The Governor of the Central Bank of Malta, Alexander Demarco, said that the government's energy subsidies should not last forever and exit strategies for Malta are needed to phase itself out from them.

Interviewed by The Malta Independent, Demarco said that subsidies should be timely, targeted, and temporary. He acknowledged that the energy subsidies were timely as they served the Maltese economy well at the time they were introduced - even according to a CBM study.

Demarco observed that when the subsidies were introduced in 2022, "energy prices had become volatile and had risen sharply after the Russian invasion of Ukraine at the time." This affected household spending confidence and businesses' confidence to invest, due to higher costs, he said. This uncertainty for investors and consumers "is always negative for the economy," Demarco mentioned. The subsidies had avoided such negative confidence effects.

He observed however that "energy prices have come down quite a bit in the last two years."

The CBM Governor declared that subsidies should ideally have an end date "because sustaining it forever is likely to have a permanent drag on public finances and on the balance of payments."

Hence, while leaning towards renewable energy is commonly proposed to safeguard the natural environment, Demarco pitched for Malta to increase its investment in renewables as a way to reduce Malta's dependency on fossil fuels and hence exposure to their volatile prices, as his preferred exit strategy for the sustained energy subsidies.

The European Commission has advised Malta time and time again to cut out its energy subsidies, especially as Malta is currently in an excessive deficit procedure due to recurring significant budget deficits since the pandemic. The subsidies aimed to target the whole economy, which is why they apply to all households and businesses on the Maltese islands.

The Central Bank Governor commented that he doubts "offshore wind farms will be enough" for Malta to reduce its dependence on fossil fuels, i.e., brown energy.

"Now, the thinking also for Europe is to become independent with its energy sources after its reliance on Russia, and now on the USA. In my view, this is only possible with renewable energy for Europe, and I think we should go in this direction too," Governor Demarco said.

Given Malta's land area and existing technology, he was of the view that it is not possible for Malta to produce all the renewable energy it needs.

He suggested that Malta could potentially, apart from other neighbouring European countries, also connect with other states in Africa that offer solar energy there, though this also comes with energy security risks due to the political instability within these regions. That being said, in his view, "that would allow the phasing out of the subsidies."

A government policy launched in October 2024 declared that Malta is aiming to increase its renewable energy generation share from 10% to 25% by 2030 - mostly by leaning into offshore wind farms.

According to Eurostat, Malta currently ranks bottom out of all EU countries from the share of electricity consumed that was generated by renewables; just 10.7% of all energy consumed across the Maltese islands in 2024 was generated from renewable energy. In contrast, Austria generated 90% of all its consumed electricity in 2024 from renewables while almost half (47%) of all energy generated within the entire European Union came from these clean energy sources. Simultaneously, Malta ranked fourth bottom in the EU-27 for the proportion of its total generated energy deriving from renewables, with just 17.2%.

At the moment, most of the energy in Malta used for heating and cooling purposes (59.2%) is derived from renewables. Malta ranks fourth highest in the EU in this regard, only behind northern European countries Sweden, Finland, and Latvia.

Alternatively, the CBM Governor said that Malta "could better exploit the price mechanism with respect to sectors, for example, that use energy extensively and that are doing very well," such as tourist accommodation establishments.

Demarco noted that these establishments use "quite a lot of energy" in water and electricity, and that "if the sector is doing very well and there is a demand for tourism in Malta, then why not be able to pass on the cost of energy, rather than subsidize them, [and start] charging them for what is the actual cost of producing energy."

Demarco acknowledged that affected groups would lobby that this would affect their competitiveness but argued that it could be a feasible option to cut down the energy subsidy from this sector, since tourism expenditure and revenue have sharply been on the rise in the last couple of years.

Nevertheless, Demarco believes that the shift to renewable energy would serve as a more long-term, sustainable solution since otherwise, Malta will remain vulnerable to international fossil fuel prices and experience such vulnerabilities again when the next shock arises.

CBM is not holding gold as a strategic asset, currently has around €50 million worth in gold holdings

The Central Bank of Malta is not stockpiling gold as a strategic asset, contrary to what several major central banks around the world, Demarco said.

For many years, the Central Bank of Malta has used gold as a tradeable asset, rather than as a strategic one, Demarco said. The CBM Governor was asked on its gold and silver trading in light of these commodities skyrocketing in value over recent months. The price of silver has more than doubled in the last six months while the price of gold has gone up nearly 50%. Since H1 2022, the price of silver has quintupled, while gold has nearly tripled.

The CBM's financial assets have increased in worth from €2 billion to €3.4 billion in the last five years; its portfolio is split into two parts: strategic assets (to buy and hold) and tradeable assets used for profit.

Over the past five years, the Central Bank of Malta has netted in some €27.5 million in gold trading, with around €11 million still unrealised in their accounts. Governor Demarco said that the CBM currently holds around €50 million worth of gold, a notable increase from the €4 million back in 2008.

The Central Bank has over the years been also building a stock of financial provisions to help it withstand financial shocks that may hit it, as was the case in 2022/23 together with other Eurosystem central banks.