Editorial: The threats of rising national debt

Debt is not necessarily a negative phenomenon in the economic scenario of a country. When governments incur debt to support households in times of economic distress to limit the depth of a recession, or to invest in the infrastructure, they help to promote sustainable economic growth.

However, when debt favours consumption over investment in future generations, alarm bells become more audible.

The National Statistics Office has revealed worrying trends in national debt growth. The more significant data is that, in February 2025, the central government’s debt stood at almost €11 billion. When Prime Minister Robert Abela took over from Joseph Muscat, Malta’s debt stood at just over €5 billion.

The prime minister and the minister of finance will undoubtedly argue that Malta’s debt-to-GDP ratio is still comfortably within the prudence limits defined in the EU’s Stability and Growth Pact. While the level of debt can grow or fall according to how well it is managed, economic growth is more unstable as adverse external or internal events can dent the growth prospects quite quickly. 

This reality partly explains why the government is determined to promote economic growth at all costs despite its rhetoric stating the contrary.

The need for economic restructuring to promote more sustainable, even if less frothy, growth is being ignored. The risks and threats of this policy inertia are weakening the prospects of building a prosperous future for today’s younger generations.

Recurrent expenditure is increasing faster than recurrent revenue, increasing the debt mountain. The consequences will be dire if this develops into a negative trend.

Admittedly, the COVID crisis made it necessary for the government to provide much-needed fiscal support. However, it is time for policymakers to ask whether the needs or capacity of the economy to maintain these fiscal supports have been exceeded.

For instance, despite the recommendations of the IMF and the EU to reform the energy subsidies scheme to focus more on meeting the needs of the more distressed households, the government keeps encouraging fuel consumption by subsidising the market-driven costs to consumers.

High deficits and debt, particularly with high inflation or interest rates, make it harder to borrow in response to a recession, pandemic, war, or another legitimate emergency. Moreover, Malta has agreed to the EU proposal to borrow substantially to address the Union’s defence realities in the current complex geopolitical scenario.

The growing debt mountain will result in increased payments of interest obligations, diverting funds from essential services. The government’s reduced fiscal flexibility means it will have less ability to deal with economic crises or invest in infrastructure.

The government’s focus on promoting growth through increased imported labour is creating pressures on the physical, education and medical infrastructure.

Despite improvements in the road network in the last decade, road users have to deal with constant traffic congestion.

Similarly, public medical services are not coping with the increased demand, which can only be addressed by more public investment in the health sector.

The education system needs root and branch reform and investment beyond paying educators better salaries.

However, the worst threat of the fast-increasing national debt is that it burdens future generations with debt and raises ethical concerns about fairness.

While the risks of a fiscal crisis in the foreseeable future remain small, the threats to the country’s long-term prosperity are increasing. Policymakers must increasingly fund our infrastructure and public investment priorities through fiscal discipline rather than massive borrowing.

Each euro spent on promoting more consumption or paying debt interest is a euro unavailable to spend on other pressing priorities.