Every month now, we have a slanging match about the size of the public debt, where the Opposition accuses the government of establishing new records for the amount of the outstanding debt, while the Government says that there's nothing to worry about.  Who's right and who's wrong?  There's no hard answer: it all depends on the statistics one looks at.

Quoting the total amount of debt is standard and might be frightening, but in reality whether it is a problem depends on the economy's capacity to support borrowing over time. The overall debt figure can therefore obscure the bigger picture. Malta's fiscal story is more nuanced than often assumed.

Our public debt in 2025 reached €11.4bn: that is 849% of what it was in 1995.  Are we broke?  Far from it.  Whereas in 1995, our public debt as a percentage of the Gross Domestic Product was 34.3%, last year it was 46.4%: that's only 35.3% higher than it was 30 decades ago.  In other words, our production has grown so much that by comparison debt has merely blipped.

Even more telling is that our capacity to support borrowing has improved.  It is evident from the fact that whereas interest expenditure is almost six times higher than 30 years ago, it is absorbing relatively less financial resources.  Whereas in 1995 interest expenditure was 1.8% of GDP, last year it was 1.2%.  This is something that is rarely seen in indebted countries.  Nominal GDP growth has exceeded the effective interest rate on government debt.

Another remarkable development is that Malta has managed to reduce its primary deficit from 6.93% between 1995-2004 through to 2.68% between 2005-2014, to 2.23% between 2015-2025.  In other words, in spite of claims that Labour governments since 2013 have ruined the public finances, the opposite is true.

Various other factors have helped. First, Malta's debt portfolio has been locked in at low interest rates and relatively long maturities. The average remaining maturity of government debt in 2025 was 85 months, compared to 63 months in 2009.   Although average remaining maturity of Malta's total public debt for years before 2009 is not readily available, historical IMF and Central Bank data from that era indicate the domestic debt stock's overall average maturity hovered between 48-60 months.  In any case, remaining maturity has increased, meaning that if borrowing rates go up, they will take a longer time to feed through into the budget. The result is that the effective interest rate on the public debt was only 2.7 percent last year, compared to 4.2% in 2014. 

Another factor is that the combination of strong GDP growth, the return of inflation, some moderate growth in real wages, and high recurrent spending boosted tax revenues without the need for tax rate increases.  These have helped contain deficits, even as the government introduced support packages to cushion people from a rising cost of living. 

As a result, Malta's public debt ratio has declined from, 65.6% in 2012 to the mid-40s. Under current policies, it should reach a low of about 46.2% this year and then stabilise.  What the scenario is for the next four years is another story.  A combination of demographic pressures, controls on immigration, higher prices, and higher interest rates could sour the picture.

One aspect of Malta's public debt that is rarely mentioned is its impact on the country's balance sheet.  Public discussions of Malta's finances often focus exclusively on liabilities. But debt is only one side of a balance sheet.  Malta's public sector has accumulated a large stock of assets over decades, including cash, loans, and securities. Other assets include equity holdings and public sector investments. This means that net debt is considerably lower than the gross debt figures that feature in the headlines. How much depends on which assets are counted.

The total financial assets of Malta's government, including its public entities, stood at approximately €2.9 billion in 2025, with specific asset holdings including currency, deposits, equity, and other investments.  This reduces gross debt by around a quarter to a net 34.6% of GDP.  By this measure, Malta's debt is substantially re-dimensioned.

Then there are the non-financial assets of public entities and corporations, which include government-controlled market producers, authorities, agencies, and corporate bodies.  According to the NSO, these entities have property, plant, and equipment valued around €2.83bn.  These assets have grown by an average of €298m annually over the last three decades.

But a proper balance sheet   ̶   similar to that of a private commercial company - would show the massive amount of non-financial assets which boost the nation's public wealth.  Regrettably, there is no exact, aggregate real-time valuation of all public land, infrastructure, and heritage assets that is recorded in a single total euro amount, due to historical cash-accounting and evolving reporting structures.

Just to mention some, they include infrastructure assets such as the state-owned road networks, ports, maritime facilities, and public utilities managed by entities like EneMalta and the Water Services Corporation. Then there are land and buildings, such as public schools, state hospital, administrative government offices, and extensive tracts of government-owned public land.  Add to them plant, equipment, and vehicles, such as State-owned machinery, IT infrastructure, and transport fleets used by civil protection, the police, and various government entities.

And that's still not the end of the story.  Surely, like a private company shows intangible assets like intellectual property and knowledge, the State's balance sheet should show its huge intangible fixed assets. I am referring to the heritage asset portfolio of culturally critical, non-financial assets.  These would include historical operational structures like the Knights' Auberges and Palaces, which would be treated and measured on the same accounting basis as standard property and equipment.

Then there are the non-operational heritage assets, such as archaeological sites   ̶   Valletta's fortifications and the Megalithic temples, and various museum collections. Although these might not be reliably measured in euros, they would be disclosed via qualitative descriptive notes in national financial audits.

Although the government has transitioned towards adopting International Public Sector Accounting Standards (IPSAS 17) to systematically catalogue and value these intangible assets, I could not find a value that I can quote here.

Mind you, I realise there is a limit to how much these assets can be used to service debt.  I can't imagine that, in a severe financial crisis, the State would try to sell Ħaġar Qim or the Palace in Valletta, though I wouldn't exclude some magnate like Joseph Portelli or Tal-Franċiż making a bid to transform the former into an entertainment theme park or the latter into a boutique hotel. 

The balance sheet approach I have just explained is not far-fetched. A useful analogy is a household with a large mortgage and a substantial retirement account. Looking only at the mortgage would exaggerate the household's financial vulnerability. Looking only at the retirement savings account would ignore future obligations.  A full assessment must look at both sides of the ledger   ̶   just as it should do for Malta.

Public assets can play an important role in addressing fiscal pressures that build over decades.  In certain circumstances, asset management or asset sales can reduce the need to incur additional debt to finance services demanded by society.  This was the case of the successful partial privatisation of EneMalta. But assets are not a substitute for fiscal adjustments. Rather, they are part of a broader assessment of the public sector's financial position.

This balance sheet perspective helps to show that gross debt alone gives only a partial picture of fiscal risks.  This is not to say that we should go out and borrow like there's no tomorrow, however. 

Higher inflation and interest rates could transform Malta's public "balance sheet." Assets and liabilities are sensitive to interest rate moves.  In our case, currency fluctuations matter very little since foreign holdings of our public debt are minimal. Inflation can reduce the real value of nominal debt while boosting nominal asset values, and with our ageing population will gradually alter the pattern of savings and investment.

We need to look beyond gross debt to consider overall finances.  Despite recent progress and significant public assets, Malta's fiscal challenges cannot be ignored.  Today's favourable debt dynamics are temporary for two reasons.

The first pressure could be rising interest rates.  Although major central banks expect benchmark interest rates to hold relatively steady or experience minor, gradual fluctuations, this is based on the standard "all other things being equal" assumption. One can never exclude some kind of new financial crisis or global upset that might jack up interest rates overnight.

Our second pressure point is demography.  As the population ages, healthcare and long-term-care spending will continue to rise. Once these expenditures are financed by government, much of the resulting burden will fall on public finances.

The longer-term picture is challenging.  Rising government recurrent costs and spending pressures related to ageing will eventually impact fiscal sustainability. We currently have the advantage of slow-moving pressures, giving policymakers the opportunity to address them before they become acute.  Even small adjustments, if implemented early, can have large cumulative effects over time.

Economic growth is particularly important, but it should not distract from the need to address Malta's long-term fiscal challenges.  The dynamics of the public debt depend not only on borrowing but also on the economy's ability to generate income.  Growth-friendly structural reforms tend to strengthen public finances, often without imposing significant fiscal costs.   At the moment, most of the discussion is about the new economic model, but it should also be about other structural adjustments because what matters is the composition of adjustments rather than their size.

Reallocating government expenditure toward high-quality public investment, alongside healthcare and pension reforms, and unwinding the poorly targeted energy subsidies, can mitigate the near-term growth impact of fiscal adjustments while opening up fiscal space and raising long-term potential. At the same time, measures to cushion households should be budget-neutral, temporary, and well targeted. Policies should not undermine long-term fiscal sustainability or credibility.