Governance shortcomings in the anticorruption framework may adversely affect the business climate and weigh negatively on investment, the European Commission said on Wednesday.

“The effectiveness of Malta’s efforts to fight corruption needs to be further improved, especially with regards to the investigation and prosecution of corruption,” it warned in the country specific recommendations for the 2018 European Semester.

Apart from updating from various previous reports, two specific recommendations were made:

- Strengthen the overall governance framework by enhancing the national supervision of internationally oriented financial businesses licensed in Malta, by ensuring the effective enforcement of the Anti-Money Laundering framework and by continuing to step up the fight against corruption.

- Ensure the sustainability of the health care and the pension systems, including by increasing the statutory retirement age and by restricting early retirement.

The Recommendations reflect the Commission's findings, complemented by discussions held with the Maltese authorities, social partners, NGOs and civil society during a number of meetings and events held both locally by the European Commission Representation in Malta and in Brussels starting in October last year and ending only recently.

EU ministers will discuss the Country-Specific Recommendations before EU Heads of State and government endorse them. It is then up to member states to implement the Recommendations by addressing them through their national economic and budgetary policies in 2018-2019.

10 THINGS YOU NEED TO KNOW FROM THE REPORT

1) The justice system continues to face challenges with regards to its efficiency and a strengthened legal and institutional framework to fight corruption is necessary to ensure a high-quality business environment.

2) The fight against aggressive tax planning strategies is essential to impede distortions of competition between firms, provide fair treatment of taxpayers and safeguard public finances.

3) The absence of withholding taxes on outbound (i.e. from EU residents to third country residents) dividends, interest and royalty payments made by Malta- based companies may lead to those payments avoiding tax altogether, if they are also not subject to tax in the recipient country.

4) At 18.6 % in 2017, the early school leaving rate remains the highest in the EU and with little improvement compared to the previous year

5) Measures introduced in the 2016 budget had only a limited impact on long-term sustainability of the pension system, which therefore remains a significant challenge.

6) The performance of the health system has improved and waiting times are being reduced. However, challenges remain in the redistribution of resources and activities from hospital to primary care.

7) The Malta Financial Services Authority still appears understaffed and concerns remain on its capacity to supervise a large cross-border financial system, in particular its nonbank segment.

8) Based on the Commission 2018 spring forecast, the structural balance is forecast to register a surplus of 0.6 % of GDP in 2018 and 1.1 % of GDP in 2019, above the medium-term budgetary objective.

9) The road transport sector faces major infrastructure and long term sustainability challenges. Insufficient transport infrastructure and rising congestion costs are a barrier to investment.

10) Difficulties with disposal of construction and demolition waste might reduce the quality of environment and the country's attractiveness as a tourist destination.