Last week, the Malta Chamber launched its pre-budget document. It is a document mirroring the Malta Vision 2050. Under Pillar 1 with regards Sustainable Economic Growth, the following is written with regards fiscal discipline, “Over the past decade, Malta’s economic growth consistently outpaced the interest rate on public debt, supporting debt sustainability, however, such favourable conditions are the exception rather than the norm. It is now prudent to prepare for a normalisation in both growth and interest rate dynamics. Over the past decade, the average annual rate of increase in Malta’s GDP has been consistently higher than the average annual rate of increase in its public debt. This is the primary reason why Malta’s debt to GDP ratio has remained stable and well below the EU’s 60% threshold, even though the total amount of debt has increased in most years. This trend was briefly disrupted during the Covid-19 pandemic when the public debt increased significantly while GDP growth slowed, but the long-term trend of strong economic growth relative to debt accumulation has been the dominant factor”. This is a timely reminder of one of the major fiscal risks facing our public finances.
While Malta has benefited from a period of strong economic growth relative to its public debt, the Malta Chamber’s pre-budget document highlights the need for fiscal prudence.
The Malta Chamber is not alone in drawing attention for more fiscal prudence. International institutions have consistently urged Malta to prioritise fiscal prudence, even while acknowledging its strong economic performance. The European Commission in June 2024 proposed opening an excessive deficit procedure against Malta, noting the country’s deficit was above the 3% limit. It again raised concerns in its 2025 European Semester Spring Package, which assesses member states’ progress in their fiscal plans. The International Monetary Fund (IMF), in its January 2025 report on Malta, welcomed the government’s commitment to fiscal consolidation but warned that it should shift policy away from energy subsidies towards investment. Domestically, the Malta Fiscal Advisory Council (MFAC) has repeatedly issued warnings. In its June 2025 assessment, the council cautioned the government about a “significant overrun” in expenditure in 2024 and called for “vigilance and continuous oversight” in 2025 to ensure compliance with EU fiscal rules.
Fiscal discipline is a government’s commitment to managing its finances responsibly, aiming for long-term sustainability. It involves maintaining a balance between public revenues and expenditures to prevent excessive debt accumulation. In Malta’s case, while the debt-to-GDP ratio has remained under control, the overall debt has grown, from just under €6 billion in 2019 to nearly €11 billion by April this year, making the nation vulnerable to changes in global economic conditions.
In essence, Malta’s robust economic growth has provided a cushion, but it cannot be taken for granted. Future economic growth may not be as strong and this necessitates a proactive approach. Moody for example, in its November 2024 rating report had remarked the need to address challenges like infrastructure strain from foreign workers. Malta is at a critical juncture, needing to shift its economic growth model from one heavily reliant on a large influx of foreign workers to one driven by higher productivity. The previous model, while effective in achieving low unemployment and high GDP growth, has created significant strains on the country’s infrastructure, housing, and public services and it is becoming evident that continuing to persist on achieving high economic growth based on this model is not sustainable. Hence the need to shift to a productivity-led economic growth model, focusing on generating more value from each worker through innovation, technology, and skills’ enhancement, rather than simply increasing the number of workers.
This transition presents several significant challenges that, if not managed carefully, could hamper economic growth. A primary hurdle is the existing skills mismatch in the workforce. Moving towards higher-value sectors requires a highly-skilled labour force, and Malta must invest heavily in education, vocational training, and reskilling programmes to equip its people for this change. The new model also requires substantial investment in research and development (R&D) and innovation. This involves not only government funding but also incentivising private companies to invest in new technologies and efficient business processes.
There’s also a need for a fundamental shift in the mindset of both businesses and workers. Businesses must move away from a low-cost, labour-intensive model to one that values efficiency and innovation. Workers must embrace continuous learning and adaptation to new roles. Without this, the transition will be bottlenecked. To navigate these challenges, the government needs to implement a comprehensive implementation strategy, as part of the implementation of the outlined Malta Vision 2050, that balances these long-term goals with the short-term need to maintain economic stability. This includes carefully managing the labour market transition to avoid sudden shortages in key sectors and implementing policies that attract high-value investments.
To draw on a relevant example, financial markets are presently concerned about France’s fiscal sustainability. France’s economy is at a critical juncture, shaped by a decade of sluggish economic growth, high public debt and a rigid labour market needing to be heavily reformed. A key factor in this trend is a long-term slowdown in productivity growth, whereby the rate at which France’s productivity is improving has fallen significantly since the early 2000s. This is partly due to a lag in the adoption of digital technologies, particularly among smaller businesses and in less-competitive service sectors, creating a divide between highly efficient firms and the rest of the economy. Compounding this, the French workforce, on average, lags behind its peers in some skill sets, which makes it harder for companies to innovate and expand. This economic struggle is set against a backdrop of a high and growing national debt.
Over the last decade, France’s national debt has climbed steadily in absolute terms, reaching €3.3 trillion in 2024, hitting a debt-to-GDP ratio of 113% by end 2024. To address these challenges, successive French governments, most notably under President Emmanuel Macron, have pushed for significant labour law reforms. For years, France’s labour market was criticised for its rigidity, with regulations like the 35-hour work week and strict firing rules discouraging businesses from hiring permanent staff. This created a dual market: a small group of workers with secure contracts and a large pool of temporary or precarious jobs. Macron’s reforms were designed to increase flexibility by making hiring and firing less financially risky for companies. Measures included capping compensation for unfair dismissal and allowing companies to negotiate more working conditions directly with employees. While politically controversial, these changes aim to stimulate investment, boost hiring on permanent contracts, and ultimately improve the competitiveness and growth potential of the French economy. France’s current economic state is a direct consequence of these deep-seated structural issues and the ongoing, often difficult, process of addressing them.
The situation in France is a stark reminder that improving productivity should remain a foremost priority for any government, including the one in Malta. It is easy for politicians to push for popular measures as part of labour market reforms, adding benefits and leave here and there, however, one must be cautious to ensure that implementing such benefits does not end up harming productivity instead of improving it.
Ultimately, the goal is to create a more resilient economy that can withstand external shocks. To do so any administration must have the needed discipline, foresight and long-term view to balance things out well, whereby fiscal prudence and an increase in productivity become the cornerstone upon which benefits are then distributed in a sustainable manner.
Maybe this is too much to ask on the eve of a general election, however, elections will come and go, while the chickens will always come home to roost.
