The local public debate on the state of the economy can often be confusing. Some political analysts argue that we are going straight to heaven regarding the management of the economy, while others believe we are going straight the other way.
How international economic analysts see us gives a valuable perspective that often tells us more about the economy’s health as it is less loaded with the political bias many local analysts suffer from. Moody’s latest periodic review highlights some of the strengths and weaknesses of the Maltese economy, even if it fails to delve deeply into what it is costing us socially and environmentally to promote growth.
Moody’s believes Malta’s strong economic growth, domestic funding base and “moderate” debt burden are fuelling a reasonably diversified economy with a “sound” institutional framework. However, it expresses concern about the challenges we face in closing the fiscal deficit, controlling corruption and upholding the rule of law.
These conclusions are fair but fail to highlight other factors that affect the well-being of our society – some of these factors are related to the micro level of economic operations.
Moody’s, for instance, fails to comment on the risks of many local business enterprises increasingly becoming dependent on imported low-cost labour. The rating agency focuses on purely economic indicators and refers to the “solid” tourism activity. The headline economic indicators of GDP growth, per capita income and unemployment rate fail to highlight the price that the community is paying to promote growth at all costs that is the prevailing element of the current economic model.
Prime Minister Robert Abela said Moody’s assessment was “another vote of confidence”. Unsurprisingly, he failed to share the rating agency’s concern about the country’s institutional challenges because of endemic corruption and the strengthening of the rule of law.
Undoubtedly, the recent political and legal developments relating to the sham privatisation of three public hospitals are sufficient evidence of how corruption has poisoned the country’s governance. Prospective foreign investors will delve deeply into the international institutions’ comments on the Maltese economy but also the media reporting on the current legal proceedings that involve the present and past highest political hierarchy.
The assessments of international rating agencies and other institutions like the IMF and the European Commission are essential components that help to define how others see us. They are often more objective and reliable than most local analyses and must be scrutinised by policymakers to calibrate their policies to make the economy more sustainable.
However, the multitude of issues that affect the lives of ordinary people must not be ignored as quality of life is determined by much more than economic indicators.
Policymakers must, for instance, ask whether increasing the deficit and public debt to finance indiscriminate fuel and energy services subsidies is sustainable in the medium term. They must also acknowledge that population growth is leading to the rationing of public health services and putting strains on the physical infrastructure, such as the road network, which is deteriorating rapidly.
Rating agencies do not focus on the social impact of the economic strategies of the countries they review. This does not mean that such focus is irrelevant to people’s lives. Of course, it is up to societal leaders and our political leaders to define comprehensive socio-economic strategies that improve people’s lives.
It is time for the political debate to shift from the purely technical analysis of the state of the economy to the state of the well-being of people.