When an institution whose entire purpose is to assess government figures tells us, in no uncertain terms, that the country's growth model cannot hold, the country must stop and listen!
The Malta Fiscal Advisory Council is an independent body, created by law to advise government about its economic policy. So, when in its analysis it starts sounding alarm bells, about the current model, then something must be wrong. Malta's economy, it says, continues to expand on the back of population growth, imported labour and public spending rather than on genuine growth in productivity. Now where have we heard that before?
Investment in research and development sits at roughly 0.3 per cent of GDP, a figure that would embarrass any country claiming to take innovation seriously. Employment keeps climbing and unemployment keeps falling, which are both good signs, obviously, yet the council has been explicit that this labour-driven expansion is reaching its structural limits, straining infrastructure, public services and the very competitiveness it is meant to sustain.
Rising wage costs, driven not by productivity improvements but by the sheer difficulty of finding workers in a tight labour market, are steadily eroding the price advantage that has long made Malta an attractive place to do business. A country that keeps raising its costs without raising what it produces for each euro spent is, sooner rather than later, going to price itself out of the very markets it depends on. We're not talking about cheap labour here; we're talking about competitiveness.
This touches the economically existential question of what kind of economy Malta wants to be a decade from now. The council has been consistent on this point across successive reports: the shift from domestic demand to export-led, innovation-driven growth is a pressing priority. Addressing skill mismatches through education and training, investing seriously in digitalisation and environmental sustainability, and treating fiscal policy as a tool for enabling productive investment rather than financing recurrent spending commitments are the recommendations the council keeps repeating, because government keeps failing to act on them.
Unfortunately, government is spending as though the current run of favourable conditions, that is, cheap borrowing, strong tourism volumes, and the importation of third country nationals to fill the labour gaps, can carry on indefinitely into the future. Well, it cannot.
Sadly, this is only the latest instalment in a pattern of similar reports, stretching back years, in which the same institution has told the same government that its growth is the wrong kind of growth, built on inputs that cannot be scaled indefinitely rather than on the value each worker and each euro of investment actually creates.
A government that hears the same warning repeatedly and responds each time with the same reassurances about strong headline numbers is not managing the economy, it is only managing the message.