If you live in Malta and have not realised that a general election is round the corner, you are a master at living an insulated life. Recently the minister of finance was being interviewed on a local TV programme and referred to this period before a general election as “the silly season”. He was obviously referring to the season when politicians present proposals or move ahead to execute things that make little to no economic sense. To be honest, I am very much weary of this season myself, when politicians start falling upon themselves bearing ‘gifts’ or announcing good news, with little to no concern as to what the effect of such ‘gifts’ or good news would be on public coffers. But just like carnival is always followed by lent, the silly season before a general election is always followed by having to face stark reality, when election is over..
Such stark reality was ably presented by the Assessment Report published by the Malta Fiscal Advisory Council (MFAC) on September 22, 2025, which analyses the Government’s Half-Yearly Report 2025 (HYR) on the execution of the budget. This report provides an economic and fiscal review of Malta during the first half of 2025, comparing outturns against annual forecasts set in the Annual Progress Report (APR) 2025.
The report outlines that the Maltese economy maintained its positive momentum in 2024, recording real GDP growth of 5.9%, a figure that significantly outpaced the averages in both the European Union and the Euro Area. This expansion was primarily fuelled by domestic demand. However, this strong economic performance is set against a backdrop of serious fiscal challenges. In 2024, Malta’s deficit-to-GDP ratio stood at 3.7%, remaining above the 3.0% threshold and keeping the country in an Excessive Deficit Procedure.
A central issue highlighted in the Malta Fiscal Advisory Council’s (MFAC) assessment is the significant overshooting of government spending targets. In 2024, the growth of nationally financed net primary expenditure reached 14.3%, a rate substantially higher than the planned target of 7.4%. In response, and to align with a new European fiscal framework that imposes a ceiling on expenditure growth, the government has planned to limit net expenditure growth to “nearly zero” in 2025. This target is crucial to compensate for the sharp rise in the previous year.
However, provisional data from the first half of 2025 indicates a significant deviation from this target. Estimates show that total government expenditure has already increased by 8.8% compared to the same period in 2024. This development has led the MFAC to stress “the need for increased vigilance in expenditure management during the remainder of the year” to ensure compliance.
A detailed look at the Consolidated Fund (cash-based) figures reveals a deficit of €457.4 million for the first half of 2025, a substantial increase from the €89.9 million deficit in the same period of 2024. This deterioration was driven by a €437.2 million rise in expenditure against a modest revenue increase. Key drivers of this spending increase included a 17.3% (€104.0 million) increase in personal emoluments, a €169.3 million rise in programmes and initiatives, mainly for social protection, health, and education and a €66.5 million increase in contributions to government entities.
While Malta’s debt-to-GDP ratio decreased to 47.4% in 2024, remaining comfortably below the 60% benchmark, the MFAC notes this favourable outcome was helped by higher-than-expected government revenue and robust GDP growth acting as the denominator. The official forecast for 2025 anticipates the debt ratio will rise to 48.4%, pushed upwards by contributions from the primary balance and interest expenditure.
Based on its assessment, the MFAC puts forward some key recommendations. Firstly, that government should accelerate structural reforms in productive areas such as digitalisation, the green transition, research and innovation, and workforce upskilling to ensure growth is not overly dependent on domestic consumption.
Secondly, that It is critical to adhere to the set net expenditure path by controlling recurrent outlays while safeguarding productive investment. MFAC warns that achieving targets by cutting productive investment would be undesirable from a policy perspective, as it is that type of investment that supports long-term productivity.
In its appraisal, the MFAC reiterates that the 2025 fiscal targets are contingent on the non-recurrence of large one-off capital transfers seen in 2024 and on limiting expenditure growth to nearly zero. The 8.8% expenditure growth observed in the first half of 2025 underscores the significant challenge in meeting this objective and reinforces the Council’s call for vigilance to ensure spending remains aligned with fiscal rules.
In conclusion, I interpret that the MFAC’s assessment delivers a potent message. The challenge is clear: while politically motivated ‘gifts’ and expenditure increases—such as the significant rises in personal emoluments and social protection initiatives—may serve short-term electoral interests, they directly undermine the commitment to fiscal consolidation. The MFAC puts, in my opinion, the priorities in good order , with government controlling recurrent outlays, whilst maintaining and growing expenditure towards productivity-supporting areas like digitalisation and research.
Ultimately, the choice facing Malta is not just fiscal, but one of political will. The will to prioritise the discipline required for long-term prosperity and stability over the immediate gratification of pre-election spending.
