Malta's low levels of public debt mean the government has room to manoeuvre to support businesses and families in the current COVID-19 crisis without raising or introducing new taxes, Finance Minister Edward Scicluna said on Monday.
Delivering the Budget 2021 speech, Scicluna observed that the pandemic had hit the economies of most other countries more violently than Malta's.
While Malta's Gross Domestic Product declined by 7.7% in the first half of 2020, that was lower than the average 9% decline seen across the eurozone, he said. And although Malta’s deficit and borrowing had risen, the increases were nothing as drastic as those being seen in other countries.
Malta is expected to end this year with a 9.4% deficit (€1.22 billion) which is projected to fall to 5.9% (€751m) next year. Public debt, as a percentage of Gross Domestic Product, will rise from the current 55% to 59%. At the start of 2020, the debt-to-GDP ratio stood at 44.4%.
Many other EU member states are projecting far higher levels of debt by the end of next year, from Spain (115%) to Italy (155%), France (110%) or the UK (118%). Even Germany, which can boast of strong public finances, is expecting a 75% debt-to-GDP ratio for 2021.
A competitive edge from COVID?
Malta's low level of public debt - which was brought down by five successive budget surpluses in recent years - means the government can introduce COVID-19-related aid without looking to raise revenue elsewhere.
Instead, Malta can afford to run consecutive budget deficits - effectively spending more than it earns every year. The deficit is expected to reach a high of 9.4% this year, declining to 5.9% in 2021. But the government expects to still be in the red by 2023, when it is forecasting a deficit of 3.7%.
Malta's ability to borrow money at cheap rates raises the prospect of it deriving a competitive edge over its neighbours: while countries with high levels of debt will inevitably have to rein in spending and find ways of increasing its revenues (read: taxes), Malta can do otherwise.
The economy is projected to grow by 6.4% in nominal terms next year, which translates to 5% growth in real terms, adjusted for inflation. That is marginally higher than the 6.1% nominal GDP growth the EU Commission is forecasting for the eurozone as a whole.
Malta's total GDP is expected to reach €13.35 billion by the end of 2021. Inflation is predicted to rise slightly when compared to this year to 1.3%.
Where will GDP growth come from?
According to Scicluna, investment is expected to rise by 7.5% in the coming year while private consumption is also projected to rise by 3.7%.
Exports are forecast to rise by 5.5% while imports will also increase by an estimated 4.5%, Scicluna said.
On the other hand, public consumption is expected to dip (by 1.2%) when compared to last year.
Employment growth
Those economic growth forecasts will be reflected in a relatively robust jobs market, forecasters predict.
They say they expect to see a 2.3% increase in the number of jobs available, with unemployment at 4% by the end of 2021.