It is refreshing to read a reasoned, expert analysis of the present state of the Maltese economy that does not shy away from highlighting warts and all. In an article for Times of Malta, Alfred Sant, MEP and former prime minister, produced a good analysis of the new administration’s challenges in the coming years.
The underlying theme in Sant’s article is that the current economic model, defined mainly by former Prime Minister Joseph Muscat and endorsed by Prime Minister Robert Abela in the last two years, is riddled with severe structural weaknesses. If these weaknesses are not addressed with determination by the new government, Malta risks seeing its economic growth stall.
Sant touched on various issues which are crucial for future economic success. Perhaps the headline-grabbing recommendation is that the government should phase out the passports-for-investment programmes. This stark recommendation contrasts sharply with the attitude taken by some Labour politicians, especially former parliamentary secretary responsible for citizenship, Alex Muscat.
The earlier the government adopts this recommendation, the easier it will be to convince the international community that, as declared by the prime minister, Malta has indeed turned the page in the way it manages the relationship with other EU member states.
Sant gives the underperformance of the education system due importance.
He specifically singles out the students’ stipends system, admitting that “restructuring that expense towards the accomplishment of improvements in critical areas of the education infrastructure would be decried by one and all and would be politically toxic”. Still, with the kind of majority of the government, now is the right time to take tough decisions for the good of future generations.
Another critical recommendation that Sant makes is the need for a reform of governance in the public sector. He rightly argues that accountability and transparency should not remain mere buzzwords. He adds: “The splitting of responsibilities for ministries, projects, contracts and go-aheads across multiple government entities – so that all have a finger in the pie but no one is fully responsible for any given decision – must cease”.
Sant also comments on the over-reliance on the construction industry, low-cost imported labour, the exploitation of the environment, and the prospects of EU legislation making the financial services and gaming sectors less sustainable.
It is undoubtedly not easy to diversify into new economic activities that add sustainable value, mainly due to the weakness in the education system.
But the government would do well to abandon the mantra of continuity of the Muscat high-risk economic model. Abela must develop new, realistic and ambitious plans to underpin the economic strategy with robust achievable objectives. This will entail painful structural reforms.
The comments and recommendations made by Sant gain relevance in the present international political and economic scenario where the prospects of stagflation are becoming more pronounced.
No country can aspire for strong economic growth to benefit present and future generations without keeping its public finances in good shape.
The pandemic and the Ukraine war have strained public finances substantially in the past two years. Repairing the damage done has to be carried out concurrently with the type of structural reforms outlined by Sant.
The new Abela government has a formidable task to reform the economy on the lines recommended by Sant. But it also has the political strength to push forward the necessary reforms.