Last Updated on Thursday, 8 February, 2024 at 11:28 am by Andre Camilleri
It comes as no surprise that the IMF has once again stressed the importance of increasing our productivity and for the government to implement a less expansionary fiscal policy, especially in view of the present inflationary situation and within the reality of such a tight labour market. They also claim this to allow public finances to build a much-needed fiscal buffer, given that the prevailing uncertainty has seemingly become a persistent aspect of reality. They have been repeating this from one report to another. In view of this, they also repeated that we cannot keep subsidising energy for all indefinitely. Interestingly I was seeing the recent NSO report on the subdivision of public spending in 2022, which has shown that in 2022 the government has spent €312m in energy subsidies. To put this into context, this stands at almost 65% of what we spent for public primary and secondary education in 2022.
Beyond this, the Central Bank of Malta has recently published a couple of reports, which start to indicate certain important signals. The last Business Dialogue report indicates that businesses are expecting a less rosy performance for their business. This primarily stems from the fact that businesses are experiencing higher costs, with wage increases being at the forefront of these cost escalations. This in turn is putting pressure on prices across the whole spectrum of Malta’s economic sectors, resulting in systematic price increases which increase operating costs further. Ultimately, this is resulting in a margin squeeze, which leads to less investment in businesses because of reduced liquidity and longer payback periods.
The ultimate result is leading to many businesses reducing their investments in their operations. This is also leading to a decline to the amount of businesses which are looking to employ more people, as businesses begin to understand that survival in a tight labour market is ultimately about being able to do more with less people.
These are important signals, which we ignore at our great peril. Having gone through more than a decade of unprecedented economic growth, I sense that as a nation we have started to take economic growth for granted. This could be that as economic growth also presents its challenges, we have for the past years focused on the pains that economic growth brings along, especially when such economic growth is not grounded in an increase in productivity. So while we may decide to ignore the general IMF message, the reality on the ground is what it is. Our challenge, staring us in the face, is to keep growing our economy through higher value added and better productivity levels. This importance emerges stronger from another Central Bank of Malta report, the latest Economic Update, which with regards consumer confidence outlines that“consumer confidence averaged -12.6, marginally below the -12.3 recorded a month earlier, and thus remained below its long-term average of -10.3. While expectations about major purchases and the general economic situation over the next 12 months were less negative than before, the other components of consumer confidence showed a deterioration”.
This means that businesses are likely to face the situation of a candle burning at both ends, with a dampened revenue growth and increasing costs, leading to lower profits and less investment. Which is why achieving higher efficiency and productivity remain top key priorities.