In my article published on the 2nd April 2026 I had said “As of the March data release, the provisional GDP for 2025 is estimated at €24.53 billion. If we apply the average revision rate from the previous two years (approximately 7%), the final GDP for 2025 is likely to be revised toward €26.25 billion by the time the final accounts are settled. Based on the NSO’s reported Consolidated Fund deficit of €823.9 million, this adjusted economic denominator would result in an annual deficit of 3.14% of GDP. This figure is particularly significant as it brings Malta remarkably close to the 3% threshold mandated by the EU’s Stability and Growth Pact, suggesting that while the absolute deficit increased in 2025, the sheer scale of economic expansion continues to provide a crucial buffer for national fiscal sustainability.”
With the published accrual-based Government Deficit figure for 2025, the cash based Consolidated Fund Deficit figure published a few weeks ago has shrunk from €824 million to €545 million. How is this possible? The transition from the cash-based Consolidated Fund deficit to the accrual-based General Government deficit involves several significant accounting adjustments required by European methodology (ESA 2010). While the cash figure focuses on the timing of actual payments, the accrual figure reflects when the underlying economic activity occurred.
As can be seen in the below table, the primary and most significant adjustment was the so called “Time-adjusted cash transactions” that added €391.6 million back to the balance by aligning the recording of taxes and social contributions with the period they were earned rather than when they were collected. This large positive adjustment in 2025 indicates that while cash flow can be volatile, the underlying “accrued” revenue—what the government is legally owed—is growing more consistently than cash receipts might suggest. In fact Government revenue as a share of GDP has increased from 33.1% in 2022 to 34.8% in 2025. This indicates that revenue is currently outperforming the general growth of the economy.
Also, as can be seen in the below table also this is the first time since 2022, whereby the accruals based deficit ended up much lower from the cash based consolidated fund deficit, when the accruals adjustments where made. In previous year i.e in 2022, 2023 and 2024, this was never the case.
Thus, so far so good. With a final public deficit of €545 million and a 2025 provisional GDP at 24.53 Billion, we get a GDP to deficit of 2.2%. If the usual revisions are made to the 2025 nominal GDP, the GDP to deficit level could even go further down to around 2%.
As I had been repeating in my articles, considering the constant shocks the global economy is facing, resilience is key. Which is why beyond celebrating this excellent result, I believe we would do well to ensure that this can be preserved whatever comes our way.
The trajectory of Malta’s public finances from 2019 to 2025 illustrates a dramatic shift from a pre-pandemic surplus to a high-expenditure “crisis mode,” followed by a period of aggressive revenue-led consolidation.
Actually, the fiscal landscape can be divided into three distinct phases based on the data. There is first the pre-pandemic 2019 baseline. The period was when we had a surplus of €67.1 million. Revenue and expenditure were closely matched at approximately 37% of GDP.
Then came the pandemic. As a response, Government expenditure surged to mitigate COVID-19 risks. In 2020, expenditure rose to €5,977.9 million (46.6% of GDP) while revenue fell to €4,677.8 million (36.5% of GDP). By 2021, expenditure peaked at €6,614.9 million.
Post 2021, the government entered a phase of rapid revenue growth. By 2024, revenue increased by €1,216.0 million in a single year to reach €7,784.2 million. By 2025, revenue reached €8,553.8 million, allowing the deficit to narrow to 2.2% of GDP, down from a peak of 10.1% in 2020.
The sustainability of this model depends on the relationship between revenue growth and the cost of maintaining a larger state apparatus. The data confirms that government revenue has, at times, grown faster than the economy itself. For example, in 2024, government revenue as a percentage of GDP rose to 34.6% from 32.0% in 2023. This rose slightly further to 34.8% in 2025. This suggests that revenue increases are not just coming from a larger economic “pie,” but also from more efficient tax collection. While the deficit-to-GDP ratio is shrinking, the absolute level of government expenditure has established a new, much higher “floor.” In 2019, the government spent €4,985.2 million. By 2025, expenditure had ballooned to €9,099.1 million. This 82% increase in spending over six years creates a structural dependency. If revenue growth slows while expenditure remains high due to social obligations or interest payments the fiscal position could quickly deteriorate.
In reality, continuous revenue growth at this velocity is unlikely for several reasons. Government Revenue remains heavily linked to GDP. While Malta’s GDP grew from €13.4 billion in 2020 to €24.6 billion in 2025, any cooling of the economy would immediately slash tax receipts. In 2025, government revenue boosts include “time-adjusted cash transactions” (an adjustment of €391.6 million in 2025) and surpluses from Extra Budgetary Units (EBUs) like the National Development and Social Fund. These may not be permanent fixtures of the revenue stream.
From an economic perspective, no economy can maintain high-percentage growth indefinitely without encountering structural limit. Growth requires labour and infrastructure. This puts the emphasis on productivity growth. If economic growth drops below 4% while spending stays high, the debt-to-GDP ratio will begin to climb again, potentially breaching the 60% limit in the long run. In conclusion, the current fiscal trajectory is sustainable as long as the economy avoids a slowdown or a recession. The larger, higher-spending public expenditure requires a high-octane economy just to maintain its current GDP-to-deficit and GDP-to-debt levels.
The Minister of Finance may be hesitant to commit to massive, multi-year capital projects because the current fiscal stability is built on a “high-expenditure/high-revenue” dependency. If the government locks into long-term, multi-billion-euro infrastructure commitments, it permanently raises the expenditure “floor” even further. Because the current revenue model is so tightly linked to high GDP growth, any cooling of the economy would immediately slash tax receipts while those infrastructure costs remain fixed. This creates a true chicken and egg situation. On one hand, it could be that the Minister of Finance fears that without constant high economic growth, the debt becomes unsustainable while on the other hand without infrastructure investment, the very economic growth required to fund the state’s current size will eventually hit a structural ceiling.
