The COVID-19 pandemic has impacted our economy, along with other countries around the world. On its part, the European Commission responded to this crisis with a wide-ranging package of instruments aimed at softening the blow of this exogenous shock.

This included a Pandemic Crisis Support instrument via the European Stability Mechanism (ESM), temporary loans to fund national short-term work schemes and similar measures in order to safeguard jobs within EU member states, as part of the SURE initiative.

For its part, the European Investment Bank (EIB) provided liquidity support to businesses. More importantly, the EU agreed on a €750 billion instrument called Next Generation EU, intended to assist member states to recover from the economic crisis. Dealing with COVID-19 has proved very challenging both from a health and economic perspective.

However, as the crisis subsides and the economy recovers, we should not steer away from medium and long-term objectives, as outlined in the European Green Deal, the Sustainable Growth Strategy and the European Pillar for Social Rights.

If anything, these aims recognise the need to rejig our economy to ensure sustainable growth in the years to come, built on the pillars of environmental sustainability, productivity gains, fairness and social progress as well as macroeconomic stability. There is no doubt government policy and support assumed greater significance during the crisis. Fiscal policy, especially, was crucial for economic stability and to enable our government to support businesses by way of incentives, as allowed under EU legislation.

Equally, achieving sustainable growth will require government direction and regulation in all areas of economic activity and environmental protection, with an emphasis on mainstreaming environmental protection into economic activity.

There is no doubt government policy and support has assumed greater significance during the crisis

Of course, open dialogue with social partners and civil society remains key to setting the economic direction. The huge government borrowing required to provide income support and loan guarantees to businesses frozen during the crisis by restrictions could limit the extent to which the government can give incentives to reignite economic activity. It could also limit the amount of funding needed to support both environmental protection and productive investment.

The government will need to find creative ways of supporting expenditure aimed at sustainable economic growth while also ensuring long-term fiscal sustainability. Despite inevitable conditions tied to the application of resilience and recovery funds, it is vital that we embrace the targets for utilising a substantial proportion of the funds in support of the greening of our economy and digitalisation.

The cornerstone of a sustainable economic growth model must be the creation and development of a truly circular economy that maximises and maintains value across entire value chains, while minimising waste and pursuing resource efficiency. A circular economy business model offers significant potential for fostering competitiveness, not only in terms of safeguarding the natural environment but also in the creation of high-quality jobs and the development of ancillary industries.

One aspect that also needs to be addressed is to secure supply chains, which have proved vulnerable during the crisis. We need to rethink supply-chain strategies, including diversification as well as the realignment of supply chains across multiple sectors. On its part, the EU needs to play a more prominent role in world trade, which is vital for Malta-based companies and their business prospects.

The role of innovation and digitalisation as well as investing continuously in human capital in facilitating the transition towards sustainable growth cannot be overstated.

Whereas the pandemic has served to re-emphasise the importance of focusing on individual health and well-being, as opposed to merely on productivity and economic growth, increasing productivity will always remain a key target.

Productivity plays a key role in achieving sustainable economic growth. In other words, up to the point where such growth adds value to the economy and supports the increase of both wages and surpluses, thereby further increasing consumption in our economy in a way that should not infringe on acquired rights such as social protection and collective bargaining.

Critical in all this is reskilling and upskilling of our human resources. Whereas reliance on third country workers is still high and could increase further in the future, our priority in terms of human resources should be reskilling and upskilling to support digitalisation and more advanced manufacturing besides specialisation in digital finance, artificial intelligence and new technologies.

Malta’s recently launched economic vision could provide the general direction that our economy needs to achieve sustainable economic growth. The vision alone, however, will not suffice. This vision now needs to be followed up by economic plans and actions, backed by financial resources that move in the direction as outlined above.

Philip von Brockdorff, head, Department of Economics, University of Malta