Maltese manufacturers at an advantage due to importation costs
Inflation is set to be the biggest challenge our country will face for the coming years, Finance Minister Clyde Caruana said.
While talking about the economic environment of Malta during his budget speech, Caruana explained that due to the Federal Reserve of the United States of America dishing out higher tax rates in order to stay afloat amidst inflation, the Central Bank systems of European countries are tightening the belt in order for their currency not to fall when compared to the Dollar.
Caruana continued to say that this is being done in order to prevent a spike in importation prices for energy.
The International Monetary Fund has warned countries that the months ahead are going to be difficult, with problems that we have never faced before. The IMF also stated that global economic growth is expected to be 3.2% this year, while going down to 2.7% the following year. This is a 6% decline from 2021.
Further predictions by the IMF include an 8.8% increase in inflation this year and a further 6.5% the following year. The main reason for these predictions is the post pandemic recovery, as well as the repercussions of the war in Ukraine.
He said that the rise in prices will bring with it a demand in compensation to workers, which could result in prolonged effects of inflation. “That is why we have to keep taking key decisions at the right moment.”
“This government understands the difficulties which inflation brings with it. With a rise in prices for manufacturing in Italy, when that product is imported to Malta the price also rises. With a food importation rate of 40%, the government cannot control the market absolutely.”
The solution to the problem would be to buy Maltese manufactured food, but even there market prices have risen. This is due to the rise in energy bills, material expenses and so on, Caruana explained.
“My appeal to Maltese manufacturers is to look at the long run of things and show the value of their product in order to capitalise from the situation”, Caruana said.
Maltese products will be very competitive price wise when compared to imported goods, as well as value wise. Caruana said that this is not only in the foods sector, but also in manufactured goods, furniture and so on, “we have a high quality of goods in Malta and we should appreciate that fact.”
Caruana went on to explain the reason as to why the government is controlling energy prices as much as possible by absorbing the increase.
The government will allocate €600 million fund which will absorb the increase in costs of energy and cereals. “This results in €70,000 expenditure every hour by the government aims to keep electricity bills low.”
This means that the government now has to tighten its belt in its expenditure elsewhere, since 10% of its expenditure is going towards one thing.
“The government is spending €1 out of every €10 on energy. This will require discipline in the administrative offices of our country, since the next biggest expense by the government is wages, and there is little to no wiggle room over there.”
Caruana said that the government has to be more efficient in reaching its targets by being wary where money is spent.