Malta is one of two EU countries that has managed to shrink its deficit without resorting to scrapping energy subsidies, according to Moody’s economic outlook for 2024.
The credit rating agency’s report shows that most fiscal improvements throughout the EU over the past year have been driven by a cut in energy subsidies, as countries rolled back the measures that were introduced throughout the pandemic.
Malta and, to a lesser extent, Greece bucked this trend, with both countries registering deficit cuts shaped by other factors.
The report does not specify what these other factors driving a drop in deficit may be. They are likely to include a mix of several factors, ranging from higher revenue from tax collection to tighter government expenditure and other policy decisions designed to bring more money into the government’s coffers.
Moody’s report shows that Greece’s deficit has shrunk by over 1% and Malta’s by roughly 0.5% between 2023 and 2024, despite the financial burden of energy subsidies.
The agency had previously said that it expects Malta’s deficit to drop to 4.5% in 2024 and 4.1% next year. Meanwhile, the government has pledged to gradually cut the deficit by 0.5% each year until 2026, when it hopes to reach the EU’s declared target of 3%.
Malta recorded one of the highest deficits in the EU throughout 2023, at an estimated 5% of the country’s GDP, with economic experts predicting that it will remain among the highest in the bloc in 2024.
The energy subsidies remain a contentious issue across Europe, with the EU pushing for its member states to phase out subsidies and redirect money towards cutting their deficits instead.
The Central Bank issued a similar warning in recent months, with its governor, former finance minister Edward Scicluna saying that fiscal support needs to be “targeted and temporary”.
The government, on its part, is arguing that energy subsidies need to remain in place for the time being, planning to spend over €320m to subsidise energy costs this year alone.
Malta tops EU for real growth
Moody’s outlook also finds that Malta’s economic growth is expected to hit 3.5% in real terms, leading all other EU member states and comfortably above the EU-wide average of just over 1%. Malta is forecast to be the only country with growth of over 3%.
The report puts this down to “improving domestic demand and sustained tourism”, saying that this will lead to greater growth in “service-oriented economies” such as Malta, Ireland and Cyprus.
Several other countries are expected to register a “tepid recovery”, with high interest rates, slowing demand for goods and high energy prices leading many of Europe’s most-developed economies (including Germany, Belgium and France, among others) to register an expected growth of under 1%.