EUROPEAN COMMISSION Brussels, 16.9.2021 SWD(2021) 269 final COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Malta Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Malta {COM(2021) 584 final}



Table of contents 1. Executive summary 2. Recovery and resilience challenges: scene-setter 2.1. Macroeconomic outlook and developments since the 2020 country report 2.2. Challenges related to sustainable growth, cohesion, resilience and policies for the next generation Smart, sustainable and inclusive growth Social and territorial cohesion Health and economic, social and institutional resilience 2.3. Challenges related to the green and digital transition Green dimension Digital dimension 3. Objectives, structure and governance of the plan 3.1. Overall strategy of the plan 3.2. Implementation aspects of the plan Consistency with other programmes Consistency with the challenges and priorities identified in the most recent euro area recommendation Administrative organisation Security self-assessment Cross-border and multi-country projects

Communication strategy State aid 4. Summary of the assessment of the plan 4.1. Comprehensive and adequately balanced response to the economic and social situation Green transition Digital transformation Smart, sustainable and inclusive growth, including economic cohesion, jobs, productivity, competitiveness, research, development and innovation, and a well-functioning single market with strong SMEs Social and territorial cohesion Health, and economic, social and institutional resilience, with the aim of, among other things, increasing crisis preparedness and crisis reaction capacity Policies for the next generation, children and youth, such as education and skills 4.2. Link with country-specific recommendations and the European Semester Public finances: long-term sustainability and fiscal policy Healthcare system: Resilience and provision of health Labour market and social policies Education and skills: Training outcomes, quality, access, inclusiveness Digital transition Green transition, in particular clean and efficient production and use of energy Justice system, prosecution service, corruption Money laundering Aggressive tax planning

Response to the current economic and social situation and impact on growth potential 4.3. Growth potential, job creation, economic, institutional and social resilience, European Pillar of Social Rights, mitigating the impact of the crisis, and social and territorial cohesion and convergence Fostering economic growth and jobs Strengthening social cohesion Reducing vulnerability and increasing resilience Cohesion and convergence 4.4. The principle of ‘do no significant harm’ (DNSH) 4.5. Green transition Climate target Green transition 4.6. Digital transition Digital tagging Digital transition 4.7. Lasting impact of the plan Structural change in administration and institutions Structural change in policies Lasting impact 4.8. Milestones, targets, monitoring and implementation Adequacy of the structure tasked with implementation of the plan, monitoring of progress and reporting Milestones, targets and indicators

Overall organisational arrangements 4.9. Costing Reasonable costs Plausible costs No double EU financing Commensurate and cost-efficient costs 4.10. Controls and audit Robustness of internal control system and distribution of roles and responsibilities Adequacy of control systems and other relevant arrangements Adequacy of arrangements to avoid double EU funding 4.11. Coherence Mutually reinforcing measures Complementarity of measures Annex

1.Executive summary The Maltese economy was badly hit by the COVID-19 pandemic and went from an above-average EU growth rate of 5.5% in 2019 to a contraction of 7.8% in 2020. The tourism sector was affected in particular, while the general contraction was partially offset by a steady expansion in the iGaming and financial services industries. The government took significant measures to support the economy, which limited the effects of the crisis. Employment continued to increase in 2020, while unemployment increased only slightly (from 3.6% in 2019 to 4.3% in 2020). The budget, which has been in surplus since 2016, recorded a deficit of 10.1% in 2020. Public debt is still at a moderate level despite increasing from 42.0% of GDP in 2019 to 54.3% in 2020. Malta’s recovery and resilience plan (RRP) has a total value of EUR 344.9 million, which is above the non-repayable financial support of EUR 316.4 million (approximately 2.3% of 2019 GDP) available to Malta under the RRF Regulation. Malta is not asking for loans. Despite strong growth before the pandemic, Malta still faces significant challenges. While steps have been taken to increase participation and attainment rates in education and training, there is still a high share of pupils with insufficient levels of basic skills and a high number of early school leavers. Labour and skills shortages remain an issue and have increased in recent years, while the current crisis is expected to exacerbate them in some sectors and redefine them in others. Women’s participation in the labour market remains low. Despite some improvements, the gender employment gap is still one of the highest in the EU. The health system delivers good outcomes, but its resilience and sustainability can be further improved. Additional efforts are needed to strengthen the independence and effectiveness of the justice system, to improve the Maltese anti-corruption and anti-money laundering framework and to curb aggressive tax planning practices. Research and innovation (R&I) continues to play a limited role in Malta’s economy, and investments are needed to accelerate the digital transition. Achieving environmentally sustainable economic growth remains one of Malta’s key challenges. Further efforts are needed in particular on energy efficiency, renewable energy, sustainable transport and waste management.

Investments and reforms in the recovery and resilience plan are expected to help address a significant subset of the country-specific recommendations identified in recent years as part of the European Semester. The plan is ambitious and envisages reforms and investments to address the challenges identified in health, employment, education and skills, climate and digital transition, justice and the fight against corruption and money laundering. Good governance is one of the pillars of the government’s long-term economic vision, and the plan makes significant efforts to remedy the challenges in this area. Investing in education also features prominently in the plan, with relevant measures proposed to address weaknesses in the education system. A major part of planned investments focuses on the green and digital transition, thereby addressing the country-specific recommendations on investments in these areas. The challenges identified in aggressive tax planning, R&I and the sustainability of the pension system are partly addressed. The investments and reforms included in the recovery and resilience plan also appear consistent with the challenges and priorities identified in the Council Recommendation on economic policy of the euro area. The plan is balanced in its response to the six policy pillars referred to in Article 3 of the RRF Regulation. The first three of the six components are directly related to the green and digital transition. The remaining four policy pillars are addressed in the other components through measures to: (i) strengthen and increase the resilience of the healthcare system; (ii) strengthen early school leaving prevention measures and improve the education and vocational education system; (iii) implement measures to support innovation; (iv) digitalise to increase public administration efficiency, including the health and justice systems; and (v) address institutional bottlenecks through governance reforms. The investments and reforms included in the plan are expected to strengthen growth potential, job creation, resilience and cohesion. The strengthening of the institutional framework, education system reforms and digitalisation efforts in particular are expected to boost growth potential. Further benefits for growth and jobs are expected from the investments and reforms to boost energy efficiency, decarbonise transport, improve the health system and strengthen R&I. Institutional resilience is addressed by reforms and investments to strengthen the justice system and the anti‑corruption and anti-money laundering capacity. Measures in health, education, training and the labour market are expected to help strengthen social cohesion, while also contributing to the implementation of the European Pillar of Social Rights. The measures in Malta’s recovery and resilience plan are expected to contribute to the green transition and environmental protection. The plan supports Malta’s decarbonisation and energy transition objectives, as set out in its 2030 national energy and climate plan (NECP), and are a step forward in achieving climate neutrality by 2050. Two of the six components in the plan include expenditure that contributes to climate objectives, accounting for 53.8% of the plan’s total allocation. These mainly reflect sustainable transport investments (ferry landing site, electric vehicles) and energy efficiency interventions in buildings. To a lesser extent, the plan also includes renewable energy investments. Waste management reforms aim to strengthen the circular economy. The plan contains no measures with biodiversity as their objective, although reductions in pollution emissions resulting from building renovations, the decarbonisation of transport as well as the planned strengthening of waste management may indirectly improve biodiversity. All measures in the plan have passed the ex ante assessment of the ‘do no significant harm’ principle. In addition, for some measures this principle has been reflected in the milestones and targets specified in the Annex to the Commission Proposal for a Council Implementing Decision. Malta’s recovery and resilience plan is expected to contribute to the digital transition. Measures supporting digital objectives represent 25.5% of the plan’s total allocation. Component 3 is fully dedicated to the digital transition and aims to invest in the further digitalisation of public administration and public services, as well as strengthening initiatives related to the digitalisation of the private sector. Components 4 and 6 also address this objective by boosting digitalisation of the health and judicial systems. The proposed reforms and investments are expected to have a lasting, positive impact on the functioning of the institutions, public administration and policies. Institutional changes to strengthen the independence and effectiveness of the justice system as well as the anti-corruption and anti-money laundering framework are expected to have lasting benefits on how the country’s institutions function. Digitalisation is expected to improve access to and the efficiency of government services to businesses and individuals. Healthcare provision is strengthened through investments and a broader and more digitalised service. Policy changes are also expected to bring about lasting benefits, including a reduction in energy consumption, improved air quality, reduced noise pollution, better work-life balance and improved access, quality and resilience of educational services, bridging the gap between education provision and labour market needs. The implementation framework is robust, and milestones and targets are well thought-out. The Ministry responsible for the management of EU funds is the lead authority for implementing Malta’s recovery and resilience plan. Within this Ministry, the Planning and Priorities Coordination Division, which is also the Managing Authority for other EU funds, has been tasked with leading the process. The plan also envisages close cooperation with the Ministry for Finance and Employment, which leads the European Semester process. The milestones and targets are suitable for monitoring the plan’s implementation, representing the key elements of the proposed investments and reforms. The plan provides sufficiently detailed information on the national set-up for the Recovery and Resilience Facility (RRF) internal control system. The outline of the control system put in place seems appropriate, and relevant actors have been identified across all levels. Management verifications at plan level have been clearly defined. The plan includes main elements on the audit work of the audit body and a commitment to prepare an audit strategy within three months of adopting the plan. The plan confirms that all investments will be financed solely by the RRF. This is further bolstered by structures put in place at national level to ensure consistency between funding and to avoid double funding. Malta has provided estimated costs for each investment included in the recovery and resilience plan, while no costs were associated with the reforms. The cost breakdown is generally detailed and well-substantiated. The assessment of the cost estimates and supporting documents shows that a large majority of the costs are reasonable and plausible. The cost estimates are based on well-documented comprehensive calculations and sound underlying assumptions. In addition, the estimated total cost of the recovery and resilience plan is in line with the nature and type of envisaged investments. However, in some limited cases, further supporting evidence and clearer justification for the assumptions made would have been needed to reach a fully positive assessment. The estimated total cost of the plan is commensurate with its expected economic and social impact and is in line with the principle of cost efficiency. The Maltese plan includes a set of consistent, coherent and mutually reinforcing measures that are commensurate with the overall long-term development objectives. Reforms that strengthen the regulatory framework in the buildings sector and ensure a well-prepared workforce support the planned renovation of a number of private sector and public buildings, public schools and hospitals. Policies that promote the sustainability of the transport sector strengthen the government’s efforts for a modal shift to clean public transport together with the electrification of part of the bus fleet. Across components, initiatives taken to strengthen the government’s digital services are complemented by digitalisation of the justice system. In addition, skilling and upskilling is envisaged through different components, which sustain and complement each other. No cases have been observed where measures proposed within or across components contradict or undermine each other’s effectiveness. (1)

Balanced response (2)

CSRs (3)

Growth, jobs… (4)

DNSH (5)

Green target (6)

Digital target (7)

Lasting impact (8)



M & T (9)

Costing (10)

Control Systems (11)

Coherence A A A A A A A A B A A 2.Recovery and resilience challenges: scene-setter 2.1.Macroeconomic outlook and developments since the 2020 country report The Maltese economy went from growth of 5.3% in 2019 to a contraction of 7.8% in 2020. The COVID-19 pandemic badly affected Malta’s tourism sector, while the general contraction of the economy was partially offset by a steady expansion in the iGaming and financial services industries. Investment fell mainly due to a large drop in construction, while private consumption was dampened by contractions in the retail, accommodation and food sectors. Inflation averaged 0.8% in 2020, mainly due to subdued energy prices and lower inflation in services. Significant measures were taken to support the economy. The Maltese stimulus package amounted to 5.2% of GDP in 2020, including wage supplements, rent and electricity bill refunds, and interest rate subsidies on bank loans. Liquidity measures (i.e. guarantees and tax deferrals), which have no immediate impact on the deficit, amounted to 3.9% of GDP. The budget, which has been in surplus since 2016, recorded a deficit of 10.1% in 2020 (Commission 2021 Spring Forecast). Debt increased from 42.0% of GDP in 2019 to 54.3% in 2020. The emergency measures, together with the pre-existing tax-benefit system, cushioned around two thirds of the household market income losses in Malta, with more than half of the effect due to the short-time work schemes . Employment continued to increase in 2020, and unemployment figures increased only slightly from 3.6% in 2019 to 4.3% in 2020. The macroeconomic assumptions that underpin Malta’s recovery and resilience plan are plausible and project a sizeable rebound in economic growth in 2021. According to national projections, real GDP is set to increase by 3.8% in 2021, to then speed up to 6.8% in 2022. The national forecast expects inflation to pick up to 1.3% in 2021 and 1.5% in 2022. The unemployment rate projected in the plan is set to remain at 4.3% in 2021, declining to 3.9% in 2022. According to the Commission’s 2021 Summer Forecast, real GDP is forecast to grow by 5.6% in 2021 and 5.8% in 2022. The Commission expects more moderate growth in investment and a more dynamic rebound in private consumption in 2021. Similar to the national projections, the Commission Summer forecast expects inflation to be 1.1% in 2021, increasing to 1.6% in 2022. In addition, in the Commission Spring forecast, the unemployment rate is expected to be 4.4% in 2021, falling to 3.8% in 2022. Given the continued budget support, the Commission Spring forecast expects government deficit and debt to increase further in 2021, to 11.8% and 64.7% respectively. The macroeconomic and fiscal outlook continues to be affected by high uncertainty related to the COVID-19 pandemic and its economic consequences. After a strong improvement, the risk of poverty or social exclusion has been stabilising in recent years, but some groups have been left vulnerable to the pandemic. Strong economic growth and job creation helped to reduce the risk of poverty or social exclusion in recent years to 20.1% in 2019 (compared to 20.9% in the EU). However, this risk remains high for specific population groups, such as single earner households, low-skilled adults, older people, and non-EU nationals. As these are also the groups that are more vulnerable to the negative economic impact of the pandemic, inequalities and risks of poverty could be further aggravated by the economic slowdown. The high number of early school leavers (16.7% in 2020) and poor educational outcomes, which are largely determined by the type of school a pupil attends, also limit equal opportunities. Before the COVID-19 outbreak, labour and skills shortages had increased and the labour market relied heavily on foreign workers, who represent almost a fourth of the Maltese labour force. The COVID-19 pandemic may exacerbate skills shortages in some sectors and redefine skills needs in others. The fiscal position may be dented in the medium term by the composition of government revenues and rising ageing costs in the long term. For several years before the COVID-19 crisis, the Maltese economy had experienced fast growth, sustained employment growth and a declining debt-to-GDP ratio. However, Malta’s tax revenues rely largely on corporate taxes. This may prove volatile given the slowing economy and international initiatives in the area of corporate taxation (e.g. efforts to introduce a minimum corporate income tax rate under the OECD/G20 Inclusive Framework on Base Erosion and Profit Sharing), which may render Malta’s tax regime less attractive for investors. Positive fiscal outcomes in recent years have also been supported by volatile revenues from Malta’s citizenship scheme , whose legality is being challenged by the European Commission. It sent a second letter of formal notice to Malta in June 2021, voicing its concerns about the revised citizenship scheme established at the end of 2020. More stable and growth-friendly taxes such as recurrent property taxation and environmental taxes are underused. Sustainability risks are low in the short and medium term, but the S2 sustainability gap indicator (5.6 % of GDP) suggests medium risks for fiscal sustainability. This is driven by a projected increase in ageing costs of 8 % of GDP by 2070 due to increasing public pension costs (3.8 % of GDP) and expenditure on healthcare and long-term care (4.5 % of GDP), albeit from a very low level. The macroeconomic and fiscal outlook continues to be affected by high uncertainty related to the COVID-19 pandemic and its economic consequences.

2.2.Challenges related to sustainable growth, cohesion, resilience and policies for the next generation Smart, sustainable and inclusive growth The Maltese business environment has improved in recent years, particularly for small and medium-sized enterprises (SMEs), but gaps in access to finance continue to limit growth prospects. While the loan guarantee scheme introduced during the COVID-19 outbreak helps alleviate immediate liquidity constraints, capital markets remain underdeveloped. More efforts are needed to increase the availability of non-bank finance and to address difficulties in access to credit. R&I continues to play a limited role in Malta’s economy. The Maltese R&I system remains underfunded, with public and private R&D expenditure having experienced flat or sluggish growth rates in 2010-2019 . The weak institutional and administrative capacity for R&I policy partly accounts for the limited effectiveness of Malta’s R&D investment and policies. The government set up the Ministry for Research, Innovation and the Coordination of Post Covid-19 Strategy in December 2020, a welcome step towards improving R&I governance. Weak academia-business cooperation, the limited availability of researchers, talent and SMEs’ low R&I capabilities hamper innovation diffusion and technological catch up. Malta has launched a number of activities to promote digital skills among the population, map needs and to train ICT specialists. Recent initiatives have also targeted connectivity issues (including 5G). The lack of digital skills is holding back the digitalisation of companies. Malta is advanced on e-government and e-health, but the uptake by the population is rather low. Training, especially for low-income families, is of particular importance here. Social and territorial cohesion After years of positive change, the social situation started to worsen in 2019. The share of people at risk of poverty or social exclusion (20.1%) was still slightly below the EU average (20.9%) in 2019, but started to increase after years of decline. Furthermore, the poverty-reducing impact of social transfers (other than pensions), at 26.3%, is still substantially lower than the EU average (32.4%) and also registered a decline in 2019. Women’s participation in the labour market remains low. Despite some improvements, the gender employment gap is still one of the highest in the EU (17.7 % in 2020, EU average: 11.1 %). Work-life balance is still a concern in Malta, the employment rate of women still falls after the age of 40 and the share of inactive women due to care responsibilities is high. As for the gender pension gap, while it has improved in recent years, it remains one of the highest in the EU at 39.5% in 2019. Health and economic, social and institutional resilience The health system delivers good outcomes, but its resilience and sustainability can be further improved. Malta’s population generally enjoys good health and has one of the longest life expectancies in the EU. In 2020, as a result of COVID-19, life expectancy at birth dropped from 82.9 to 82.6 years (a drop of less than 4 months, against an average drop of over 9 months across EU Member States). The unmet need for medical care is low, but low-income households report much higher levels than the rest of the population. Obesity is a major public health challenge, with adult and childhood obesity rates the highest in the EU. In 2018, Malta spent 9.0% of its GDP on health, slightly below the EU average of 9.9%. However, a comparatively large share of healthcare costs are borne by household out-of-pocket costs. At the same time, demographic ageing puts pressure on the long-term fiscal sustainability of the health system. Malta has been investing in health promotion and prevention, the development of additional primary care capacity and the introduction of an e-health system. Further redirecting service delivery away from hospitals towards primary care could help improve efficiency and reduce public spending. Resilience will need to be further supported by tackling some long-standing issues, including the recruitment and retention of health professionals (against the background of high reliance on foreign workers, particularly among nurses) and long waiting lists for specialist outpatient services. Efforts to improve the anti-money laundering regulatory and supervisory framework are ongoing, but certain challenges remain. The financial services authority has begun to increase staff levels to support its supervisory role, to review its structure and anti-money laundering oversight as well as its investigation and prosecution powers in that area. Several recent reforms aim to strengthen rule of law enforcement authorities in the fight against money laundering and financial crimes more generally. Addressing concerns related to money laundering will be crucial to prevent criminals from misusing the EU’s economy during the recovery and will have an impact on the country’s capacity to retain essential financial services, improve its international reputation and maintain investor confidence. Further steps are needed to address aggressive tax planning practices. The issue of outbound payments of dividends, interest and royalties (i.e. payments exiting the EU to non-EU countries and jurisdictions) requires attention as these may erode the EU tax base through significant amounts of payments made to other countries where recipient taxpayers are subject to very low or no corporate taxation. The citizenship and residence schemes also continue to pose a serious risk of tax evasion and need addressing. There is still scope for further progress in implementing reforms to strengthen the independence of the judiciary. On 29 July 2020, the Maltese Parliament adopted four laws relating to the justice reforms, namely a new act on the appointment of judges and magistrates, an act on the removal from office of judges and magistrates, an act on the judicial review of decisions not to prosecute and an act on the Permanent Commission against Corruption. The Venice Commission, in its Opinion of 8 October 2020, welcomed the reforms as an important step in the right direction, but recommended amendments to the adopted acts, to be addressed without delay . These mainly reflect the need for greater transparency in the appointment of members of the judiciary while further reducing political involvement, including on the selection of the Chief Justice. Other recommendations include amendments to the judicial review not to prosecute, the transfer of summary cases to the Attorney-General, as well as increased independence of specialised tribunals. Action is still needed to ensure a fully separate and efficient prosecution service. In 2019, Malta passed legislation to create a separate prosecution service in response to Venice Commission recommendations. As a first step, the Office of State Advocate was created to take over the non-prosecutorial functions that the Attorney-General had performed in the past. Cases will be transferred from the police to the Prosecution Service gradually. It is important to ensure that all prosecution functions, including summary offences, are transferred as soon as possible to the Attorney-General’s office and that this office has appropriate resources to operate. Policies for the next generation, children and young people, including education and skills Steps have been taken to improve education and training participation and attainment rates, but significant challenges remain, including a high share of pupils with insufficient basic skills. The share of low-skilled people aged 15 to 64 is one of the highest in the EU (44.8% in 2020), and their participation in training is low (3.6% in 2020). Persistently high student underachievement and early school leaving make it difficult to meet the need for skilled labour using domestic workers alone. The implementation of the policy on inclusive education for public schools has been delayed by the crisis. Strengthening monitoring and developing a holistic evaluation system would ensure more effective education policies and efficient investments. The inflow of foreigners helped to mitigate skills shortages, but also created integration and sustainability challenges through rapid population growth. Public employment services and unemployment protection that were scaled for a dynamic labour market might be ill-suited to dealing with a situation where workers are likely to face longer spells out of work and to have greater re-training needs. 2.3.Challenges related to the green and digital transition

An overarching objective of the RRF is to support the twin transition. Malta is among the leading Member States in digitalisation as measured by the 2020 Digital Economy and Society Index. However, the country is lagging behind in reducing greenhouse gas (GHG) emissions not covered by the EU emissions trading system, according to the Commission’s assessment of Malta’s 2030 national energy and climate plan. Because of its location and given that the country is densely populated, Malta is particularly vulnerable to climate risks. It will need to take additional corrective measures aimed at reducing GHG emissions in order to meet its targets, including by reducing the carbon footprint of its digital sector. This section focuses on where Malta stands in achieving targets related to the green and digital transition. Green dimension The recovery and resilience plan should contribute to the green transition, and at least 37% of the financial allocation needs to contribute to climate objectives. The measures in the plan are expected to help achieve the 2050 climate neutrality objective and the 2030 energy and climate targets, taking into account Member States’ national energy and climate plans. They should also help meet environmental targets for waste, water, pollution control, sustainable mobility, biodiversity protection and restoration as well as marine and water resources. In addition, the measures are set to support the transition to sustainable food systems as well as to a circular economy as appropriate, ensuring that nobody is left behind. Despite the fact that Malta’s climate targets are much lower than the EU average, it is not on course to meet them. Based on Malta’s projections, the Commission estimates in its assessment of Malta’s 2030 national energy and climate plan that existing policies will not be sufficient to achieve a 19% reduction from 2005 levels in GHG emissions not covered by the EU emissions trading system by 2030. Although Malta has one of the lowest GHG emissions per person in the EU, its absolute emissions are rising and are projected to increase further. Malta’s primary and final energy consumption, 0.9 and 0.7 Mtoe respectively in 2019, is not expected to reach the 2020 targets of 0.8 and 0.6 Mtoe respectively. Furthermore, in its NECP, the 2030 targets set for both primary and final energy consumption were considered very low ambition as Malta estimates that both values will have increased by then to 1.1 and 0.8 Mtoe respectively. The Commission recommends that Malta designs and invests in more ambitious policies for the energy efficiency of its expanding building stock and transport system. Transport is one of the main targets for reducing emissions. Malta needs to make additional efforts to improve the sustainability of transport and reduce traffic congestion. Its dependence on road transport, together with an inefficient road network, moderate fuel taxes and a firm preference for private transport have resulted in significant road congestion, noise, air pollutants and increased GHG emissions. There is scope to encourage sustainable collective transport and local access restrictions in order to reach both emission and congestion objectives. The external cost of road transport, including from air pollution, noise and congestion, is estimated at EUR 400 million a year, corresponding to 3.6% of Malta’s GDP, and is rising. The NECP includes specific plans to support e-mobility by increasing the number of electric vehicles and the roll-out of electric public transport. Malta intends to strengthen its electric vehicle infrastructure also through the Just Transition Fund. In 2021-2030, Malta plans to implement a biofuels substitution obligation, requiring fuel suppliers to blend biofuels with diesel. Providing ships that dock in the two main Maltese ports with an alternative power supply to the burning of heavy fuel oil will help reduce GHG emissions. Progress is still needed to create an energy-efficient building stock and tap into the large energy savings potential. This includes renovating residential, services and public sector buildings such as public schools and hospitals. Although residential buildings account for 84% of Malta’s building stock, only around 0.6% are renovated each year. Investments in energy renovations could help achieve the national energy and climate targets while keeping energy poverty low. Progress is hampered, among other things, by skills shortages, low enforcement of minimum requirements and use of efficient materials and technologies and by competences being split between ministries and public bodies with responsibility for the building sector. Additional efforts are needed to target energy efficiency renovations and promote renewable energy in residential buildings, which use the largest share of energy, including with measures to alleviate the cost for low income households. The policies introduced in the renovation strategy could lead to savings of over 60,000 GWh of primary energy in buildings by 2050, leading to emission reductions of 4.4 million tonnes CO2 (a reduction of 150,000 tonnes per year in 2030). In order to reach the targeted savings, the renovation rate will have to increase by 2.5 percentage points up to 2050. This is expected to generate between 1,200 and 4,300 jobs per year. Malta has one of the lowest shares of renewables in energy consumption in the EU. The country could still meet its 2020 renewable energy target of 10% either via own production or through a combination of own production and statistical transfers. In its NECP, Malta provides an indicative trajectory where the share of renewable energy is expected to reach 10.3%, 11.0% and 11.6% respectively in 2022, 2025 and 2027. The NECP expands on the planned policies and measures that will enable it to achieve the contribution and sets out specific relevant sectoral measures. However, the 2030 target for renewable energy remains unambitious at 11.5% and is well below the minimum share of 21% resulting from the formula in Annex II of the Governance Regulation. Malta still faces considerable challenges and investment needs in the areas of waste and water management, air quality, protection of habitats and species. Despite some progress in the transition towards a circular economy, waste management remains a challenge. The considerable amount of landfilled waste, especially related to the construction sector, prevents the country from meeting the EU recycling targets and making progress towards the circular economy objectives on waste prevention and the reuse of products. In this vein, sustainable construction using a life cycle analysis approach to both public buildings and private housing is critical to avoid unnecessary pressure on land use and natural resources and to prevent waste, while also managing construction demolition waste in line with the waste hierarchy. The challenge remains for water management as well, where action is needed to tackle the problem of water scarcity and over-abstraction. This includes completing the monitoring schemes for the quantitative status of groundwater, introducing appropriate pricing policies and strengthening the control and enforcement measures related to the prevention and reduction of diffuse pollution including nitrates, agri-chemicals, sediment and organic matter. In addition, air pollution and noise in the main cities would benefit from systemic solutions for reducing transport congestion, such as meaningful traffic restrictions or promoting the use of cleaner modes of transport. On the protection of habitats and species, Malta needs to complete the Natura 2000 designation process and adopt the remaining management plans for marine sites. Clearly defined conservation objectives and necessary conservation measures need to be established for all sites. The provision of appropriate resources for their implementation is crucial in order to maintain or restore species and habitats of community interest to a favourable conservation status across their natural range. Furthermore, the illegal trapping and killing of protected species remains one of the main challenges in Malta, where action is needed to strengthen enforcement of EU legislation and where investment is needed in education and awareness-raising programmes to ensure compliance across the territory. The table below gives an overview of Malta’s objectives, targets and contributions under Regulation (EU) 2018/1999 on the Governance of the Energy Union and Climate Action. National targets and contributions Latest available data 2020 2030 Assessment of 2030 ambition level Binding target for GHG emissions compared to 2005 under the Effort Sharing Regulation (ESR) (%) 32 5 -19 As in ESR National target/contribution for renewable energy: share of energy from renewable sources in gross final consumption of energy (%) 8.5 (2019) 10 11.5 Unambitious (21% result of RES formula) National contribution for energy efficiency: Primary energy consumption (Mtoe) 0.9 (2019) 0.8 1.1 Very low ambition Final energy consumption (Mtoe) 0.7 (2019) 0.6 0.8 Very low ambition Level of electricity interconnectivity (%) 24 24 24 N/A Source: Assessment of the final 2030 national energy and climate plan of Malta, SWD (2020) 917 final and Eurostat Energy Statistics for 2019 Digital dimension The recovery and resilience plan should contribute to the digital transition, and at least 20% of the financial allocation needs to contribute to digital objectives. The measures in the plan should, among other things, contribute to the digital transformation of the economic and social sectors (including public administration, public services and the justice and health systems). The objective of the measures should be to improve not only the competitiveness, but also the resilience, agility and security of companies and public actors, all while ensuring inclusiveness. Malta has made significant progress on digitalisation. According to the Commission’s Digital Economy and Society Index (DESI) 2020, the country ranked fifth in the EU (out of 28 countries). The National Digital Strategy 2014-2020 – currently being updated – set the vision of Malta as a ‘digitally enabled nation’ in all society dimensions. To achieve this ambition, existing gaps need to be closed and efforts are needed to further boost the digital transition. Maltese businesses have high levels of digitalisation, but there are differences between large companies and SMEs. In DESI 2020, Malta ranked seventh in the EU on integration of digital technology by businesses. Latest data broadly confirm this positive performance; in 2020, 71% of businesses in Malta had at least a basic level of digital intensity, well above the EU average of 60%. However, there are differences between large companies and SMEs. In addition, despite recent initiatives, the difficulty in finding people with the right technical skills is a barrier to further progress on digitalisation. In 2020, more than 66% of businesses reported difficulties in filling vacancies requiring ICT specialist skills. Malta has several programmes in place to support business digitalisation (e.g. MITA Innovation Hub, MITA Emerging Technologies Lab), and in 2019 announced the setting up of a digital innovation hub dedicated to artificial intelligence. Malta has made some progress in equipping its people with suitable skills to further progress on digitalisation, although skill shortages remain and the involvement of women is still limited. In DESI 2020, Malta ranked sixth in the EU on human capital. The country is one of the EU leaders in training ICT specialists (6% of all graduates, against the EU average of 3.9%), while it is in line with the EU average when it comes to basic digital skills (56% of people have at least basic digital skills in Malta, which equals the EU average). As mentioned above, skills mismatches and related skill shortages represent a challenge. Moreover, Malta has a high share of low-qualified adults, with around 33% of the workforce lacking the basic digital skills needed in the majority of jobs today. The participation of women in the digital sector remains rather limited (in Malta, 11% of ICT specialists are women, against the EU average of 19%). Malta launched the comprehensive National eSkills Strategy (2019-2021), covering several key areas such as basic digital literacy, quality of ICT teaching, advanced skills and reskilling and upskilling of the workforce. Additional efforts and targeted investments are essential to match the increasing demand for skilled labour, boost reskilling and upskilling and boost the economy’s digital transformation. In parallel, continued efforts are needed to ensure that the population acquires basic digital skills, in particular low income families, and to close the existing gaps. Malta scores very well in domestic broadband connectivity. In DESI 2020, Malta ranked 10th in the EU on connectivity. 100% of households are covered by very high capacity networks. The country boosted nationwide connectivity with speeds of 1 Gbps, but as of 2020 only 1.1% of households subscribe to internet services with this speed. Malta has recently published a decision paving the way for the assignment of 5G spectrum, and claims to have started assigning spectrum in 5G pioneer bands. Malta also enjoys a strategic position as an international hub for north-south and east-west connectivity in the Mediterranean. Works are ongoing to connect Malta to Marseille and Egypt, which will expand the island’s international connectivity beyond the existing submarine cables that terminate in Italy. The country is well advanced in the offer of digital public services and has made efforts to increase their take-up by individuals and businesses. In DESI 2020, Malta ranked 11th in the EU on digital public services. It is very advanced in supplying digital public services to individuals and businesses, including in the re-use of information across administrations to reduce compliance costs (by making available pre-filled forms). The share of e-government users has improved from 58% in 2019 to 63% in 2020, although it remains slightly below the EU average (64%). Further efforts are required to increase user take-up by simplifying services, targeting the sharing and reuse of information already acquired by the government and further developing personalised, user-friendly and timely services, including the deployment of emerging technologies. On digitisation of the justice system, the digital strategy needs to be implemented to address current gaps, in particular on the limited possibility to file and follow a procedure by electronic means.

Maltese R&D spending is well below the EU average, and the R&D performance of the ICT sector is weak. With 0.61% of GDP allocated to R&D in 2019, the country has much lower R&D expenditure than the EU average of 2.20%. Malta’s National R&I Strategy (2014-2020) identified the need for continued investment in ICT infrastructure and innovation using digital technologies. However, R&D investments also remained limited in the ICT sector. The proportion of the government R&D budget allocated to the ICT sector is around 1%, well below the EU average of 7%. R&D expenditure by businesses in the ICT sector is also low and accounts for less than 3% of the value added in the sector. Malta has paid significant attention to advanced digital technologies in recent years. The adoption of a strategy and regulatory framework dedicated to blockchain technology in 2018 is one example of the country’s ambition. Malta is also a signatory country of the Blockchain Partnership Declaration (signed in April 2018), and of other relevant declarations, such as that on ‘Building the next generation cloud for businesses and the public sector in the EU’ (October 2020). In 2019, the country also launched a national strategy on artificial intelligence (AI), based on three strategic pillars: investment, start-ups and innovation, and speeding up the adoption of AI by the public and private sectors. Malta may benefit from translating these policy strategies into concrete measures that aim to deploy advanced technologies across the public administration and economic sectors in order to help boost the country’s innovation capacity and increase productivity. Note: EU aggregate corresponds to the EU-28 based on the 2020 DESI report. Overview table of the overlap between the Sustainable Development Goals and the four dimensions underpinning the recovery and resilience plans The objectives of the Sustainable Development Goals (SDGs) have been integrated into the European Semester since the 2020 cycle. This provides a strong commitment towards sustainability in 19 EU economic and employment policies. This section outlines Malta’s performance on the SDGs, in particular relevance on the four dimensions underpinning the Commission’s 2021 Annual Sustainable Growth Strategy. It is also of relevance to the recovery and resilience plans (green transition, fairness, digital transition and productivity, and macroeconomic stability), indicating possible areas where investments and reforms in line with the objectives of the RFF could further accelerate progress on the SDGs. Green transition Malta does not perform well on many SDGs related to the green transition. Although it has one of the lowest GHG emissions per person in the EU, its absolute emissions are rising and are projected to increase further. The country has not been able to combine high economic growth with lower GHG emissions. The share of renewable energy in Malta’s gross final energy consumption (8.5% in 2019) is well below the EU average (19.7%). Further reducing the carbon intensity of the Maltese economy would lead to progress on SDG 7 (Affordable and clean energy) and SDG 13 (Climate action). Fairness Malta performs relatively well on indicators assessing the fairness of society and the economy. It performs relatively well in particular on SDG 1 (No poverty). The rate of people at risk of poverty or social exclusion (20.1% in 2019) is slightly below the EU average (20.9%). Malta also performs well on SDG 3 (Good health and well-being). It still has a way to go in improving its standing on SDG 4 (Quality education), on high shares of early school leavers and low tertiary education attainment. The gender employment gap related to SDG 5 (Gender equality) is particularly high in Malta. Digital transition and productivity Malta has a higher percentage of employment in high and medium technology manufacturing and knowledge-intensive sectors than the EU average. However, with 0.61% of GDP allocated to R&D in 2019, it has substantially lower R&D spending than the EU average. By stepping up policy efforts, Malta could make further progress on the SDGs related to the digital transition and productivity. Macroeconomic stability In recent years, Malta has showed good progress overall on SDG 8 (Decent work and economic growth), with fast economic growth and rapid growth in employment. There is still room for improvement in progressing towards the objectives of SDG 16 (Peace, justice, and strong institutions), in particular in contributing to a strong business environment. 3.Objectives, structure and governance of the plan 3.1.Overall strategy of the plan

The Maltese recovery and resilience plan aims to address Malta’s long-term challenges and help the country overcome the socio-economic impact of the pandemic while seizing opportunities for the green and digital transition. The plan presents six components that broadly address the challenges identified as part of the European Semester and contributes to five of the seven EU flagship initiatives. The plan’s total allocation is EUR 316,403,496. This corresponds to the financial allocation after deduction of Malta’s proportional share of the expenses under Article 6(2) of Regulation (EU) 2021/241, calculated in accordance with the methodology of Article 11 of that Regulation. The estimated total costs of the plan, at EUR 344,900,000, is higher than the plan’s total allocation. The plan contributes significantly to the green and digital transition, with 53.8% and 25.5% of the plan’s total allocation respectively (see table in the Annex). Component 1: Addressing climate neutrality through enhanced energy efficiency, clean energy and a circular economy This component helps address challenges related to the sharp increase in energy consumption and waste generation resulting from rapid growth in the population, employment and GDP in recent years. Specific characteristics of Malta, including its small size, high population density, limited land space, lack of economies of scale, its dependence on single distributors and suppliers as well as the scarcity of natural resources, all exacerbate these challenges. Investments in the renovation of private and public buildings are complemented by reforms to support the long-term renovation strategy and to improve circularity. These investments involve renovating a number of private sector and public buildings, public schools and hospitals to make them more energy efficient and reduce carbon emissions. The component also aims to build a near carbon-neutral school that will include the use of renewable energy systems as well as renewable energy investments in roads and public spaces. The reform to develop a long-term building renovation strategy complements these investments by creating a framework that promotes the renovation of Malta’s building stock by 2050. It also envisages designing an enhanced waste policy, including the appropriate management of construction and demolition waste to improve circularity. This component has two reforms and five investments with a total cost of EUR 77.9 million. It contributes to the EU flagship initiative ’Renovate’ by promoting energy efficiency in private sector and public buildings, including public hospitals and public schools, while devising a strategy to promote the benefits of green buildings among the general public. It also contributes to the EU flagship initiative ’Power-up’ by investing in renewable energy in buildings, roads and public spaces. Component 2: Addressing carbon neutrality by decarbonising transport This component of the Maltese recovery and resilience plan helps address the challenge of traffic congestion, GHG and pollutant emissions, and the need to make the transport sector more sustainable. The objective is to shift traffic from road to more sustainable modes and decarbonise road transport through electrification, in line with Malta’s national energy and climate plan for 2030, the 2050 Low Carbon Development Strategy, the National Reform Programme (2020) and National Transport Strategy. Such reforms improve transport planning, increase the use of public transport and implement measures in the Sustainable Urban Mobility Plan for the Valletta region. They also designate regeneration areas, promote remote working in the public sector and increase the efficiency of the public sector vehicle fleet. Investments include the construction of a ferry landing site, a scrappage scheme supporting the purchase of zero-emission electric vehicles in the private sector, renewal of the public sector vehicle fleet with zero-emission electric vehicles and the purchase of zero-emission electric buses for public transport. This component has six reforms and four investments with a total cost of EUR 110.4 million. It contributes to the EU flagship initiative ‘Recharge and Refuel’ by promoting the use of cleaner vehicles as well as creating incentives to encourage a modal shift. Component 3: Fostering a digital, smart and resilient economy This component helps address the challenges related to further digitalisation in the public and private sectors. It helps improve the resilience, capacity and security of the government’s digital backbone, access to digital technology, the range and quality of e-government services, uptake of those services by individuals and businesses, and digitalisation of the private sector. It also helps address the challenge of improving Malta’s performance in R&I, where Malta is ranked as a ‘moderate innovator’ according to the European Innovation Scoreboard 2021 . The objective is to fast-track the digital transition by strengthening the national policy framework, investing in the further digitalisation of public administration and public services (to increase their range, quality and uptake), as well as supporting the digitalisation of businesses, in particular SMEs. The component also aims to improve Malta’s R&I performance by promoting business R&I and improving public-private cooperation. This component has two reforms and four investments with a total cost of EUR 55.3 million. It targets the EU flagship initiative ‘Modernise’ by promoting up-to-date and secure digital services. Component 4: Strengthening the resilience of the health system This component helps address the challenges experienced by Malta’s healthcare sector, which faces greater demands due to an ageing population. The objective is to strengthen the resilience of the health sector by improving digitalisation of the health system. This will focus on further facilitating the uptake of telemedicine, improved diagnostic and curative capacities in cancer care, improving staff management and reducing Malta’s dependency on other countries for blood, tissue and cell therapies needed in medical interventions and treatments. The component contains a reform aimed at improving staff management and addressing obstacles to hiring and retaining foreign healthcare workers, also by improving their well-being. The reform also includes prevention measures related to child health. The second reform addresses regulatory barriers that may hamper the full exploitation of the investment in the Blood, Tissue and Cell Centre. In addition, the component includes an investment in establishing a Blood, Tissue and Cell Centre within close proximity of the main hospital in Malta. The second investment consists of three projects to improve the resilience of the health system through digitalisation and new technologies. This component has two reforms and two investments with a total cost of EUR 49.9 million. Its second investment addresses the EU flagship initiative ‘Modernise’ by digitalising the health system. Component 5: Enhancing quality education and fostering socio-economic sustainability This component addresses the challenges of high shares of early school leavers and low-skilled adults, widespread skills shortages and the need to improve the quality and inclusiveness of the education and training system. It further assesses the current pension and unemployment benefits system to continue pursuing policy reforms that ensure they are adequate and sustainable. Its objective is to make Malta’s workforce and society more resilient, also in light of the green and digital transition. This component has six reforms and one investment with a total cost of EUR 41.4 million. It takes the EU flagship initiative ‘Reskill and upskill’ into account by strengthening the quality and inclusiveness of Malta’s education and training system in general and improving initial and continuous vocational education and training in particular. This should help equip Maltese society with the skills needed in the current and future labour market. Component 6: Strengthening the institutional framework This component addresses a number of institutional and governance challenges in the area of justice, the fight against corruption and money laundering, and taxation. On the justice system, these challenges relate to the independence of the judiciary, the lack of a separate prosecution service from the investigative branch, as well as inefficiencies that could be partly addressed through further digitalisation. Challenges in the governance framework relate to effective detection and prosecution of corruption and money laundering cases. On taxation, some features of the tax system may have made aggressive tax planning practices easier for both companies and individuals. Reforms to improve the justice system include changes to how the judiciary are appointed and dismissed. An independent review will also be undertaken to assess the independence of the specialised tribunals and implement necessary remedial action to ensure their independence. The institutional framework capacity to fight corruption is expected to be strengthened by implementing the capacity building elements of the national anti-fraud and corruption strategy, reforming the asset recovery bureau and through reforms targeting a key anti-corruption body, namely the Permanent Commission Against Corruption. To strengthen criminal investigations, including corruption and money laundering, reforms include a new appointment procedure for the Commissioner of Police. On the prosecution front, the component proposes the creation of a separate prosecution service, while also implementing a judicial review of decisions not to prosecute by the Attorney-General. Measures to strengthen the system to counter money laundering and the financing of terrorism are also put forward. In addition, four reforms target aggressive tax planning by (i) limiting the tax exemption for dividends coming from countries placed on the ‘Code of Conduct Group’ list of non-cooperative jurisdictions; (ii) introducing transfer pricing legislation; (iii) carrying out a study followed up by legal amendments on measures relating to inbound and outbound dividends, interest and royalty payments; and (iv) spontaneously exchanging information on applicants receiving Maltese citizenship under the citizenship scheme with their original tax jurisdictions. This component also includes one investment that aims to improve the quality and efficiency of the judiciary system through digitalisation. This component has 12 reforms and one investment with a total cost of EUR 10 million. Several elements of this component are retroactive, having already, been implemented in part in 2020 and early 2021. It also addresses the EU flagship initiative ‘Modernise’ through efforts to digitalise the justice system.

Component Costs (EUR million) C1: Addressing climate neutrality through enhanced energy efficiency, clean energy and a circular economy 77.9 C2: Addressing carbon neutrality by decarbonising transport 110.4 C3: Fostering a digital, smart and resilient economy 55.3 C4: Strengthening the resilience of the health system 49.9 C5: Enhancing quality education and fostering socio-economic sustainability 41.4 C6: Strengthening the institutional framework 10 Total 344.9 3.2.Implementation aspects of the plan Consistency with other programmes The plan is consistent with the other main EU and national programmes. Malta’s Sustainable Development Vision for 2050 sets out the overarching framework of its long-term development. It is based on three thematic priorities: ·enhancing economic growth; ·safeguarding our environment; and ·social cohesion and well-being. Malta intends to use this strategy as a framework for the instruments supporting development over the next decades. Financial support from the RRF, the Partnership Agreement for 2021-2027 (and subsequent operational programmes) and other EU funds (both under shared and direct management), as well as national funding, is expected to complement each other to ensure integrated planning and coordinated implementation of the long-term development strategy. The recovery and resilience plan appears to be coherent with cohesion policy funds, which will remain the main EU financing instrument for economic development. EU structural and investment funds are expected to remain the main EU instrument for financing socio-economic development in Malta. The country will gain access to EUR 1.923 billion from the EU’s core 2021-2027 multi-annual financial framework budget as well as EUR 329 million in non-repayable support from the NextGenerationEU instrument, totalling EUR 2.25 billion over the next 7 years. The recovery and resilience plan is expected to be a key instrument for the climate transition. It includes measures that directly or indirectly contribute to the national objectives of Malta’s 2030 national energy and climate plan and Sustainable Development Vision for 2050, which are used as key input in the strategic framework for the whole plan. Consistent investments are included under Component 1. These aim to promote the decarbonisation of buildings and the use of renewable energy solutions, while introducing reforms to develop a long-term building renovation strategy and improving waste management. Under Component 2, reform measures to improve transport planning, increase the use of public transport and implement actions of the sustainable urban mobility plan for the Valletta region are complemented by investments. These include the construction of a ferry landing site, a scrappage scheme to get more people to buy zero-emission electric vehicles, renewal of the public sector vehicle fleet with zero-emission electric vehicles, and the purchase of zero-emission electric buses for public transport. Malta intends to ensure complementarity between the recovery and resilience plan and its National Youth Policy Plan. Various measures are included under Component 5 (Education and socio-economic sustainability) to prevent early school leaving and to increase guidance and opportunities for upskilling and reskilling of all adults, in particular low-skilled adults. Additional measures are envisaged to boost inclusiveness and the quality of education for pupils with special needs and to improve the education policy monitoring system. Furthermore, the proposed investment to set up a centre for vocational education excellence (by building a new campus for the Institute for Tourism Studies) will include a new faculty, practice facilities, an incubation centre to support entrepreneurship, an R&D centre to encourage innovative ideas and early childhood education and care facilities to enable people with unpaid care responsibilities, especially women, to attend courses. The recovery and resilience plan is expected to support the digital transition. The plan includes measures that directly or indirectly contribute to the national objectives of Malta’s draft digital strategy. Although not funded under the recovery and resilience plan, Component 3 includes a number of reforms to reduce the digital divide, promote digital skills, improve digital public services and boost innovation. Investments are targeted at strengthening the government’s digital backbone and digital solutions, digitalising the Merchant Shipping Directorate and improving the delivery of digital public services for individuals and businesses. The component also supports the uptake of digital technologies by businesses, including SMEs, through a dedicated grant scheme. These efforts are complemented by other investments included under Component 6 to strengthen the digitalisation of the justice system in line with the Digital Justice Strategy and under Component 4 to digitalise certain operational processes and workflows in the healthcare sector. Consistency with the challenges and priorities identified in the most recent euro area recommendation The recovery and resilience plan is broadly consistent with the challenges and priorities identified in the most recent Council Recommendation on economic policy in the euro area (EAR). The plan ensures a supportive policy stance to recovery by promoting key investments, strengthening growth potential and creating jobs. It directly addresses EAR 1 as it implements measures that help make the health system more resilient. The plan includes reforms and investments that aim to reduce dependency on other countries for blood, tissue and cell therapies and that make it easier to hire and retain health professionals (Component 4). In the area of social policy, the plan includes reforms and investments to assess and review unemployment benefits and the pension system to ensure they are adequate and sustainable (Component 5). The plan also contributes to EAR 2 by further improving convergence, resilience, and sustainable and inclusive growth. Components 1, 2 and 3 include investments and reforms to sustain the climate transition, circular economy and the digital transformation of the country. Component 5 aims to strengthen early school leaving prevention and intervention, expand guidance and opportunities for upskilling and reskilling of all adults, especially low-skilled adults, and improve access to mainstream education for pupils with special needs. It also includes measures to strengthen labour market policies and build a vocational training centre that will incorporate an incubation centre, an R&D centre to encourage innovative ideas and early childhood and care facilities to facilitate training. Component 6 includes reforms to curb aggressive tax planning. The plan addresses EAR 3 on strengthening national institutional frameworks. Component 6 includes measures to improve the governance of the justice system, including by changing the appointment and dismissal procedures of the judiciary and ensuring the independence of specialised tribunals. The institutional framework to tackle corruption will be strengthened by establishing an independent prosecutor, implementing the administrative capacity building measures envisaged in the national anti-fraud and corruption strategy and additional reforms to strengthen the national anti-corruption body. On anti-money laundering, Component 6 commits Malta to complete implementation of the action plan on national anti-money laundering/combating terrorist financing/targeted financial sanctions and to implement any action required by the Financial Action Task Force, the inter-governmental body setting out international standards on anti-money laundering and combatting terrorist financing. Components 3, 4 and 6 include investments to fast-track digitalisation of the public administration, health and justice systems. Administrative organisation The plan establishes a coherent and consistent administrative framework for its implementation. The Ministry responsible for the management of EU funds, which is the Office of the Prime Minister, acts as a coordinating authority for the recovery and resilience plan, the Partnership Agreement and other EU funds for 2021-2027. This is expected to ensure a coherent and consistent approach to programming and implementation. The aim is to maximise EU fund absorption, complementarity between various funding streams and enable a smooth transition between different programming periods.

The coordinating authority is empowered to fulfil the relevant tasks related to management and control and to ensure that the EU’s financial interests are protected. This includes (i) verifying that the milestones and targets are fulfilled in accordance with strategic and operational objectives; (ii) implementing an internal management and control system to prevent and detect irregularities and take appropriate corrective actions; (iii) putting in place effective and proportionate anti-fraud measures according to the risks identified; (iv) ensuring the efficient and timely collection of monitoring data; (v) establishing a computerised system to record operational data; (vi) ensuring that the beneficiaries maintain a separate accounting system or an appropriate transaction code; (vii) and carrying out ex post assessments to evaluate the results of the recovery and resilience plan. The plan sets out a clear administrative structure for its implementation. This includes several key governance layers: ·An RRP Task Force, including representative departments from the Ministry responsible for the management of EU funds and the Ministry for Finance and Employment, tasked with providing coordinated leadership and focused monitoring. ·The Planning and Priorities Coordination Division within the Ministry responsible for the management of EU funds, entrusted to fulfil all the relevant tasks related to the management and control of the plan’s implementation. ·The recovery and resilience plan beneficiaries responsible for implementing the interventions required by the plan’s components, including the achievement of milestones and targets. ·The Line Ministry responsible for ensuring inter-agency coordination for more complex plan-related measures, overseeing and providing support to beneficiaries. ·The Audit Authority, the designated audit authority for the recovery and resilience plan. The recovery and resilience plan benefits from the experience acquired with cohesion policy funds within a common coordination and governance framework. This should allow for a consistent approach to planning, programming, management, implementation, and control and audit. Within the Ministry responsible for the management of EU funds, the Planning and Priorities Coordination Division has been designated to provide leadership, coordination and oversight while extending the EU cohesion policy funds governance framework to the recovery and resilience plan. In addition, an institutional framework that mainstreams sustainable development across the government layers, coordinated by the Ministry for the Environment, Sustainable Development and Climate Change, supports the implementation of Malta’s Sustainable Development Vision. Technical support can be requested under the Technical Support Instrument to assist Member States in the implementation of the plan. This instrument provides expertise in building capacities to implement the plans in a number of areas such as health, justice, reform of the tax courts, green and digital transitions, public administration reforms, as well as for the overall implementation of the plan. Sectorial support to policy reforms could also be provided by the Horizon Policy Support Facility, which gives Member States and countries associated to Horizon Europe practical support to design, implement and evaluate reforms that enhance the quality of their research and innovation investments, policies and systems. Gender equality and equal opportunities for all The plan contains a series of measures that are expected to help address the challenges in the area of gender equality and equal opportunities for all. Particularly relevant measures include those that aim to (i) improve the provision of childcare services as part of the new Centre for Vocational Education Excellence (ITS Campus), encouraging people with unpaid care responsibilities, especially women, to attend courses; (ii) promote remote working solutions for the public administration, enabling a better work-life balance; and (iii) implement measures included in the forthcoming Employment Strategy on older workers (aged 55-64), low-skilled adults and the gender employment gap. The construction of the near-carbon-neutral school will also feature early childhood education and care infrastructure for around 120 pupils contributing to equal opportunities for all children. The plan also includes measures to improve the integration and well-being of foreign workers in the health sector as well as an e-Learning Centre focusing on the requirements of the Human Rights Directorate, providing among other things language training, cultural orientation and one-stop shop integration facilities to thousands of foreign workers. Granting access to free public transport to around 100,000 people, in addition to the current groups already enjoying free public transport, will particularly benefit those dependent on and frequently using public transport. It is noteworthy that Malta includes the adoption and implementation of measures from its updated National Inclusion Policy together with a dedicated reform measure to improve quality inclusive education for pupils with special needs. It also includes measures from its first Gender Equality and Mainstreaming Strategy Action Plan, including tackling gender stereotypes and collecting disaggregated data to further support evidence-based policymaking. In addition, Malta highlights that all reforms and investments will be implemented in line with its National Disability Strategy. Reforms and investments to reduce early school leaving and to expand upskilling und reskilling opportunities for all adults, in particular for low-skilled adults, are expected to benefit young students and people from vulnerable socio-economic backgrounds, including those with migration backgrounds. The plan further includes a programme to help families with low incomes get connected and have access to computers as well as related knowledge. This will improve digital literacy, reduce the digital divide and improve socio-economic cohesion. Consultation process The Maltese authorities consulted over 145 bodies to determine the main policy objectives for EU funding, including the RRF. Five committees were established in 2020 to focus on the main policy objectives under the Common Provisions Regulation and the wider investment needs of the country. Meetings were held to address various topics, including economic growth, the digital and green transition, environment, transport, social cohesion, education and health as well as Gozo’s territorial needs. Stakeholders included government bodies, urban and other public authorities, civil society, environmental bodies, and bodies representing social inclusion, fundamental rights, rights of people with disabilities, gender equality and non-discrimination of young people, among others. The outcomes of such consultations provided insights into stakeholders’ positions on the needs and investment priorities necessary for Malta’s socio-economic development. They also served as an important contribution towards identifying reforms and investments for Malta’s recovery and resilience plan. In 2021, several bilateral meetings were also held with different stakeholders, including possible beneficiaries, with the focus on the recovery and resilience plan in particular. The broad outlines of the plan were also discussed with the Malta Council for Economic and Social Development, which represents the main employer bodies, trade unions and civil society as well as the government. Consultations on implementation of the plan in Malta will be carried out broadly in line with the consultation framework adopted for the European Semester. These will be steered by the Ministry responsible for the management of EU funds, in close collaboration with the Ministry for Finance and Employment. Security self-assessment Under Article 18(4)(g) of the RRF Regulation, Malta’s plan includes a security self-assessment for the relevant investments in digital capacities under Components 3, 4 and 6 (in relation to strengthening the government’s digital backbone, digitalisation of the Merchant Shipping Directorate, digitalisation of public administration, including the provision of digital tools for remote working solutions, digitalisation of the healthcare system and justice system). The plan explains that, as part of the procurement process, the technical designs will be scrutinised by the Malta Information Technology Agency, in particular to ensure they are in line with baseline security standards. Suppliers will also be expected to follow the government’s information security policies. In addition, the relevant service contracts with the suppliers will include a specific security schedule to cater for risks related to data, supply chain, business continuity, supplier processes and equipment. Moreover, consideration will be given to ensure that services are provided in line with EU legislation, including the General Data Protection Regulation (EU) 2016/679, with specific contractual clauses. Furthermore, the plan lists specific measures that will be implemented in the design of the relevant solutions to mitigate cyber-security risks. This includes data encryption, network segmentation, intrusion detection systems, audit logs, identity management integration, multi-factor authentication, the use of secure cloud services based in the EU, etc. Strategic measures mentioned in the security self-assessment would need to be closely monitored when implementing the plan. Cross-border and multi-country projects There are no major projects with a cross-border or multi-country perspective included in the recovery and resilience plan. The investment in digitalisation of the health sector (related to the installation of Magnetic Resonance Linear Accelerator (MR Linac) equipment) offers opportunities to participate in international networks.

Communication strategy The recovery and resilience plan broadly outlines Malta’s communication plans. The outline of the communication strategy aims to provide a coordinated, recognisable and simple message that highlights the impact of the plan on the economy and socio-economic well-being of Maltese citizens. The objectives of the strategy include: ·raising awareness about the recovery and resilience plan and its scope; ·communicating and promoting the adoption of the plan, and any amendments to it, where relevant; ·promoting implementation of the plan; ·publishing the list of projects funded under the plan; ·helping project beneficiaries understand publicity requirements and their fulfilment; ·publishing visual identity guidelines and publicity material to be used by all supported projects to ensure appropriate and consistent recognition of the assistance received; and ·promoting the role of the plan and the EU’s contribution in meeting national objectives. Publicity actions will be differentiated according to the target audiences. They will range from the general public to more targeted multipliers of the communicated message and beneficiaries, implementing stakeholders, as well as the users of the infrastructure and training of the actions being supported. The recovery and resilience plan is expected to be promoted among the public through various communication channels. These include audio-visual, social and web media, as well as print media, promotional material, signage, and participation in local events. Malta stated its intention to create a website to provide visibility on the initiatives funded under this plan. Appropriate communication measures are set to accompany all proposed reforms and investments in the plan. The focus is expected to be on health-related interventions, education and decarbonisation efforts in buildings and transport. For the implementation of communication and information activities, an indicative budget of EUR 250,000 is expected to be allocated to such interventions. A point of contact for coordinating communication activities related to the plan should be designated. Coordination between EU and national authorities should be pursued to maximise the impact and effectiveness of communication, and to ensure awareness of the RRP’s contribution to the Maltese and European recovery and to the twin transition. Malta aims to accompany implementation of the communication strategy by monitoring and evaluation activities. To this end, an output indicator aims to quantify the number of publicity activities carried out by 2026. Furthermore, as part of its evaluation activities, the Planning and Priorities Coordination Division in the Office of the Prime Minister plans to carry out an annual survey that provides an objective assessment of the public’s knowledge, awareness and perception of EU-funded interventions in Malta. The annual survey is set to be adapted in order to take into account measures and interventions under the plan. State aid State aid and competition rules fully apply to the measures funded by the RRF. EU funds channelled through the authorities of Member States, like the RRF, become State resources and can constitute State aid if all the other criteria of Article 107(1) Treaty on the Functioning of the European Union (TFEU) are met. When this is the case and State aid is present, Member States must notify these measures to the Commission and acquire approval before they can grant the aid, unless those measures are covered by an existing aid scheme or comply with the applicable conditions of a block exemption regulation, in particular the General Block Exemption Regulation. This declares certain categories of aid compatible with the single market in application of Articles 107 and 108 TFEU. When State aid is present and it requires notification, it is the duty of the Member State to notify State aid measures to the Commission before granting them, in compliance with Article 108(3) TFEU. In this respect, the State aid analysis carried out by Malta in the recovery and resilience plan cannot be deemed a State aid notification. In as far as Malta considers that a specific measure contained in the plan entails de minimis aid or aid exempted from the notification requirement, it is the responsibility of Malta to ensure full compliance with the applicable rules. 4.Summary of the assessment of the plan 4.1.Comprehensive and adequately balanced response to the economic and social situation The recovery and resilience plan presents a comprehensive and adequately balanced response to the economic and social situation, thereby contributing to all six pillars referred to in Article 3 of the RRF Regulation. The plan follows a holistic approach to achieve recovery and enhance socio-economic resilience. Overall, it focuses on the green-digital twin transition and on addressing Malta’s main challenges, such as the effectiveness of public administration and of the justice system, the country’s social and educational needs, the resilience of the health system, and improving competitiveness in key sectors.

Green transition Digital transformation Smart, sustainable & inclusive growth Social and territorial cohesion Health, and economic, social and institutional resilience Policies for the next generation Component 1 ● ○ ● Component 2 ● ○ ● Component 3 ● ● ● ○ Component 4 ○ ● ○ ● ○ Component 5 ● ● ○ ● Component 6 ● ○ ● Key: “●”: investments and reforms of the component significantly contribute to the pillar; “○”: the component partially contributes to the pillar. Green transition The recovery and resilience plan is expected to contribute substantially to the green transition. The green transition will be supported by various reform and investment measures to decarbonise transport, achieve sustainable mobility, improve the energy efficiency of buildings and promote renewable energy. The proposed investments in the renovation of buildings (Component 1) are expected to lead to a reduction of GHG emissions by limiting the use of electricity sourced from the national grid. This impact will be further sustained and strengthened by the proposed investments in the promotion of use of renewable energy technologies. These are complemented by reforms in the waste sector to improve the circular economy and reduce the environmental impact of waste. Component 2 promotes a modal shift from road transport to more sustainable transport modes and aims to decarbonise road transport through electrification in line with the current trends in order to make road transport smarter and more sustainable. Investments that contribute to these objectives include building a new ferry landing site at Buġibba, St Paul’s Bay, supporting the uptake of electric vehicles in the private sector and replacing part of the public transport fleet. In addition, reforms are proposed to improve transport planning, expand public transport, promote teleworking in the public sector and increase the efficiency of the public sector vehicle fleet. Digital transformation The proposed reforms and investments are expected to sustain the digital transition while improving productivity, increasing potential output and making the public sector more effective and transparent. The plan proposes an integrated approach to support and fast-track digital transition by strengthening the national policy framework, investing in the further digitalisation of public administration and public services, as well as strengthening initiatives related to digitalisation of the private sector. Key investments are included under Component 3, such as improving the government’s digital backbone, digitalising the Merchant Shipping Directorate, digitalising public administration and its services further, and rolling out support measures to digitalise the private sector. In addition, reform measures that build on national strategies under development aim to bridge and reduce the digital divide, strengthen and promote digital skills and improve digital public services. They also aim to implement Malta’s Smart Specialisation Strategy, which promotes business R&I and strengthens public-private cooperation. Investments under Component 4 should speed up the digital transition of Malta’s healthcare system, improve the quality of patient care and patient experience, and reduce waiting times. The investment in digitalisation under Component 6 should improve how the justice system functions by implementing a number of secure digital solutions and tools to support users through collaboration and integration, thereby increasing accessibility to the justice system and its efficiency. Smart, sustainable and inclusive growth, including economic cohesion, jobs, productivity, competitiveness, research, development and innovation, and a well-functioning single market with strong SMEs Investments and reforms in education and training are expected to contribute to smart and inclusive growth. The reforms in education and training and to active labour market policies proposed under the different components will help improve the training offer and align it better with labour market needs. In particular, Component 5 includes reforming the employment strategy, promoting upskilling by developing a career and lifelong guidance system for adult learners, and investments in skills for the tourism and hospitality sector, which is a key economic sector in Malta. This investment focuses on the training and upskilling of human capital to answer the future needs of higher quality, more sustainable and greener tourism. Ambitious investments and reforms for the renovation of buildings envisaged under Component 1 have the potential to boost job creation and support the development of green skills for the renovation and construction sector. Investments in innovative health services under Component 4 could have a spillover effect on growth and job creation in other fields. Support for the digitalisation of the private sector under Component 3 is also likely to create job opportunities in ICT. Reform efforts under Component 3 are expected to promote R&I in the business sector and strengthen private-public cooperation. Social and territorial cohesion Social cohesion will be strengthened through measures to improve access to education and training, and the adequacy of social protection and pension systems. Measures envisaged under Component 5 have the potential to increase participation in education and training, including for vulnerable groups such as young people at risk of early school leaving, low-skilled people and those with disabilities, reducing their risk of falling into inactivity and poverty traps. The development of digital training offers through the e-college platform in particular will allow better access to training for all and reduce possible geographical barriers. The provision of new medical services proposed under Component 4 aims to improve access to healthcare across the island. Component 5 also includes measures with the potential to further contribute to social cohesion, such as the review of the effectiveness of the unemployment benefits system in terms of adequacy, activation and adaptation to the economic cycle and a review of the adequacy and sustainability of the pension system. The plan takes into account the limited territorial challenges. Given Malta’s size, regional differences are related to the geographic split between the main island and Gozo. All measures in the plan benefit Gozo as well as the main island. The investments proposed under Component 5 are particularly important in this respect as they aim to improve the quality of the tourism industry, a key sector for the economic development of both islands. Health, and economic, social and institutional resilience, with the aim of, among other things, increasing crisis preparedness and crisis reaction capacity The resilience of the health sector is expected to be strengthened by a better planning of the health workforce and addressing the difficult situation of foreign workers in the sector. The first reform under Component 4 should improve workforce management and address obstacles to hiring and retaining foreign healthcare workers, also by improving their well-being. The reform contains measures to help retain health workers and address the persistent issues of staff shortages through better workforce planning and improving the integration and well-being of foreign workers. It contains measures to assess the regulatory environment affecting the hiring and retention of foreign health workers and provide recommendations for improvement, and later on to assess the progress in implementing these recommendations, including a quantitative evaluation of the reform’s impact on workers’ well-being. The first investment in the component aims to establish a blood, tissue and cell centre, including the design and construction of the building and the procurement of medical equipment and healthcare furniture. It is accompanied by a reform to address the possible regulatory barriers to the centre’s functioning. The capacity of the RRF will allow Malta to supply all blood needs and perform interventions related to bone tissue and stem cells based on clinical indications. This investment should provide the health system with valuable capacity to improve the health outcomes of the population. The second investment under Component 4 consists of three measures: (i) investments in the digital transformation of outpatient and operation management processes to fully enable effective resource utilisation; (ii) investments to transform the tissue analysis workflow and reporting into a unified digital platform; (iii) investments to improve radiotherapy delivery, allowing for a significant reduction in treatment volumes and times as well as side effects for patients. The implementation of these measures will help make the health system more resilient through digitalisation and new technologies. Furthermore, the measures in this component are complemented by the parallel initiatives financed under other EU programmes to support capacity building for health professionals and further investment in primary care centres. The institutional resilience of Malta will be addressed through reforms and investments to promote the digitalisation of its public services under Component 3 and improve its institutional framework under Component 6. The investment in Component 3 should help further strengthen the digitalisation of public administration and improve the delivery of and access to digital public services, including in the maritime sector. Investments in the further digitalisation of the justice system under Component 6 should create better conditions for information exchange, which is instrumental in tackling the challenges in the area of justice, the fight against corruption and money laundering, and taxation. The reforms proposed under Component 6 should strengthen different elements within the justice system, in particular the independence of the judiciary, the lack of a separate prosecution service from the investigative branch, as well as operational inefficiencies. Furthermore, Component 6 contains reforms to improve the capacity to effectively detect and prosecute corruption and to fight money laundering. Component 5 aims to improve the quality of education and training systems and increase participation, which is expected to strengthen economic and social resilience. A better skilled population should also help address high skills mismatches and labour shortages in the country. It will ensure access to better quality jobs and encourage more vulnerable groups to participate in the labour market. Policies for the next generation, children and youth, such as education and skills Future generations are expected to benefit from reforms and investments that improve energy efficiency and promote sustainable transport (Components 1 and 2), both in terms of well-being and health outcomes. In addition, the provision of suitable training for green skills that should complement the skills strategy proposed under Component 1 will offer young people high-quality, innovative job opportunities. Investments in the renovation of public schools will have a positive impact on the well-being of the children concerned. Investing in the health system (Component 4) is also expected to benefit future generations. The plan also includes reforms and investments in the areas of education and training that address young people in particular. A national policy on inclusive education and a Reading Recovery Programme under Component 5 aim to reduce early school leaving and promote the inclusiveness of education and training. Preventing and reducing early school leaving through a student tracking system and improving the monitoring and evaluation of the education system will contribute towards a more effective and inclusive education system. The reforms envisaged aim to equip all children with the education and skills needed to thrive in a changing labour market, taking into account their specific needs. An investment to set up a Centre for Vocational Education Excellence in the field of tourism (ITS Campus), including childcare services, an incubator, an R&D centre as well as updated training programmes, should boost the take-up of vocational education and training and help further reduce the high early school leaving rate. Conclusion on the assessment of criterion 2.1 of Annex V to the RRF Regulation

Taking into consideration all reforms and investments envisaged by Malta, its recovery and resilience plan represents to a large extent a comprehensive and adequately balanced response to the economic and social situation, thereby contributing appropriately to all six pillars referred to in Article 3 of the RRF Regulation, taking the specific challenges and the financial allocation of Malta into account. This would warrant a rating of A under the assessment criterion 2.1 in Annex V to the RRF Regulation. 4.2.Link with country-specific recommendations and the European Semester The plan is ambitious in effectively addressing a significant subset of the structural challenges identified in the country-specific recommendations (CSRs) of 2019 and 2020. Many of the CSRs addressed to Malta focused on long-standing structural challenges in the area of governance, including aggressive tax planning, money laundering and justice, which have seen only limited progress in the past. Good governance is one of the pillars of the government’s long-term economic vision, and the plan makes significant efforts to remedy the challenges in this area. Investing in education also features on the list, with relevant measures proposed to address weaknesses in the education system, also with a view to improving skills. Further reforms aim to address shortcomings in the long-term sustainability of public finances, resilience and provision of the health system, and employment. A major part of the planned investments focuses on the green and digital transition, thereby addressing the CSRs on investments in these areas. Public finances: long-term sustainability and fiscal policy Measures included in the plan relate to the long-term sustainability concerns for public finances (CSR 1 2019). Despite starting from a low base, pension spending is projected to be one of the fastest growing in the EU in the long term. Under Component 5, the plan proposes carrying out an assessment of the current pension system to ensure further adequacy, sustainability and social solidarity. The government will publish an Action Plan outlining policy proposals, including legislative changes where relevant, with the objective to improve the long-term sustainability and adequacy of the pensions system. However, there is no explicit commitment to implement such policy proposals as part of the recovery and resilience plan. Investments in the primary care services, which are also expected to ease the pressure caused by rising health costs in the long term, are primarily financed by EU programmes outside the recovery and resilience plan. Healthcare system: Resilience and provision of health The resilience of the health system (CSR 1 2020) is being addressed through targeted investments and reforms. The planned establishment of a Blood, Tissue and Cell Centre for Malta, which will be preceded by a review of the national legislation on the matter in line with relevant EU rules, is expected to make Malta self-sufficient in these innovative treatments. This helps make the health system more resilient. Reforms to improve workforce management and make it easier to hire and integrate foreign workers are also expected to strengthen the capability of the health system to maintain high quality and stable services. The investment and reforms under Component 4 are to be complemented by initiatives financed under other EU programmes, including those that shift mental health treatments away from long-term institutionalisation and promote the socio-economic integration of these patients and integration of paediatric rehabilitation services. Further capacity building for health professionals, including training, mobility and upskilling, will also be supported by other EU funding. Similarly, investments in primary care will be supported outside the recovery and resilience plan. The Southern Primary Care Hub, which is expected to be finished in 2023, should reduce the pressure on the main Mater Dei Hospital. The longer-term vision is to decentralise healthcare towards community-based care. Efforts also continue to expand the provision of e-health infrastructure, which links sectoral systems t