National Strategic Reference Framework

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MALTA – National Strategic Reference Framework 2007-2013 Draft Document for Consultation The challenges Malta faces are magnified in the case of its sister island, Gozo. Gozo is a significantly smaller island in terms of land area and has an extremely restricted internal market. Malta’s sister island sensitivity is underpinned by an environmental fragility compounded with high population density in a small land area supporting an economy primarily based on tourism and agriculture. A critical factor underpinning Gozo’s logistical difficulties relates to its overtly dependence on the port at Mgarr. The island’s economic dependence on fisheries, maritime freight and passenger transport imply that the requirements of competing users on the port facilities need to be constantly reconciled. The island’s geographical and economic realities prevent the development of a second port. Transport through Malta creates a dependency on the inter-island ferry and helicopter services. Both services are limited and discontinuous, due to operational restrictions primarily for climatic reasons. Overall, the small size of the Maltese territory, its separation into multiple islands and the distance between the islands generate increased time lags, higher costs for production and market access. Malta’s small size coupled with its high population density result in very acute environmental pressures. Size heightens the vulnerability of the islands to environmental issues as well as leads to a high degree of urbanization. The islands’ small size and their separation from mainland Europe also impact on high demand for an economic and social infrastructure particularly for external and internal accessibility, waste management and public utilities infrastructures. 2.2 Economic context 2.2.1 Overview The Maltese economy has been performing below its potential in recent years though positive signs have been registered with a pick-up in growth in 2005. In terms of GDP at market prices in Purchasing Power Standards (PPS), the Maltese economy showed a decrease for most of the years from 2000 onwards compared to the EU average. In fact, on a per capita basis, Malta’s GDP per head in PPS declined from 78 per cent of the EU- 25 average in 2000 to 69.2 per cent in 2004. The unfavourable global economic environment prevailing since 2001 has impinged significantly on domestic economic conditions. Exogenous shocks stemming from rising energy prices have also affected the Maltese economy negatively in recent years. Furthermore, the international economic environment is becoming increasingly competitive due to stronger market positions by emerging low-cost countries. On the domestic front, demand is being dampened by the fiscal consolidation process currently underway, whilst a number of economic sectors are facing competitive challenges both in domestic and export markets. In 2001 and 2002, the rate of growth of real GDP was 0.4 per cent and 1.5 per cent respectively. Negative growth rates of 2.5 per cent and 1.5 per cent were registered in 2003 and 2004 respectively. Nonetheless, positive signs have been registered in 2005, when real GDP increased by 2.5 per cent.
MALTA – National Strategic Reference Framework 2007-2013 Draft Document for Consultation In recent years, the Maltese economy was characterized by subdued growth in private and general government final consumption expenditure whilst gross fixed capital formation exhibited significant fluctuations. The relatively low positive or negative growth rates in consumption reflect the fiscal consolidation under way. Meanwhile, gross fixed capital formation was influenced by one-off exceptional transactions, particularly in 2003, whilst strong investment activity was registered in 2005. The external sector has contributed negatively to real GDP growth between the years 2003 and 2005. In particular, exports of goods and services contracted in 2003, increased marginally in 2004 but declined again in 2005. Exports of goods and services are significantly influenced by the performance of the major company in the semi-conductor sector. Main economic indicators are presented in Table 2.1. Table 2.1 2000 2001 2002 2003 2004 2005 GDP market prices (Lm millions) 1696.3 1737.7 1796.8 1829.1 1830.4 1927.1 GDP at constant (2000) prices (Lm millions) 1696.3 1702.5 1727.4 1684.3 1659.4 1700.8 GDP growth at constant (2000) prices (%) 0.4 1.5 -2.5 -1.5 2.5 Expenditure Components of GDP at constant 2000 prices (% change) Private final consumption expenditure (1) 0.8 -0.3 2.4 -1.2 1.4 General government final consumption expenditure 0.7 4.0 3.0 1.8 -1.9 Gross fixed capital formation -14.0 -18.7 28.6 3.8 6.1 Exports of goods and services -2.2 3.6 -2.1 0.4 -3.9 Imports of goods and services -8.6 -2.3 7.0 2.0 0.2 Inflation rate (%) (2) Employment growth (%) (3) Unemployment (%) (4) Labour productivity (% change) (5) (1) Includes NPISH final consumption expenditure (2) As measured by the Retail Price Index (RPI) (3) Data for 2005 is as at October 2005 (4) Based on Part I and Part II registered unemployed data of the Employment and Training Corporation (ETC) as at October 2005 (5) Data for 2005 refers to the period January-September 2005 Source: National Statistics Office Main Economic Indicators 2.9 2.2 1.3 2.8 3.0 0.7 -0.1 -0.5 0.3 0.6 5.1 5.2 5.6 5.6 4.9 -0.3 1.6 -2.0 -1.7 1.6 Malta has registered relatively high fiscal deficits in recent years. However, since 2004 the fiscal deficit has been contracting, reflecting the ongoing implementation of Government’s fiscal consolidation program (Table 2.2). The general Government deficit declined from 5.1 per cent in 2004 to an expected 3.8 per cent in 2005. As outlined in the Budget Speech for 2006 and in the Update of the Convergence Programme 2005-2008, the deficit will be below 3.0 per cent of GDP in 2006. The fiscal deficits incurred over the years have been reflected in rising debt-to-GDP ratios. General Government debt as a percentage to GDP increased from 56.0 per cent in 2000 to an expected 75.6 per cent in 2005. In order to restore public finances to a sustainable path, Government is not solely addressing the current imbalance in public finance, but importance is attached to the need to reduce the debt-to-GDP ratio at a satisfactory pace. Fiscal targets project a decline in the debt ratio in 2006 to 70.8 per cent of GDP.
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