Last Updated on Thursday, 28 November, 2024 at 9:26 am by Andre Camilleri
Last Saturday, Moody’s issued a positive report about Malta’s economy, giving it a rating of A2 with a stable outlook. The report outlines the importance for the Maltese government to retain the economic model, and adjust, where possible, the pressure on limited resources, be they on infrastructure including merit goods, as well as the island’s natural capital.
The debt to GDP ratio is under control and seems to be going to a downward trajectory. It seems that next year, with the economy expected to expand further, the results will reflect a better government fiscal performance. The same applies on the deficit to GDP ratio. And here, we need those that talk about absolute figures to take note and reconsider the political narrative to interpret figures in relative terms.
In fact, I gave an extensive technical explanation on how the debt to GDP ratio is calculated under international metrics and standard, which are universally agreed. Perhaps, the Opposition should take note of how this is calculated in relative terms, and not absolute terms. I am thankful to Karl Bonaci for his invitations to explain these economic technicalities to people watching the programme on F-living Channel. Ironically, during the same week, one of the Opposition’s MPs stated that the economy is hosting too many restaurants in Malta. When I read the statement, I literally cringed in my seat. I understand that politicians are required to speak at conferences and panel discussions, however, I cannot stand mediocrity anymore. What I do not understand is how lawyers from the Opposition speak about the economy. As if they know the topic because they studied it. Imagine the same scenario with an economist taking the lead on interpreting law. It is the same as dispatching me to discuss matters and procedures of the law courts. I am not a lawyer, so I try as much as possible to stay away from topics that require legal technical analysis. Notwithstanding, that I managed to negotiate the financial regulation of the EU in 2017 in just four months, bringing all parties together to agree to a Council mandate, still, I am not presumptions to speak about legal procedures, be they criminal or civil. Likewise, I expect our politicians to address topics of national importance with a well-informed perspective. It is unacceptable to lack a thorough understanding of the subject. However, if they are speaking about a topic, at least they need to master the principles, especially of economic theory.
Let’s not forget that giving the wrong picture will always come back to haunt politicians. Also, we need to start making a distinction between economic adjustments and economic models. We have an economic model, which in the past years promoted neoliberalism. This means that businesses were more able to invest, to do business, and to work with the government and other stakeholders to push for higher economic growth. Let’s be frank with ourselves. If we do not grow the economy, there will be no option but to cut down on social benefits and other social measures. True, there is no perfect economy. But we are far better off than our European peers when it comes to economic growth, debt to GDP ratio and deficit to GDP ratio.
If the economy does not grow, the way the EU Commission, and the way international credit agencies rate countries is always relative to GDP. So, a lower GDP would mean a relatively higher debt to GDP ratio, and deficit to GDP ratio. It is a simple ratio. This is why I can’t understand why the Opposition is finding it so difficult to interpret debt and deficit relative to GDP. It is a simple division, where the denominator must be larger relative to the numerator, and the larger the denominator the lower is the deficit and the debt in relative terms. I understand that they are lawyers. However, they all passed their primary school exams, where a simple division was the elementary mathematics which we learn in Year 3.
Meanwhile, the Maltese government must aim to readjust resources accordingly, to satisfy the requirements and the messages sent by the electorate. Although, attention must be paid here to not rush in such an assessment. Now that the EU is pushing to invest more in defence, therefore diverting resources from productive activities, the Maltese government must not adjust the economic model at this point in time. Quality means that without money there will be a problem to provide a social safety net for the low- and middle-income earners.
Ultimately, any economic model used by the Maltese government, the aim is to help those in the low and middle income. If something goes wrong, though, those in the low to middle income are always the ones that are highly affected. We are already pouring money into defence that is unprecedented. However, the EU is now shifting from a peace dividend notion, which followed the period of the dissolution of the Soviet Union, to one of more defence spending, which certainly is going to affect the economic benefits of member states due to such an increase in defence spending.
However, the greatest news of the week was the European Investment Bank’s offices opening in Malta. The EIB’s President, Nadia Calviño said that the EIB’s presence in Malta would be reinforcing their partnership with local authorities. It is a positive move to boost support for businesses, as well as an opportunity to expand green investment. Calviño is not new to the EU institutions. I remember her working in the EU Commission between 2014 and 2017 as director general in charge of the budget under Kristalina Georgieva. I had several opportunities to meet with her, both in Council meetings, as well as one-to-one meetings to discuss the Omnibus Regulation ahead of the Presidency of the Council of the EU. I am glad to see that such offices will be opening here in Malta, which is signalling a strong message by EU institutions on the performance of the government, including that of Prime Minister Robert Abela.
Now, I look forward to seeing more green and sustainable investments, which I am sure Dr Abela will be pushing for in the coming months. Chapeau Prime Minister Abela.
