on the whole flexible. While this may be a desirable feature in the context of a very small, very open economy, it also creates risks for expenditure overruns and the achievement of a sound fiscal position.
• A key weakness is the non-binding nature of the existing national medium-term budgetary framework, which also implies a relatively short fiscal planning horizon.
• The Maltese programme fails to provide concrete details on this plan.
• Undeclared work is recognised as a relatively widespread phenomenon, particularly in the sectors of construction and personal and domestic service. This phenomenon may also go hand-in-hand with long-term dependency on unemployment benefits.
• The notable discrepancy between demand and supply of skills in Malta suggests that there is a need to improve the skills base of the labour force in order to respond to the structural changes the economy has been undergoing since the beginning of the decade.
• A major challenge is the high rate of early school leavers. It is still the highest in the EU, at 36.7 per cent as opposed to an average of 14.4 per cent in the EU, despite the significant progress made in the past.
• If the same pace of progress is maintained in the decade ahead, the national target set by Malta for 2020 of 29 per cent does not seem sufficiently ambitious.
• After listing a number of positives linked to pro business measures, the report concludes that the success of these measures will depend on the monitoring of their implementation and outcomes in particular, since they are being introduced against a backdrop of repeated delays.
• The shortage of science and technology graduates, although having improved substantially, could partly explain Malta’s low R&D intensity.
• In the energy sector, the national reform programme contains neither an assessment of the ability of the existing and proposed emissions reduction measures to reach the 2020 target, nor operational targets such as domestic targets, intermediate targets and/or sectoral targets. The latter would contribute to efficient monitoring of the progress made towards the 2020 target.
• Only 4.8 percent of Malta’s total ERDF and cohesion fund allocation for the 2007-2013 programming period was dedicated to renewable energy and energy efficiency investments.
• In spite of the influence of the economic crisis, the recent evolution of the greenhouse gas emissions does not appear in line with the 2020 national target defined at European level (+5 percent compared to 2005 levels).
• Even more worryingly, the consolidation strategy after 2011 is not backed by concrete measures, and expenditure could over run, as has happened in the past.
Having been an EU member for a number of years now, one would expect such reports to be discussed and debated in some depth and at some length in the House of Representatives, even if need be without any vote being taken.
[email protected]
www.leobrincat.com
Leo Brincat is Shadow Minister for the Environment.