A fiscal watchdog has urged the government to expedite structural reforms due to the demand pressures and capacity constraints resulting from Malta’s strong economic growth.
In a half-yearly report, the Malta Fiscal Advisory Council (MFAC) recommended that the government promotes productive investment, with a focus on physical and social infrastructure, digitalisation and research, as well as addressing skill gaps and workforce shortages.
The main purpose of the MFAC is to review and assess the extent to which the fiscal and economic policy objectives proposed by the Maltese government are being achieved.
The council reiterated its recommendation that the government prepare an adequate exit strategy for its fuel and energy subsidies.
Some €320 million has been budgeted by the government this year for the subsidies.
These subsidies weigh heavily on public finances and do not include incentives for energy savings and efficiency, the council said.
It recommended that the government should adopt a more targeted approach to these subsidies and also enhance such incentives for energy savings.
Some €320 million has been budgeted by the government this year for the subsidies
Prime Minister Robert Abela has so far dismissed calls for the subsidy to be abolished.
In the first half of the year, ministry of finance estimates indicate that the government deficit is considerably low, at €242.8 million, compared to the budget forecast of more than €900 million for the entire year.
This was due to higher-than-anticipated fiscal revenues, the council said, which reflected stronger-than-expected economic growth.
It noted, however, that while there were some savings, overall government spending also increased strongly, almost matching the unexpected revenue increases.
Given the increased EU focus on limiting government spending and Malta facing excessive deficit procedures, the council strongly recommended that the higher-than-expected revenues be used to build fiscal buffers.
The council also recommended that while ways of restraining increases in spending should be explored, productive capital expenditure that promotes medium- to long-term growth should not be curtailed.