The government's economic model aims to incentivise economic growth, Minister Silvio Schembri said, and labelled the argument that the model was built on the importation of foreign labour as not correct.

"This argument that our economic model is built on the importation of foreign labour is completely misleading. The economy is something dynamic."

Interviewed by The Malta Independent on Sunday, Schembri said that an economic model is not economic activity per se. "This government's economic model is to incentivise economic growth so that the country could be as resilient as possible." He said that one incentivises economic growth in diverse ways to reach diverse goals.

In 2013 there was huge unemployment, we were in an excessive deficit procedure, foreign direct investment had dried up, and we had a stagnant economy. At that time we needed to create jobs, Schembri said. 

"When faced with the problem of the breadwinner in a family being unemployed, you wouldn't talk to them about quality when the fundamentals weren't even in place. If you are unemployed you wouldn't be looking at buying a better TV or new car, firstly you would look at how to find a job."

The economic priority for the Labour government in the first five years was to create jobs and start economic activity, while ensuring that the country's finances were brought into place, Schembri said. "You can talk all you want about the beautiful things you want to do, but if you don't have the funds to do them, it would remain just talk. I believe the PN in government had wanted to do many things, but it was not capable of growing wealth."

The second transition

He said that when the government started the second transition, the pandemic struck. "The focus in those two years was on keeping what we had. While we saw strong countries being brought to their knees, with all the resources they had, our focus was to at least keep what we had so that when everything passed, we were able to restart."

In 2023, the next phase began, for the economic strategy to focus more on value added activity than on the creation of jobs, Minister Schembri said. "Since then, in terms of the kind of investment I announced, they are along that line - in the aviation sector, semiconductors, medical technology, pharmaceuticals, digital sector, blockchain, crypto, video game development, esports...If we look at Malta's GDP growth from 2023 forward, we had a big spike in economic growth because we focused more on value added. But we were only able to do so then. You do not focus on value added when you have around 8,000 people unemployed, first you need to ensure jobs."

He said that the PN tries to criticise the economic model. He said the PN doesn't offers 'solutions'. He said that as much as the PN criticises the population size and speaks about overpopulation, "have you ever heard them say from where they would reduce the population if elected to govern? Which sectors, which according to them are cheap labour, will they close? They never say because they have no idea, and also because the criticism they make is simply populist without an economic basis." 

He said that the Vision 2050 document outlines which sectors the government wants to grow. 

"Four years ago the criticism was that we weren't creating new economic niches. Today we no longer hear this criticism. You don't create a new economic niche one day, and see the results the next day. You start to see the results 3-5 years later." 

He said that the government started processes to create new economic niches in 2018. "At the time we drafted the framework for blockchain and cryptocurrencies, we worked on the space economy and the digital sector, in 2019 we launched the video game development and esports strategy, and eventually nomad visas. These were all economic niches that we started working on back then."

He said that when the PN rightly worked on the gaming sector, it took 8 years to mature, "and this government then strengthened it and further grew the sector. It's the same with these new economic niches." He said that Vision 2050 will ensure that these new niches continue to mature.

Economy and construction

Schembri acknowledged that Malta's rapid economic growth and labour needs triggered a housing rush that lacked proper coordination. Admitting that this resulted in "uglification," he agreed that the country must prioritise long-term planning to better manage future development.

"The reality is that as a country we grew at a very rapid pace. Planning-wise, we could have done better. When it comes to the concept of uglification and certain standards, yes, there we can do better. In fact, one of the four pillars of the Vision 2050 is about this." He said that the scope of the vision 2050 is more coordination.

In January, the minister had said that Malta secured a major private investment that is poised to be the "largest foreign direct investment" in the country's history. The minister said that more details will be announced in the coming weeks. He said that last year the government revealed the biggest foreign direct investment, which was by STMicroelectronics, "where we were talking about an extension of an existing factory." He said that what he referred to in January is the biggest new foreign direct investment.

Every war creates uncertainty

Minister Schembri was asked about his concerns regarding the possible impacts of the Middle East war on Malta's economy.

Every war creates uncertainty, the minister said. "When you have uncertainty, that automatically has repercussions which impact countries differently depending on the structure of that country."

Malta has a relatively small economy, but which is very open, he said. "Economic activity very much depends on what happens abroad." 70% of all products consumed in Malta are imported, he said. "So we depend a lot on logistics and the supply chain. In every situation one needs to analyse how it will impact us." He said that the present geopolitical situation is very hot, "but I want to ease people's minds that, as the Prime Minister said, the government is all hands on deck. We are following the movements with all the necessary plans, which can be put in place if needed."

He said that the government has a number of years of experience in the job and faced a number difficult situations, including the pandemic and the Russia-Ukraine war's impact. "Today we have experience in how to deal with similair situations," he said. 

He said that presently it does not seem Malta's supply chain will be significantly affected by the war in Iran. "As a supply chain, so far it does not appear that we will be significantly affected, because the Freeport has been operating the route via the Cape of Good Hope for a long time." There may be some temporary delays until the demands of other vessels that previously did not use this route are adjusted, he said, but the situation is fluid and that contingency plans must always be in place and ready to be enacted if needed.

Government monitoring the situation

While the government has said it will keep the energy and fuel subsidies in place, there are concerns about increased costs borne by logistics operators. Asked whether the government is considering implementing more support measures for logistics companies to ensure any price increases would not be passed on to the consumer, the minister said that the government is monitoring the situation.

He said that the government is following the statistical data and how things are unfolding, such as for the prices of fuel and cereals, which he said provides a more real picture of the situation on the ground. "Today we have the experience to know how certain things could be impacted."

He made reference to the Stabbilta mechanism measure back in 2024, saying that many were sceptical, "but I knew what I was doing. There were particular essential products whose inflation correlation in our country was not reflecting the real situation. When I met with importers and retailers, I explained this with the figures I had in hand. I carried out the monitoring in a scientific manner, and that is why I managed to bring the majority on board and they agreed with the plan, once I explained the impact it could eventually have."

He said that the government's monitoring is being done scientifically. "So we would know if there would be an effect on inflation, imported or not. For each kind of effect you then need to implement a tailored measure, not simply a wide-ranging one." He said that inflation is divided up into different parts, including imported inflation, induced inflation, supply-side, demand-side etc. "There is no measure in economics that impacts everyone and everything like magic. There are also certain measures which, if implemented, you would think would help but would not."

The economic tools that the government can use are available thanks to the country having a strong economy, he said, "and the finances permit us to have a cushion, what we call the war chest," the minister said. "But you intervene where there truly is the need, because if you intervene simply due to certain pressure in the media which might not necessarily be reflected in the reality of the figures, then it could cause more harm than good." 

On fuel, he said Malta's purchase is hedged for a number of months "which gives peace of mind that the price is guaranteed."