Human capital gaps, fiscal overheating and the gathering energy storm

The Programme for International Student Assessment (PISA), conducted triennially by the OECD, evaluates the practical knowledge and problem-solving capacities of 15-year-old students approaching the end of compulsory schooling.

Rather than testing memorised curriculum facts, PISA gauges whether students can extrapolate from what they have learned and apply their understanding to real-world challenges across four critical domains: science, reading, mathematics, and computational problem solving. The newly-released 2025 results present sobering findings for Malta, where students lagged significantly behind international standards across every core discipline.

Malta recorded a mean score of 453 points in science against the OECD average of 482, while falling to 415 points in reading compared to the OECD benchmark of 461. In mathematics, Maltese students scored 439 points against the international average of 463, and in the newly-introduced assessment of computational problem solving, Malta achieved 463 points, trailing the OECD baseline of 500.

A comparative analysis within the European Union places Malta firmly in the lower performance quartile. The island trailed regional frontrunners such as Estonia, which posted 527 in science, 499 in reading, and 508 in mathematics, as well as Finland and Ireland. Instead, Malta’s educational outcomes aligned far more closely with southern and eastern European economies like Greece and Romania, which registered science scores of 434 and 425 respectively. When set against leading non-European systems, this gap widened into an outright chasm.

Leading Asian jurisdictions established global benchmarks far out of reach: Beijing-Shanghai-Jiangsu-Zhejiang in China registered 597 in science and 612 in mathematics, while Singapore achieved 560 in science alongside an international high of 535 in reading.

In computational problem solving, territories such as Macau and Singapore set the pace with scores of 572 and 563 respectively, illustrating an advanced command over computational thinking that contrasts sharply with Malta’s struggles to move beyond rudimentary digital literacy.

The trend analysis over recent cycles reveals a worrying systemic deterioration. Between 2022 and 2025, Malta suffered steep declines across the board, dropping 13 points in science, 27 points in mathematics, and a staggering 31 points in reading.

Given that the OECD benchmarks a 20-point drop as equivalent to an entire year of formal schooling, Maltese cohorts effectively lost roughly one-and-a-half years of foundational reading competencies in just three years. Across a 10-year horizon from 2015 to 2025, Malta’s decennial trajectory fell by seven points in science, 36 points in mathematics, and 29 points in reading.

Crucially, 29.4% of Maltese students are now classified as low performers who fail to attain baseline Level 2 proficiency across all three core subjects, a proportion that far exceeds the OECD average of 19.7%. In stark contrast, only 8.3% of local students reached top-tier status at Level 5 or 6 in at least one domain, compared to 11.9% internationally. Furthermore, behavioural assessment metrics show that Maltese students recorded an exceptionally high rate of hasty responses at 18.4% on reading tasks, more than double the OECD average of 8.9%, indicating pervasive disengagement, shallow comprehension, and an aversion to sustained cognitive effort.

This educational erosion reflects a deeper structural distortion. In an economy increasingly saturated by immediate consumer stimulation, the cognitive stamina required for delayed gratification is systematically compromised.

More critically, as speculative returns from property continuously outpace wages earned through rigorous professional pathways, the perceived economic return on demanding study dissolves. Educational underachievement ceases to be merely a classroom failure; it becomes an entirely rational adaptation. When societal rewards disproportionately favour physical asset speculation over human capital formation, students intuitively grasp that deep intellectual effort is no longer compatible with economic success.

While the educational pipeline signals likely constraints on Malta’s productivity, the Malta Fiscal Advisory Council’s report on economic and fiscal developments over the first half of 2026 reveals immediate vulnerabilities in public spending. Malta’s real gross domestic product expanded by 3.9% year-on-year in the first quarter of 2026, outpacing the European Union’s projected growth rate of 1.1% and remaining consistent with the government’s annual projection of 3.7% set out in the Annual Progress Report.

This momentum was supported by domestic consumption, a 3.5% unemployment rate, and a thriving tourism sector where arrivals rose by 18.1% in the first half of the year. However, the Council pinpointed government expenditure as the principal risk to fiscal stability. On an accrual basis, total public outlays grew by 14.5% in the first quarter to reach €2.34 billion, meaning that €296.3 million, or 85.8% of the total €345.5 million expenditure increase projected for the entire year, had already materialised within the first three months.

Cash data through June confirmed that these spending pressures persisted, registering a 17.5% year-on-year surge across the first half of 2026. This rapid increase was driven by broad-based spending commitments: intermediate consumption jumped by 22.4%, cash operational and maintenance expenditure increased by 48.9%, and personal emoluments grew by 11.7% due to public sector wage revisions, collective agreements, and new recruitment. At the same time, social payments absorbed almost one-third of their entire annual allocation in the first quarter alone. Consequently, the general government deficit expanded to €339 million in the first three months, consuming nearly 80% of the €428.6 million annual deficit ceiling.

Although buoyant cash revenues from VAT and direct taxes provided a temporary buffer, the Council underscored that meeting the annual fiscal targets will require second-half expenditure growth to slow down to an unrealistically tight 0.7%. Compounding this challenge, nominal employee compensation rose by 9.1% with average wages up 4.8%, while real labour productivity contracted by 0.3%. When coupled with the government’s failure to transpose EU Directive 2024/1265 on national budgetary frameworks within the prescribed deadline, these accelerating expenditures threaten to breach the 5.8% net primary expenditure ceiling committed under the EU Medium-Term Fiscal Structural Plan.

These fiscal imbalances are set to collide directly with volatile international energy markets across 2026 and 2027. Following renewed geopolitical disruptions and security threats in the Strait of Hormuz, Brent crude climbed above $100 per barrel, driving global petrol and diesel prices higher and squeezing refinery margins. Dutch Title Transfer Facility (TTF) natural gas and spot LNG climbed to roughly €80/MWh, their highest levels since late 2022, as European utilities scramble to refill lagging storage reserves. Because gas remains the marginal price-setting fuel across continental power plants, wholesale electricity prices on the European grid, including Italy’s single national price (PUN), have spiked, transmitting severe upward price pressures.

The latest forecasts point towards energy prices that are expected to remain elevated through late 2026 before gradually moderating in 2027 as new global LNG export capacity from Qatar and the United States comes online and non-OPEC crude output expands. This trajectory however depends heavily on geopolitical stability – particularly shipping security through the Strait of Hormuz and the Black Sea – alongside OPEC+ supply discipline. On the demand side, outcomes hinge on winter weather severity across the Northern Hemisphere, European storage depletion rates, and broader industrial recovery, which will collectively dictate marginal gas and wholesale electricity pricing on the continental grid.

With Malta’s universal energy subsidy mechanism, introduced in 2022, it is reasonable to anticipate that the €150–€172 million initially budgeted for energy support measures in 2026 will be exceeded, with the possibility that this elevated level of subsidies may persist into 2027.

When one considers that between 2022 and 2025 Malta has spent some €1 billion on fuel and electricity subsidies, the arguments made by various quarters advocating for at least part of these subsidies to be redirected towards stronger incentives and greater investment in renewable energy appear particularly valid. Such an approach would help reduce Malta’s exposure to sudden international energy and fuel price shocks, thereby strengthening the country’s energy resilience.

As in other situations, we are plagued with thinking and adopting short-term policies while paying a very high price in the medium to longer term.