Beyond the headlines of the recent Fitch Rating update, there was a sentence in the commentary that perfectly encapsulated Malta’s greatest economic challenge, “weak labour productivity and skill shortages in a fast-growing economy remain structural challenges for the economy and increased hiring from abroad has only mitigated the problem”. The commentary also highlights two main fiscal risk areas – the first is that there is no exit strategy from energy subsidies and secondly that there is no clarity on the future corporate tax regime following the present transitional period, whereby Malta’s attractiveness as a financial services jurisdiction could be dented, leaving a negative effect on the government’s revenues. It’s interesting to note that Fitch highlighted how revenue from corporate tax has helped offset the lost income from Malta’s VAT gap, which remains one of the largest in the EU.
One of the elements that could be derived from the recent Labour Force Survey for Q2 2024, is that the sector that has seen the largest increase in employed persons is the one related to Public Administration.
We now also have the latest Inbound Tourists update for July. As can be seen below inbound tourists for the period in 2024 was 26% higher than for the same period in 2019, while the real increase in tourist expenditure for the same period (2024 vs 2019) was of 22%. This means that overall average real expenditure per tourist was 4% lower in 2024 than 2019. This is because the increase in the number of tourists is at a higher pace than the increase in real expenditure.
As shown further below, when comparing January to July, to the same period in 2023, Malta received some 354,000 more tourists in 2024. At this rate we will likely close 2024 with Malta receiving over 3.6 million tourists which would be around a 21% increase in tourist arrivals in 2024 over 2023.
In conclusion, if employment will grow mostly in the least productive sectors and core economic sectors do not manage to increase the value added output, then the greatest challenge outlined by Fitch, which I quoted at the start of the article, will remain a challenge we will never win.