Malta

Robust growth but still a long way to go

LOW RISK for enterprise

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

Last updated in February 2022.

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GDP	USD14.65bn (World ranking 126, World Bank 2020)
Population	0.53mn (World ranking 171, World Bank 2020)
Form of state	Republic
Head of government	Robert Abela (PM)
Next elections	2022, Legislative

Strong economic and robust employment growth before the outbreak of the Covid-19 pandemic
Investor-friendly tax regime with considerable tax exemptions and incentives, which compensate for a relatively high corporate tax rate
Solid public finances and favorable household and corporate debt levels
English-speaking productive workforce, relatively low labor costs compared to other EU members

High trade openness entails vulnerability to an unstable external environment
Strong export dependence, especially on electrical machinery and equipment (mainly semiconductors) and petroleum
Brexit and the Covid-19 pose major risks to tourism industry (high number of UK arrivals)
Growing size of the strongly internationalized financial sector while being listed as (cooperative) tax haven by the OECD
Needs structural reform in R&D and human capital training to raise growth potential

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The economy is on the rise but public finances are declining

Accustomed to high GDP growth rates, Malta experienced a severe economic downturn following the Covid-19 pandemic. The country is highly dependent on tourism-related revenues (30% of its GDP) and the health restrictions had a strong impact on this sector. In addition, declining domestic demand and exports have also contributed to the country's economic slowdown. As a result, in 2020, the country recorded a negative GDP growth rate of -7.7%. A strong labor market and high productivity will support the recovery and help offset tourism activity remaining below its pre-crisis level in 2019. GDP is expected to rebound by +5.5% in 2022.

As for public finances, Malta was used to recording fiscal surpluses since 2015 due to revenues obtained from the sale of passports via the IIP. Following the pandemic, the country recorded a deficit of 5.2%. In March 2020, a EUR520mn package of measures was put in place to mitigate the economic downturn, some of which are still in place today. Wage subsidies were extended until April 2022 and the VAT exemption threshold was raised. A EUR3.5mn programme has been launched to stimulate tourism, but fear of the virus and a preference for saving are expected to dampen the effects of this measure.

Fiscal policy will remain highly expansionary until 2022 to ensure support for economic activity. The fiscal position is expected to improve due to the increase in government revenues when these measures are removed. However, the government will probably not be able to maintain the current rate of revenue growth and will have to curb its spending. Malta is therefore not expected to run significant budget surpluses even when spending is reduced in 2023. A EUR350mn guarantee fund has been set up to guarantee loans from the country's commercial banks to businesses affected by the pandemic via the Malta Development Bank. Inflation remains stable and is expected to remain at or below 2% for the next few years.

To ensure growth, structural reforms are needed

Malta's economy is oriented towards services (tourism and financial services) but also towards exports in the manufacturing sector, particularly in electronics and pharmaceuticals. The onslaught of the pandemic has severely underlined the need for structural reforms, notably (i) investment in research and development (R&D) and (ii) improvement of the governance framework. Increased investment in R&D is needed to boost productivity and attract human capital to fill the skills gap. The improvement of the governance framework is also essential to ensure the increase and maintenance of foreign investment flows and the stability of the country's financial situation.

Business environment and political developments

Malta was in the bottom of the first half of the 2020 World Bank Doing Business ranking: 88th out of 190 economies. The country achieved top rankings in enforcing contracts, trading across borders and protecting minority investors. In 2020, the country improved the reliability of its electricity supply by upgrading its grid and setting up a grid-operations control center.

In June 2017, the Labour Party won the general election. The success of the Covid-19 vaccination campaign and the economic recovery should ensure its re-election in June 2022. In January 2020, the prime minister Joseph Muscat stepped down as members of his government and staff were implicated in the murder of an investigative journalist. He has since been replaced by Robert Abela.

Trade structure by destination/origin

(% of total, 2020)

Exports	Rank	Imports
Germany 12.1%	1	12.7% Italy
Singapore 9.0%	2	11.5% Russia
France 7,2%	3	10.2% Korea, Republic of
Italy 5.7%	4	8.8% China
China 5.7%	5	5.2% United Kingdom

Trade structure by product

(% of total, 2020)

Exports	Rank	Imports
Electrical machinery, apparatus and appliances, n.e.s. 28.7%	1	25.3% Petroleum, petroleum products and related materials
Miscellaneous manufactured articles, n.e.s. 13.5%	2	23.1% Other transport equipment
Medicinal and pharmaceutical products 12.3%	3	6.0% Electrical machinery, apparatus and appliances, n.e.s.
Petroleum, petroleum products and related materials 10.9%	4	4.3% Organic chemicals
Other transport equipment 5.1%	5	3.6% Medicinal and pharmaceutical products