Tighter rules on migrant workers to dampen economic growth, Central Bank warns

Malta’s move to curb migrant workers could lead to a slowdown in Malta’s economic growth, Central Bank chief economist Aaron Grech said on Wednesday.

Grech was speaking during the presentation of the Central Bank’s 2024 annual report, which reviewed Malta’s economic performance over the past year.

He noted that Malta’s economy performed “very strongly” throughout last year, although its growth had slowed slightly compared to previous years.

The report shows that Malta’s GDP grew by 6% in 2024, six times higher than the 0.9% growth across the Euro area. However, this was slightly below the 6.8% growth registered in Malta in 2023.

Grech said economic growth was likely to slow further in the coming years, mainly due to the decision to reduce the intake of foreign workers.

“Expansion in the foreign workforce decelerated quite sharply last year,” Grech said, pointing to how the influx of foreign workers throughout 2024 was roughly half that registered the previous year.

The report shows how foreign workers increased by 13,000 between September 2023 and September 2024, far fewer than in the previous year. In total, 28,000 workers arrived in Malta in 2024, while 15,000 left the island.

This dip is “probably due to the introduction of regulations on temporary workers,” Grech said.

Last year, the government introduced legislation requiring temping agencies to obtain a licence, reportedly leading most agencies to shut down. Later in the year, the government announced plans for further measures to regulate migrant workers.

But with fewer workers around, Grech said, Malta’s economy is likely to grow “at a slower rate, dipping below its potential because of lower labour supply caused by the introduction of regulations”.

Nonetheless, Malta’s economic growth is expected to remain well above the European average. The Bank says GDP growth will dip to 4% this year, dropping to 3.3% by 2027.

This is in line with the government’s Vision 2050 pledge to grow the economy at a steadier pace, although the Central Bank’s projections are below the government’s plans to grow the economy by 5% per year between now and 2035.

Government expenditure rises, debt in check

Grech also highlighted a sharp rise in government expenditure, which rose by a tenth (or almost €538m) over the previous year.

Much of this increase, Grech said, can be attributed to several new collective agreements signed throughout the year.

But there were also a series of one-off purchases, such as the purchase of new aircraft for KM Malta Airways, which contributed to the drastic increase in expenditure.

And while expenditure ballooned, so did the government’s revenue, with the deficit narrowing at a faster rate than expected.

Last week, Finance Minister Clyde Caruana said that Malta’s projected deficit for the year was being slashed to -3.7%, lower than the -4.5% initially forecast.

Meanwhile, Grech argued that Malta remains firmly in control of its debt, despite this having ballooned to over €10 billion.

With the country’s debt-to-GDP ratio dropping over the past year, Grech argued that Malta is well-placed to handle economic challenges.

“Even if one assumes significant economic shocks, it is highly unlikely that debt in Malta could reach the Maastricht limit of 60% in the medium term,” he said.

The Maastricht criteria say that a country’s debt should not exceed 60% of its GDP. Malta’s debt stood at 45.3% of its GDP at the end of September 2024, according to the Central Bank’s report.