Last week, I gladly accepted a series of interviews because I felt it was time to explain how the economy works. Well, it’s quite a task. Surely, we must go beyond slogans and stick to substance. As I’ve always maintained, the departure point is economic growth. Without growth, there is no fiscal space, no redistribution, and no resilience. And yet, growth is not a slogan but a measurable and structured outcome.
Certainly, the European Union’s Stability and Growth Pact provides the first lens through which an economy is assessed. It does so by measuring two critical ratios being the deficit-to-GDP ratio and the debt-to-GDP ratio. These are not arbitrary metrics. They are the foundation upon which credit rating agencies assign grades like A+, BBB, or worse. These ratings determine our cost of borrowing, our attractiveness to investors, and our credibility in international markets. Any economist dreads getting this wrong. Well, let alone politicians. Without these indicators, we cannot speak meaningfully about median income, OECD economic standards, or UNDP human development rankings. One excludes the other. The former is a precondition for the latter. You cannot build a social model on fiscal instability. That is not possible. It has never happened. Rewind to 2008 and remember what happened to Greece and other countries. In fact, the very foundation upon which the IMF was created is undermined by such measures, given its austerity-driven and neoclassical approach. That’s why I’ve often said Keynes would be rolling in his grave when the IMF steps in to assist indebted countries.
Let us take Malta as a case study. In 2012, Malta’s economy stood at roughly €7 billion, with a debt-to-GDP ratio of over 70% and a deficit exceeding 3%. Fast forward to 2025, and the economy has more than tripled to over €22 billion, with debt-to-GDP projected at 47.1% and deficit-to-GDP expected to fall to 2.8% next year. This is not just economic growth but a complete transformation of Malta’s economy. We’ve witnessed a complete shift in our economic numbers and patterns. And it is precisely this fiscal space that gives the current Labour government a competitive advantage over its political opponents. It allows for investment, reform, and strategic allocation of funds. Yet, despite these facts, a persistent myth continues to circulate – propagated by the Opposition – that Malta’s economy grows simply because it imports labour. This narrative has been echoed by the last three leaders of the Opposition, and it is both economically flawed and socially corrosive. It’s akin to saying that a company grows merely by hiring more people, regardless of what those people do or produce. If that were true, then Africa should be economically richer than China, and India should have already outpaced the United States in economic size, simply by virtue of population. But that’s not how economies work.
Let us turn to basic macroeconomic theory. The Harrod-Domar model tells us that growth depends on savings and investment, not population alone. Endogenous growth models, from Romer to Lucas, emphasise human capital, innovation, and productivity. And if we revisit Malthus, we find a cautionary tale that unchecked population growth without corresponding productivity leads to stagnation, not prosperity. By now you may know that I am a Keynesian economist. As defined by Keynesian economics, the economy is structured around the equation GDP = C + I + G + (X − M), where C stands for private consumption, I for investment, G for government spending, and (X − M) represents net exports. This formula is not just academic. It is the operational blueprint for how jobs are created, how demand is stimulated, and how foreign labour is absorbed as a consequence of growth, not its cause. To grow an economy, we must stimulate investment and government spending – both public and private – including, inter alia, public-private partnerships. These create jobs, which in turn increase consumption. And yes, some of those jobs will be filled by foreign workers, but they are not the cause of growth. They are the consequence of it. And we must export more than we import, because the net effect is positive in the equation.
The narrative about growing the economy through a bigger population, pushed by the other side of the room, is not just populist; it is dehumanising and politically regressive. It reduces workers to statistics and ignores the structural dynamics of growth. Worse, it creates a divisive discourse that puts “locals” against “foreigners”, as if the economy were a zero-sum game. Surely, it is not because it is a system of interdependence, productivity, and strategic allocation. Certainly, Malta’s economic growth has not been accidental. It has been driven by capital expenditure, targeted investment, and policy foresight. The government has allocated resources toward creating higher total factor productivity sectors, including artificial intelligence, Internet of Things, esports and digital infrastructure. Tax credits have been introduced to incentivise innovation, and public-private partnerships have been leveraged to scale strategic industries to avoid a swelling deficit. This is how you build competitiveness.
We must also recognise that fiscal credibility is not just a technical metric, but a political weapon at the disposal of the PL government. It is allowing the PL government to negotiate better terms with international and EU institutions, to attract long-term investment, as outlined in the EY survey, and to shield our economy from external shocks. It is the foundation upon which social policy can be built. So when we talk about median income, housing affordability, or healthcare access, we must first talk about economic fundamentals. Because without growth, there is no redistribution. Without investment, there is no innovation. And without fiscal space, there is no reform. Surely, the PL must delve deeper into the Draghi competitiveness report and carve out what can be implemented locally, way before it is even rolled out by the EU.
Moreover, the government’s approach to fiscal discipline has created room for social investment. Whether it’s stipends, housing schemes, pension increases, or infrastructure upgrades, these are made possible by the credibility Malta has earned through sound macroeconomic management and fiscal consolidation. The narrative that economic growth is artificially inflated by imported labour is not only misleading but dangerous. It dehumanises workers, fuels xenophobia, and distracts from the real levers of growth. It is a classic populist tactic. We must shy away from reducing complexity into emotion and further replacing policy with prejudice. Certainly, the economy is built on investment, innovation, and inclusion. And if we are serious about sustaining growth, we must reject simplistic narratives and embrace structural reform.
In conclusion, I urge readers, as well as policymakers, to move beyond slogans and toward substance. Malta’s economy is surely not a secret. It is a system of inputs, outputs, and strategic choices. Let us make those choices wisely. And let us defend the dignity of every worker, local or foreign, who contributes to our shared prosperity. They are not just serving us but building Malta’s prosperity with us.
