When the economy faces substantial challenges, you want a government response that is scaled accordingly. Undoubtedly, the Maltese economy is facing some structural challenges that are being ignored by the policymakers at Castille, who seem to be running the economy on autopilot.
The headline findings of a KPMG economic analysis highlight a significant decline in the construction industry’s gross value added. It also notes that tourism is booming. The counterintuitive interpretation of these findings is that a decrease in construction is good news while an increase in mass tourism is not.
The welcome news from this analysis is that the manufacturing sector has seen significant growth in the first quarter of this year, with the pharmaceutical, printing and recorded media firms performing particularly well.
Some sectors of the Maltese economy, mainly the tourism industry, benefitted from government measures taken during the pandemic and the beginning of the Ukraine war to tame inflation. Subsidies on energy prices are still distorting the economic dynamics as they do not reflect the realities in the energy markets.
Despite pressure from international organisations like the IMF and the European Commission, the government has shown no interest in recalibrating the energy subsidies to channel them to those community sectors that mostly need anti-inflationary support.
Economic circumstances change and so must the strategies that promote the sustainable well-being of society
Tourism policymakers continue to live in a bubble promoting Malta as an ideal destination for holidaymakers when the island’s infrastructure cannot cope. The garbage crisis, the strategy to attract low-spending tourists mainly interested in cheap alcohol and rowdy entertainment and a laissez-faire attitude to enforcing high standards in tourist accommodation, especially in the private hire sector, indicate that the tourism policymakers want the status quo to persist.
The Malta Tourism Authority has accordingly set its dissonant mass tourism strategies on autopilot. The authority needs new leadership to focus on added value strategies rather than expensive marketing ego trips.
The economy has depended too heavily on private and public consumption for too long. The building craze that reached worrying proportions in the last decade is not sustainable and a decline in activity is welcome. Still, there is no indication of any planned action to reduce the economy’s dependence on building and construction as the Planning Authority continues to dish out building permits.
The KPMG report also has some other worrying findings. A third of the Maltese workforce is made up of foreigners, with the majority being third-country nationals. The worst element of this finding is that this extraordinary surge in foreign labour is not only straining the infrastructure to a breaking point but is not contributing enough to skills transfer. Indeed, it is increasing the economy’s dependence on imported cheap low-skilled labour.
Tragically, the political debate on addressing these weaknesses has been tame, superficial and lined with meaningless rhetoric.
The voices of sanity in the government and the opposition are being silenced as telling people what needs to be done to address tough economic challenges risks ruffling the feathers of some voters.
Economic circumstances change and so must the strategies that promote the sustainable well-being of society. Prime Minister Robert Abela projects the image of a man without a plan. He is probably driven more by the fear of failure than the ecstasy of success. Still, he remains primarily responsible for steering the ship of state away from storms brewing on the horizon.