Finance Minister Clyde Caruana warned on Wednesday that inflation worldwide is expected to last longer than expected, and the government therefore needs to be more disciplined than ever before in the way it spends its money.
Speaking in parliament, he said that the collapse in the past few days of a number of regional banks in the US and the crisis and sale at Credit Suisse had created a major dilemma for central banks.
Should they continue to aggressively raise interest rates to fight inflation, or should they moderate their stance in order not to risk further bank collapses?
To make matters worse, fresh data in the UK and Europe showed that core inflation was continuing to rise, despite a dip in the past few months.
Malta and its banks were not impacted by the developments in the US and Credit Suisse, Caruana said, but those developments would clearly have an impact on the global economy.
The bottom line was that high inflation, especially in developed countries, was expected to take longer than expected.
Added to this, Caruana said, there was unprecedented pressure in the European Commission and from certain EU countries for member states to rein in their deficits and place a stronger emphasis on the green economy, particularly greater use of alternative sources of energy following the energy crisis created by Russia's invasion of Ukraine.
It was a message which said 'balance your books and cut back on subsidies'.
Malta needed to gear down for challenges before anyone forced its hand, Caruana stressed.
The government spent €400 million on energy subsidies last year. The outlay was expected to be a bit less this year, he said, but still run into hundreds of millions. Furthermore, energy prices were expected to remain high in the medium to long term.
That underlined the need for the country to invest more intensely in alternative renewable energy sources. It needed to act quickly and not reach a situation where its hand was forced.
The sale of new petrol and diesel cars would be banned in just 12 years' time, he pointed out, and the infrastructure needed to be better prepared.
"The challenges we face are substantial. We expect inflation in Europe to remain high, meaning the government will need to continue to help the people for longer. Yet the EU is telling all the member states to rein in the deficits. That means the government needs to be wiser in its spending. The exercise last year to cut excessive government spending needs to continue," he said.
"We need to ensure we have enough resources in these challenging times to continue to help the people.... The government needs to be more disciplined than ever before in the way it spends its money," Caruana told the House.
"We need to ensure that government priorities make sense, that they address the country’s needs, that projects are beneficial and improve the quality of life," he said, adding that one must be courageous enough to put off projects that did not make sense.
The people, he said, appreciated honesty because they could see how a supermarket purchase of €220 a short time ago now cost €290.
He was confident that the government had the resources, ability and willingness to face its challenges, but it needed to be wise, agile and determined, he said.