Is Malta's economy running on hot air and not sufficiently grounded on exports?

Do we strive to acquire more tourists yet not conscious that this popular sector, much applauded by Castille, has been making us close our eyes to the real cost of reaching a higher intake. We are surrealistically running into over-tourism.

Quoting economist Kurt Muscat (EMCS) in The Malta Business Weekly: while the tourism sector is praised by government and lobbyists, its unchecked growth carries hidden costs. Typically, of the €3.29 billion that tourists spent in 2024, only €2.47 billion benefited the economy, mainly because 78% of tourists travelled to Malta with foreign airlines and hence the €0.82 billion travel costs never reached us.

More importantly, politicians should not continue to measure growth in terms of tourist spending but in what impacts the economy. The results for tourist arrivals in 2024 have been lauded to high heavens by our political leaders. These show €2.47 billion of tourist spending that reached the economy and has generated €1.49 billion in gross value added (GVA). But this is only when direct and indirect effects are considered. When induced effects are included, this rises to €2.03 billion. Rather than contributing to stellar growth, or being a prime milking cow, this means that realistically in 2024, tourism contributed between 7.2% and 9.8% of the economy.

In political and loyalist jargon, tourism has been hailed as that sector generating 25% of gross value added. To be realistic, nothing I have said lowers the importance of tourism as a steady contributor towards the common fold. It started modestly in the early 1960s and has grown steadily across the years; so much so that billions of euros have been sunk in erecting high rise seaside hotels, towers, shopping malls and luxury apartments.

Is this an inexcusable drive for wealth creation when the average tourist spends a mere €140 per capita daily? Surely, as a result of GDP growth, the island is facing the phenomenon of lack of labour. More, imported labour from third world countries has now reached a high proportion of the working class.

George Mallia (a professor in Communications) has written in a local newspaper, that locals are blinkered by the concept of wealth creation, unable to realise that the real wealth is happiness, not paper or plastic. Has the pursuit of richness made us unable to recognise the problem, much less address it? He advocates that it is time to switch to the way of meritocratic technocracy - getting those who have studied the actual problems, who understand and who can proactively fix things, to do just that, unafraid of dire solutions that will lose them votes. The drive for wealth creation by robber barons and speculators has found a welcome embrace from politicians.

Is this a sign that our lives are becoming stressed from incessant noise and air pollution, slime in most bays, sewage outflows, power cuts and questionable health facilities. There is a growing incidence of daily traffic fatalities partly due to excessive congestion of cars and heavy transport machines trying to serve the building boom. Yes, I agree with George Mallia, that our tiny island is now an urban area. He writes about an overcrowded, noisy, dusty, suffocating island, where the total lack of green spaces, with land is sanctioned by Castille to greedy developers, ready to dream up pencil developments around traditional two-storey high street scapes. Pity, when mature trees are cut down for new streets (for example, Marsalforn road to Rabat) and ODZ fields confiscated under recent laws and possibly given planning permission.

Is it a mild form of avarice cautiously permeating our psychological and social conditions? For the love of money is the root of all evils; and driven by greed, some developers have strayed from integrity and burdened us with grief. At the end of July, the NSO reported how Central Government debt stood at €11,162.4 million, an increase of €1,392.7 million when compared to 2024. The increase of €1,291.4 million reported under Malta Government Stocks (national borrowing) was the main contributor to the rise in debt. Higher debt of €81.7 million was also reported under Treasury Bills, Foreign Loans (€77.7 million) and Euro coins issued in the name of the Treasury (€3.8 million). This increase in debt was partially offset by a drop in the 62+ Malta Government Savings Bond (€38.5 million).

All this is still under the 60% of GDP red line mandated under Maastricht rules but we may soon reach it at this trajectory under the shadow of a Damocles sword - an election budget. In 2024, the biggest share of debt by remaining maturity was in the one- to five-year category with €3,757.4 million, followed by the seven- to 10-year category (€1,929.3 million) and less than one year category (€1,370.4 million). Checking on government guarantees on borrowing, these reached €954.8 million in 2024, or 4.2% of GDP, a decrease of €187.4 million over 2023. It is remarkable to observe that most Government guarantees are issued towards the Non-Financial Corporations sector, which accounts for 66.1% of the total guarantees.

The finance minister said that in the light of a creeping deficit, he has introduced stronger tax enforcement. In his view, this shall play a role in reducing Malta's budget deficit, a trend acknowledged by both the International Monetary Fund and the European Commission. In conclusion, once our collective efforts to balance our books has gone into over-drive, can we repent and act contrite and be ready to release ourselves from the grip of growth at all costs? Quoting Timothy 6:10: "For the love of money is the root of all kinds of evil."

Avarice can be defined as an extreme greed for wealth or material gain, characterised by an excessive desire to accumulate more than one needs. The attempt to convert our publicly-owned, protected state habitats into private enterprise is sugar-coated avarice.

The Bible reminds us that we brought nothing into this world, and certainly we can carry nothing out. Having sufficient food and clothing, we should be content, and let us hope that the next budget includes measures to lower consumption taxes for families, providing relief from the rising cost of living.

George M. Mangion is senior partner at PKF Malta

gmm@pkfmalta.com