COMMISSION STAFF WORKING DOCUMENT Country Report Malta 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}
Date: 2017-02-22
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, EU investment, Malta, economic development, economic recovery, euro area, fiscal policy, macroeconomics, multilateral surveillance, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.2.2017  SWD(2017) 83 final   COMMISSION STAFF WORKING DOCUMENT Country Report Malta 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP  2017 European Semester: Assessment of progress on structural reforms,  prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011  {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}   
 
 
CONTENTS 

Executive summary 

1. 

Economic situation and outlook 

2. 

Progress with country-specific recommendations 

3. 

Reform priorities 

3.1.  Public finances and taxation 

3.2. 

Financial sector 

3.3. 

Labour market, education and social policies 

3.4. 

Investment 

3.5. 

Sectoral policies 

3.6.  Public administration 

A.  Overview Table 

B.  MIP Scoreboard 

C. 

Standard Tables 

References 

LIST OF TABLES 

1.1. 

1.2. 

Financial soundness indicators, core domestic banks 

Key economic, financial and social indicators 

3.5.1.  Selected targets of National Transport Strategy and Operational Transport Master Plan 

B.1. 

The MIP scoreboard for Malta 

C.1. 

Financial market indicators 

C.2. 

Labour market and social indicators 

C.3. 

Labour market and social indicators (continued) 

C.4. 

Product market performance and policy indicators 

C.5.  Green growth 

LIST OF GRAPHS 

1.1. 

1.2. 

1.3. 

External and domestic demand, contributions to growth 

Contributions to potential growth 

Overall HICP inflation 

1 

3 

10 

12 

12 

17 

18 

24 

29 

32 

35 

38 

39 

444 

6 

9 

30 

38 

39 

40 

41 

42 

43 

3 

3 

4 

 
 
 
 
1.4. 

1.5. 

1.6. 

1.7. 

1.8. 

1.9. 

Employment developments 

Real labour productivity per person 

Current account developments 

Underlying current account balance 

Trends in bank lending, % of GDP 

Breakdown of improvement in structural balance, % of GDP 

3.1.1.  Breakdown of tax revenue by detailed tax categories in 2015, MT and EU28 (% of GDP) 

3.1.2.  General government employment, percentage of total employment 

3.1.3.  Charges for the use of intellectual property, 2015 

3.1.4.  Components of total age-related expenditure 

3.3.1. 

Time trends in labour market participation rates of women by age group 

3.3.2.  Female employment rates, 2015 

3.3.3. 

Labour shortages as reported by the industry, services and construction sectors 

3.3.4.  Foreign employment, by occupational level 

3.3.5.  At-risk-of-poverty-and-social-exclusion rate, different groups 

3.3.6.  Population distribution by educational attainment and country of birth 

3.4.1. 

Investment dynamics in selected Member States 

3.4.2.  Main components of investment in Malta 

3.4.3.  Construction sector indicators 

3.4.4.  Housing price overvaluation gap with respect to main supply and demand fundamentals 

3.4.5.  Number of public-private co-publications per million population 

3.6.1. 

Institutional delivery indicator, Malta and neighbouring Member States 

3.6.2.  Public Administration Responsiveness to SME needs - Malta 2015 -Variation with respect to 

EU average (in number of standard deviations) 

LIST OF BOXES 

1.1. 

2.1. 

2.2. 

The gaming sector 

CSR implementation table 

Contribution of the EU Budget to structural change 

3.3.1.  Selected highlights making-work-pay measures 

4 

5 

6 

6 

7 

7 

12 

13 

15 

15 

18 

18 

19 

20 

20 

21 

24 

24 

25 

26 

26 

32 

33 

8 

10 

11 

212 

 
 
 
 
EXECUTIVE SUMMARY 

This  report  assesses  Malta’s  economy  in  the  light 
of  the  European  Commission’s  Annual  Growth 
Survey  published  on  16  November  2016.  In  the 
survey,  the  Commission  calls  on  the  EU  Member 
States  to  redouble  their  efforts  on  the  three 
elements  of  the  virtuous  triangle  of  economic 
policy — boosting investment, pursuing structural 
reforms and ensuring responsible fiscal policies. In 
so  doing,  EU  Member  States  should  focus  on 
improving social fairness in order to deliver more 
inclusive growth. 

Economic  activity  has  eased  somewhat,  but 
remains  buoyant.  Real  GDP  growth  was  among 
the  highest  in  the  EU  in  2014-15,  reaching  7.9%, 
driven by strong net service exports, robust private 
consumption and a surge in investment, partly due 
to  one-off  factors.  Growth  eased  somewhat  in 
2016,  but  is  forecast  to  have  remained  strong  at 
4%.  Positive  developments  have  also  been 
observed  in  competitiveness,  the  sustainability  of 
the  external  position  and  private  indebtedness. 
Moreover,  employment  growth  is  among  the 
highest in the EU, in particular due to the services 
sector.  The  unemployment  rate  has  dropped  to  a 
record  low  of  below  5%.  Net  immigration  flows 
helped  to  offset  emerging  skill  gaps  and  labour 
shortages. 

revenues, 
tax 
taxes.  Some  efforts  on 

Public  finances  have  also  improved.  Strong 
in 
economic  growth  boosted 
particular  direct 
the 
expenditure  side  have  also  helped  to  reduce  the 
structural  budget  deficit.  The  gross  government 
debt  is  estimated  to  have  dropped  below  60%  of 
GDP  for  the  first  time  since  1998.  Despite  some 
progress,  challenges  concerning  tax  compliance 
remain. 

raising  R&D  expenditure, 

made  progress  towards  its  target  on  employment. 
However,  there  appears  to  remain  a  gap  with 
respect  to  the  targets  for  reducing  greenhouse 
increasing 
gases, 
renewable  energy  provision,  improving  energy 
efficiency, 
leaving, 
increasing  the  tertiary  education  attainment,  and 
reducing poverty. 

reducing 

school 

early 

The main findings of the analysis in this report and 
the related policy challenges are as follows: 

to 

  Despite the improvement in public finances, 
some  risks 
long-term  sustainability 
remain. The fiscal position has benefited from 
the  strengthening  of 
revenues.  Corporate 
income  taxes  have  a  higher  weight  in  tax 
revenues  than  in  the  rest  of  the  EU,  implying 
higher  vulnerability  to  economic  shocks  In 
addition,  in  the  medium  to  long-term  horizon, 
international  initiatives  in  the  fight  against  tax 
avoidance  could  have  an 
tax 
revenues and the fiscal position of the country. 
On  expenditure, 
sustainability  challenges 
remain  due  to  the  projected  increase  in  age-
related  budgetary  costs,  in  particular  in  the 
healthcare and pension systems. 

impact  on 

system 

  The financial system continues to face some 
structural 
is 
challenges.  The 
characterised  by  a  large  number  of  foreign 
institutions  attracted 
to  Malta  also  by  a 
tax  environment.  The  effective 
favourable 
supervision 
internationally-oriented 
business, however, creates some challenges. In 
the banking sector, asset quality and the flow of 
non-resident deposits may pose additional risks 
for profitability and liquidity management. 

of 

  Positive 

labour  market  developments 
continue.  Employment growth is high, helping 
to reach the national Europe 2020 employment 
target,  and  pushing  down  unemployment  to  a 
record  low  level.  Employment  rates  among 
women  are  increasing  steadily,  albeit  from  a 
low level. They remain low for older and low-
skilled  women,  who  constitute  a  substantial 
proportion  of 
the 
employment  rate  for  young  women  has  risen 
above the EU average. 

labour  force,  but 

the 

the 

2016 

Overall,  limited  progress  has  been  made  in 
addressing 
country-specific 
recommendations.  Measures  have  been  taken  to 
improve  the  sustainability  of  public  finances, 
particularly  regarding  age-related  budgetary costs. 
The  full  impact  of  these  measures  on  public 
expenditure,  however,  is  not  yet  certain.  Some 
progress  has  also  been  made  in  strengthening 
labour  supply  by 
to  and 
participation  in  lifelong  learning,  with  a  focus  on 
the low-skilled. 

improving  access 

Regarding  the  progress  in  reaching  the  national 
targets  under  the  Europe  2020 strategy,  Malta  has 

1 

 
 
Executive summary 

entry  barriers  for  new  firms  remain.  The 
regulatory  environment  for  bankruptcy  and  a 
second  chance  for  entrepreneurs  in  financial 
difficulties  is  still  underdeveloped.  Despite 
registering  improvements  in  judicial  system 
efficiency,  there  remains  substantial  room  for 
improvement.  

road 

infrastructure 

improvements, 

  In  view  of  natural  resource  constraints, 
current  policies  do  not  appear  sufficient  to 
achieve  the  goals  related  to  green  growth 
and  a  circular  economy.  There  are  signs  that 
the  existing  physical  infrastructure  may  be 
insufficient  to  cope  with  the  current  pace  of 
the 
development.  Despite 
quality  of 
remains  a 
concern,  leading  to  heavy  congestion.  This 
generates  considerable  costs 
to  citizens' 
welfare,  operating  costs  for  businesses  and 
environmental  costs.  The  adoption  of  the 
National  Transport  Strategy  with  a  2050 
horizon  and  the  Operational  Transport  Master 
Plan 2025 is a welcome step to tackle the issues 
in  transport.  Similarly,  in  energy,  the  policy 
strategy  has  focused  on  securing  supply  and 
removing  the  dependence  on  imported  oil,  but 
the  achievement  of 
the  national  energy 
efficiency  target  remains  a  challenge.  The 
promotion  of  renewable  energy  provides  an 
opportunity to exploit domestic energy sources. 
Improving  resource  efficiency  will  be  key  for 
sustainable  growth  given  the  very  limited 
available resources.  

  Poverty  and  social  exclusion  risks  are 
declining  but  they  remain  substantial  for 
children,  the  elderly  and  the  low-skilled. 
Malta  is  addressing  the  social  challenges  and 
strengthening  policies  for  active  inclusion. 
Income inequalities are rather stable and below 
the  EU  average 
low  market 
thanks 
the  possible  redistributive 
inequalities  and 
impact  of  the  tax  and  benefits  system.  The 
latter  has  improved  as  a  result  of  recent 
reforms.  

to 

  The  skills  supply  does  not  yet  adequately 
match  labour  market  needs.  Access  and 
participation in lifelong learning have generally 
improved,  but  labour  market  participation  by 
the low-skilled remains low. While educational 
attainment  is  increasing,  the  rate  of  early 
school  leaving  remains  high  and  basic  skills 
attainment  among  young  people  is  still  weak. 
In  response  to  tightness  in  the  labour  market, 
the  reliance  on  foreign  workers  is  increasing. 
This  points  to  labour  shortages  across  a  broad 
spectrum  of  sectors  and  skills,  possibly 
hindering investment. 

  Sustainability  of  productivity  growth  calls 
for  a  higher  investment  in  both  knowledge 
and  intangible  assets.  Major  steps  have  been 
taken to strengthen the research and innovation 
system.  Nevertheless,  room  for  progress  in 
filling  knowledge  and  skill  gaps  is  significant. 
In  addition,  infrastructure  in general  still  faces 
challenges. 

  Financing  conditions  have  improved,  but 
access  to  appropriate  financing  instruments 
is  needed  to  promote  new  investment.  The 
authorities  have  made  available  a  broad  range 
of  mechanisms 
financing. 
Financing  innovations  in  services  and  new 
require  more  diversified 
business  models 
financing  instruments  and  venture  capital  in 
particular.  The  Malta  Development  Bank  is 
being  set  up  to  address  these  needs  as  well  as 
long term investment projects. 

for  alternative 

  Despite improvements, some inefficiencies in 
public administration remain. The rolling out 
of e-government facilities and the reform of the 
planning  authorisation  process  are  expected  to 
enable  investment.  Nevertheless,  significant 

2 

 
 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Economic growth and inflation 

could  have  a  disproportionate  impact  on  the 
domestic economy. 

exceptional 

experienced 

Malta 
levels  of 
economic  growth  in  2014  and  2015.  Real  GDP 
growth picked up in 2014-2015 reflecting also data 
revisions  in  net  exports,  in  particular  from  the 
gaming  sector  (see  also  Box  1.1).  The  pace  of 
growth is among the highest in the EU, exceeding 
significantly the pre-crisis period. The exceptional 
economic  performance  was  driven  by  growing 
exports,  supported  by  strong  domestic  demand. 
Investment  activity  was  particularly  dynamic, 
following a period of moderation that reflected the 
changing  structure  of  the  economy  (see  also 
Section  3.4).  While  its  direct  impact  on  GDP 
growth  is  limited  due  to  its  high  import  content, 
the  increased  capital  stock  also  had  a  positive 
impact on the future growth outlook. 

Graph 1.1: 

External and domestic demand, contributions 
to growth 

Source: European Commission 

Growth has settled down, remaining buoyant in 
2016. GDP growth is estimated to have moderated 
to 4.0 % in 2016 and to average 3.7 % in 2017-18. 
Private  consumption  is  forecast  to  be  the  main 
driver  of  growth  during  the  forecast  horizon. 
Positive spillovers from ongoing structural reform, 
given  adequate  and  timely  implementation,  on 
consumer confidence and investment could impact 
the  medium-term  outlook 
favourably.  Given 
Malta's high trade openness, shocks to global trade 

3 

the  peak 

registered 
is  projected 

Over  the  medium-term,  average  potential  real 
GDP  growth  is  estimated  to  exceed  pre-crisis 
in 
performance.  After 
2014-2015,  potential  growth 
to 
moderate, in line with real growth, and the output 
gap  is  forecast  to  close  in  2018.  Nevertheless, 
potential  output  growth  is  projected  to  average 
4.0 %  in  2017-2021,  above  the  pre-crisis  average 
due  to  gains  in  total  factor  productivity  and 
substantial,  albeit  moderating,  contributions  from 
capital  accumulation.  These  factors  are  estimated 
to  more  than  offset  a  projected  moderation  in  the 
growth of labour market participation. 

Graph 1.2:  Contributions to potential growth 

Source: European Commission 

Price  pressures  are  contained.  Strong  economic 
performance, leading to opening of the output gap 
after  2014,  and  low  unemployment  typically  lead 
to  upward  pressure  on  prices  through  increasing 
aggregate  demand.  Indeed  the  Harmonised  Index 
of  Consumer  Prices  (HICP)  in  Malta  has  been 
higher  than  in  neighbouring  countries  (see  Graph 
1.3).  The  inflation  differential  has  been  broad-
price 
based, 
developments 
in  most  categories.  However, 
inflation  pressures  appear  to  have  been  broadly 
contained  on  the  back  of  increasing  productivity 
and low international commodity prices. 

reflecting  more 

dynamic 

-10-505101501020304050607080910111213141516f17f18f%, percentage pointsInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growth-1012345670001020304050607080910111213141516f17f18f19f20f21f%, percentage pointsTotal Factor ProductivityCapital accumulationLabourPotential GDP growth 
 
 
 
1. Economic situation and outlook 

Graph 1.3:  Overall HICP inflation 

Graph 1.4: 

Employment developments 

Source: European Commission 

Source: European Commission 

Labour Market 

Social situation  

of  positive 

A  number 
labour  market 
developments  continued  throughout  2016.  In  a 
context  of  sustained  economic  growth, 
the 
employment rate (20-64 years old) rose strongly to 
reach  69.8 %  in  Q3-2016,  up  by  1  pp.  from  Q3-
2015. The unemployment rate decreased further to 
reach  4.6 %  in  Q4-2016,  one  of  the  lowest  in  the 
EU (see Graph 1.4) and the lowest level observed 
in  Malta  since  accession  to  the  EU.  Strong 
employment  growth  reflects  the  creation  of  jobs, 
the  take-up  of  economic  opportunities  by  the 
growing  working  age  population  (partially  due  to 
migration  inflows)  and  the  rising  labour  force 
participation  (especially  for  women,  albeit  from 
very  low  initial  levels).  However,  the  labour 
market  is  becoming  increasingly tight,  with  rising 
incidence  of  both  labour  and  skills  shortages  (see 
Section 3.3). 

Income inequality remains stable and below the 
EU  average.  The  income  of  the  richest  20 %  of 
households  was  4.2  times  higher  than  that  of  the 
poorest  20 %  in  2014,  a  ratio  which  is  below  the 
EU  average  of  5.2 (1).  This  is  mainly  thanks  to  a 
low level of market inequality — that is, inequality 
before taxes and benefits are taken into account. In 
2014,  market  inequality  was  the  fourth  lowest  in 
the EU. In recent years, the tax and benefits system 
helped to contain the increase in market inequality. 
In  2014,  the  disparity  in  gross  hourly  earnings 
between the top and the bottom decile (2) was one 
of  the  lowest in  the  EU-28. Nevertheless,  in  view 
of the fast economic growth there is a risk of future 
polarisation  between  high-skilled  workers  in  well 
paid  jobs  and  low-skilled  work-poor  households 
(see  Section  3.3).  At  the  same  time,  even  if  the 
impact  of  social  transfers  on  the  reduction  of 
poverty was below the EU average in 2014, overall 
the  system  shows  high  coverage  and  adequacy  of 
benefits  and  recent  reforms  are  likely  to  further 
improve  it.  Latest  available  figures  indicate  that 

(1)  As  measured  by  the  S80/S20  income  quintile  share  ratio. 
This  is  the  ratio  of  total  income  received  by  the  20 %  of 
households  with  the  highest  income  (top  quintile)  to  that 
received by the 20 % of households with the lowest income 
(lowest  quintile). 
Income  must  be  understood  as 
equivalised disposable income. 

(2)  Measured by the  D9/ D1 ratio, where D1 is the  maximum 
gross  hourly  earnings  received  by  the  10 %  of  employees 
earning  least.  D9  is  the  minimum  gross  hourly  earnings 
received by the 10 % of employees earning most. 

4 

-1%0%1%2%3%4%5%Jan-11Jun-11Nov-11Apr-12Sep-12Feb-13Jul-13Dec-13May-14Oct-14Mar-15Aug-15Jan-16Jun-16Nov-16MTSouth Europe MS, composite0102030405060708002468101214161820010203040506070809101112131415%%MTActivity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)Employment rate 20-64 (rhs) 
 
 
                                                           
1. Economic situation and outlook 

net  wealth  inequality  (3)  was  within  the  range 
observed in other EU countries (ECB 2016). 

doubled their contribution to gross value added in 
2003-2016. 

Productivity and competitiveness 

Recent  data  points  to  sharp  improvement  in 
labour  productivity.  As  a  result  of  the  revised 
economic  data,  real  labour  productivity  gains (4) 
have been among the highest in the EU since 2013. 
In the context of sustained job gains, this points to 
a  positive  productivity  shock.  This  followed  a 
period  of  muted  productivity  developments, 
reflecting  the  fact  that  employment  dynamics 
tended  to  outpace  economic  growth  (see  Graph 
1.5).  Gains  were  registered  across  a  range  of 
sectors,  mainly  driven  by  gaming  (see  also  Box 
1.1) and IT in 2014, followed by construction and 
utilities in 2015. 

Graph 1.5: 

Real labour productivity per person 

Source: European Commission 

The  evolution  of  labour  productivity  has  been 
closely  linked  to  the  structural  transformation 
of  the  economy  in  recent  years.  The  services 
sector has grown faster in Malta than in any other 
EU Member State between 2004 and 2014 (Central 
Bank  of  Malta,  2016a).  Apparent 
labour 
productivity  has  grown  thanks  to  sectors  such  as 
the  ‘Entertainment  and  recreational  activities’  and 
the  ‘Financial  services  sector’.  The  ‘Professional, 
scientific  and  technical  activities;  administrative 
and  support  service  activities’  have  more  than 

(3)  Difference between total assets and total liabilities. 
(4)  Data presented using figures of persons employed. Source: 

European Commission 

5 

As a result, competitiveness developments have 
been  favourable.  As  productivity  outpaced  wage 
dynamics,  the  nominal  unit  labour  costs  declined 
in  2014-15.  The  real  effective  exchange  rate (5) 
depreciated  in  2015,  pointing  to  improvements  in 
price  competitiveness.  The  export  market  shares 
increased  owing  to  the  growing  services  sector. 
Nevertheless,  goods  exports  continued  to  lose 
market shares.  

The  recent  rapid  growth  of  the  service  sector 
highlights  the  importance  of  reducing  barriers 
to  competition  within  the  sector.  The  recent 
evaluation  of  restrictions  in  regulated  professions 
shows  that  restriction  levels  in  Malta  exceed  the 
EU  average  for  four  of  the  seven  professions 
considered.  In  particular, 
this  concerns  civil 
engineers, architects, accountants and significantly 
so  for  tourist  guides  who  have  a  reserved  activity 
for “guiding and interpreting the cultural heritage 
of Malta”. Barriers are slightly lower than average 
for lawyers and there are no restrictions for patent 
and real estate agents. (6) 

Current account developments 

The current account balance reached a position 
of sizeable surplus. The external balance has been 
on  an  upward  trend  since  2009,  driven  by  the 
improving  balance  in  the  trade  of  goods  and 
services  (see  Graph  1.6).  The  surplus  diminished 
somewhat in 2015 reflecting a surge in investment 
(see  also  Section  3.4).  As  the  investment  cycle 
normalises,  the  current  account  balance  can  be 
expected  to  improve.  Indeed,  in  the  first  three 
quarters  of  2016  the  current  account  surplus 
increased in annual terms. This was mainly driven 
by  the  surplus  in  services,  in  particular  transport 
business  services  and  gaming,  and  lower  imports 
of goods, due to moderating investment. 

(5)  Relative  to  the  group  of  37  industrialised  countries; 

deflated with unit labour costs. 

(6)  The  methodology  applied  is  different  to  that  used  in  the 
October  2015  evaluation  presented  in  the  Commission 
Staff Working Document accompanying the Single Market 
Strategy.  This  new  methodology  gives  a  more  positive 
assessment  of  the  situation  in  Malta.  In  October  2015, 
Malta  was  ranked  third  on  the  list  of  Member  States  with 
more  severe  restrictions  in  the  four  regulated  professions 
considered at that time: architects, civil engineers, lawyers 
and accountants.  

949698100102104106108060708091011121314152010 = 100MTEAEU-28 
 
                                                           
                                                           
The  improving  external  balance  is  due  mainly 
to  structural  factors.  The  increasing  importance 
of  export-oriented  and 
less  capital-intensive 
services contributes to a lower import intensity of 
the  economy,  shifting 
the  saving-investment 
balance  (Central  Bank  of  Malta,  2016d).  As  a 
result,  most  of  the  improvement  in  the  external 
balance since 2009 has been structural (see Graph 
1.7).  Implementation  of  energy  and  transport 
reforms  aimed  at  further  lowering  the  energy 
intensity  of  the  economy  could  contribute  to 
further 
the 
economy  and  freeing  up  resources  for  investment 
(see also Section 3.5). 

import-intensity  of 

reducing 

the 

Graph 1.6:  Current account developments 

Source: European Commission 

1. Economic situation and outlook 

Graph 1.7: 

Underlying current account balance 

Source: European Commission 

Financial sector 

Financial  soundness  indicators  confirm  the 
stability  of  the  banking  sector  was  preserved. 
The  domestic  banks  increased  their  profitability 
during  2016,  relative  to  a  year  ago.  Nevertheless, 
return on equity came down substantially after the 
crisis,  mainly  due  to  the  compressed  interest  rate 
margins.  The  domestic  banking  sector  is  well 
capitalised  with  an  aggregate  capital  ratio  (CET1) 
at around 13 % in September 2016 (see Table 1.1).  

Table 1.1: 

Financial soundness indicators, core domestic 
banks 

Source: Central Bank of Malta 

Banks have significantly reduced lending to the 
corporate sector, but continue to offer credit to 
households. Overall, lending growth is weak with 
banks  reducing  their  exposure  to  risky  sectors,  in 
particular  the  construction  sector.  This  partly 
reflects  recommendations  by 
the  supervisory 
authority given still elevated non-performing loans 
(NPLs)  (see  also  Section  3.2).  The  total  banks’ 
exposure  towards  the  construction  sector  has 
almost  halved  since  2010  and  reduced  to  close  to 

6 

-30-20-10010203040040506070809101112131415% of GDPGoodsServicesPrimary incomeSecondary incomeCurrent account-15-10-5051015010203040506070809101112131415161718% of GDPCurrent accountCyclically adjusted current account201020152016q2Non-performing loans (% of gross loans)7.07.16.4Non-performing loans, net of provisions, to capital37.837.931.7Tier 1 capital ratio11.412.012.7Return on equity19.815.219.5 
 
 
 
 
 
 
1. Economic situation and outlook 

overall structural effort over 2012-2015 (see Graph 
1.9).  The  decline  in  interest  expenditure  was 
generally  offset  by  a  decline  in  structural  primary 
effort.  In  other  words,  the  interest  windfalls  have 
been used to reduce the primary fiscal effort, rather 
than  to  accelerate  the  fiscal  adjustment.  At  the 
same  time,  the  maturity  structure  of  government 
debt was lengthened during this period. 

Graph 1.9: 

Breakdown of improvement in structural 
balance, % of GDP 

Source: Stability programmes 2013-2016, European 
Commission calculations 

10 %  of  their  balance  sheets.  The  exposure  to 
government  entities,  both  the  Maltese  sovereign 
and  state-owned  enterprises,  has  also  diminished, 
also due to supervisory pressure. Mortgage lending 
is  thus  the  main  driver  of  lending  growth  and  the 
banks  project  further  increase  in  2017  (see  Graph 
1.8). 

Economic growth and the modest lending flows 
have  contributed  to  resilience  of  private  sector 
balance sheets. Both household and, in particular, 
corporate indebtedness declined, bringing the gross 
private  sector  debt  down  to  132 %  of  GDP  in 
2015. This is well below its peak of nearly 170 % 
of  GDP  in  2009.  The  net  asset  positions  of  both 
sectors,  thus,  improved,  increasing their  resilience 
to shocks. Nevertheless, the debt-to-equity ratio of 
non-financial  corporations  remains  among  the 
highest in the EU, indicating some vulnerability in 
case of unexpected developments. 

Graph 1.8: 

Trends in bank lending, % of GDP 

Source: Central Bank of Malta 

Fiscal developments 

The  fiscal  balance  has  improved  in  the  recent 
years.  After  a  decline  in  2008-10,  the  primary 
balance has seen an upward trend, reaching 1.2 % 
of GDP  in  2015  as rising  primary  revenue  tended 
to  outpace  increases  in  spending.  Thanks  to  both 
strengthened  primary  balances  and  GDP  growth, 
public  debt  ratio  has  trended  downward  reaching 
60.8 %  of  GDP  in  2015.  Based  on  the  2016 
Stability  Programme,  interest  rate  savings  are 
estimated to have contributed 0.4 % of GDP to the 

7 

0%10%20%30%40%50%60%70%Nov-04Jun-05Jan-06Aug-06Mar-07Oct-07May-08Dec-08Jul-09Feb-10Sep-10Apr-11Nov-11Jun-12Jan-13Aug-13Mar-14Oct-14May-15Dec-15Jul-16To non-financial corporationsTo households and non-profit institutionsTo households for house purchase0.00.51.01.52.02.5SP2013SP2014SP2015SP2016Structural primary effort (2012-2015)Decrease in interest expenditure (2012-2015) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. Economic situation and outlook 

8 

 Box 1.1: The gaming sectorMalta benefits from a first-mover advantage in the gaming sector. It was the first EU Member State to regulate i-gaming (2004). This attracted investors from several Member States, in particular from the UK, which helped local operators to develop skills and know-how in this innovative activity that expanded rapidly to reach an estimated turnover of 13.3 billion euro in 2015 in the EU.  Malta has developed a significant comparative advantage in gaming, especially in electronic or remote gaming. This advantage is based on the accumulated experience and expertise in this area as well as on an attractive regulatory and tax environment. The regulatory model in this area is relatively simple, effective and flexible. It has subsequently been replicated in other Member States. It is based on four different types of licenses for operators of online casino games, games of chance and games that use a random generator; the second licence type is for online sports and other forms of betting operators; licence class three is for advertisers and promotion companies The geographic concentration of these activities can create important spillovers. First, know-how in this "greenfield" area was developing as the industry developed. Then, several IT companies producing hardware and software were also established to provide technical infrastructure and services. This created the right environment for further expansion of existing firms that attracted other newcomers.       Table 1:Gaming sector indicators20142015H12016Number of companies in operation289276257Gross value added (EUR mn)795.3899.6502.7% of total GVA10.8%11.1%12.0%Employment (end of period, full-time equivalent)3,72447076150of which, land-based16.7%17.0%13.9%Gaming tax revenue (EUR mn)52.655.128.0% of total taxes on production and imports4.8%4.6%4.9%Source: Malta Gaming Authority 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. Economic situation and outlook 

Table 1.2: 

Key economic, financial and social indicators 

(1) Sum of portoflio debt instruments, other investment and reserve assets 
(2,3) domestic banking groups and stand-alone banks. 
(4) domestic banking groups and stand alone banks, foreign (EU and non-EU) controlled subsidiaries and foreign (EU and 
non-EU) controlled branches. 
(*) Indicates BPM5 and/or ESA95 
Source: European Commission,  ECB 

9 

2004-20082009201020112012201320142015201620172018Real GDP (y-o-y)2.7-2.53.51.42.74.68.47.44.03.73.7Private consumption (y-o-y)1.61.8-0.23.2-0.32.22.65.53.62.82.7Public consumption (y-o-y)3.3-3.31.63.86.40.17.04.73.27.56.2Gross fixed capital formation (y-o-y)3.1-11.826.4-16.21.4-1.78.849.8-2.02.03.1Exports of goods and services (y-o-y)10.0-0.46.91.87.21.05.14.31.53.73.9Imports of goods and services (y-o-y) 10.20.37.6-0.55.5-0.21.57.70.53.63.7Output gap0.8-2.2-1.4-2.3-2.7-1.82.03.31.90.7-0.2Potential growth (y-o-y)2.51.92.82.33.13.74.46.15.45.04.7Contribution to GDP growth:Domestic demand (y-o-y)2.2-1.95.0-0.91.31.04.312.41.93.23.2Inventories (y-o-y)0.70.6-0.2-1.2-1.61.6-1.6-0.90.60.00.0Net exports (y-o-y)-0.2-1.1-1.23.52.92.05.7-4.01.50.50.5Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.60.80.50.61.11.51.71.81.71.51.4Capital accumulation (y-o-y)1.40.71.30.60.60.50.72.31.91.81.7Total factor productivity (y-o-y)0.60.50.91.21.51.72.01.91.71.71.6Current account balance (% of GDP), balance of payments-4.0-6.6-4.7-0.21.72.86.75.2...Trade balance (% of GDP), balance of payments-1.2-1.2-0.62.85.27.17.67.9...Terms of trade of goods and services (y-o-y)0.0-0.11.1-0.1-0.30.40.90.00.1-0.10.2Capital account balance (% of GDP)1.91.22.01.21.91.71.71.8...Net international investment position (% of GDP)25.412.612.16.319.620.439.649.9...Net marketable external debt (% of GDP) (1)70.170.5202.4199.1248.6209.5194.0199.9...Gross marketable external debt (% of GDP) (1)507.2717.9679.0709.6703.0668.7680.2548.2...Export performance vs. advanced countries (% change over 5 years)23.458.149.128.425.68.1-10.40.01...Export market share, goods and services (y-o-y)2.617.1-10.8-4.1-1.20.4-1.6-2.5 c...Net FDI flows (% of GDP)-121.4-88.1-68.3-128.2-126.0-92.7-78.9-94.9...Savings rate of households (net saving as percentage of net disposable income)...........Private credit flow, consolidated (% of GDP)9.310.66.77.20.52.77.05.2...Private sector debt, consolidated (% of GDP)140.1167.6162.0159.4154.6147.3140.9132.1...of which household debt, consolidated (% of GDP)48.359.959.059.960.359.157.655.5...of which non-financial corporate debt, consolidated (% of GDP)91.8107.7103.099.594.388.283.376.6...Corporations, net lending (+) or net borrowing (-) (% of GDP)...........Corporations, gross operating surplus (% of GDP)24.424.325.5........Households, net lending (+) or net borrowing (-) (% of GDP)...........Deflated house price index (y-o-y)12.3-6.2-1.1-3.50.5-1.62.43.8...Residential investment (% of GDP)6.64.33.43.43.02.62.53.2...GDP deflator (y-o-y)2.52.73.82.12.01.91.92.21.72.12.4Harmonised index of consumer prices (HICP, y-o-y)2.61.82.02.53.21.00.81.20.91.61.8Nominal compensation per employee (y-o-y)3.33.02.03.33.62.01.43.83.02.92.8Labour productivity (real, person employed, y-o-y)1.1-2.51.8-1.50.20.83.13.8...Unit labour costs (ULC, whole economy, y-o-y)2.25.60.24.83.41.2-1.60.02.02.01.7Real unit labour costs (y-o-y)-0.32.8-3.52.61.3-0.7-3.4-2.10.3-0.1-0.6Real effective exchange rate (ULC, y-o-y)2.01.3-3.14.2-0.42.7-1.9-3.21.61.20.0Real effective exchange rate (HICP, y-o-y)1.60.8-5.0-0.8-1.91.40.6-2.21.6-0.7.Tax rate for a single person earning the average wage (%)17.716.516.918.119.219.819.119.2...Tax rate for a single person earning 50% of the average wage (%)8.2*7.78.49.49.810.29.810.0...Total Financial sector liabilities, non-consolidated (y-o-y)41.53.812.911.05.81.96.40.7...Tier 1 ratio (%) (2).14.113.313.312.712.512.115.5...Return on equity (%) (3).11.712.15.814.19.84.69.3...Gross non-performing debt (% of total debt instruments and total loans and advances) (4).1.71.61.51.72.03.22.9...Unemployment rate6.76.96.96.46.36.45.85.44.84.94.9Long-term unemployment rate (% of active population)3.02.93.13.03.12.92.72.4...Youth unemployment rate (% of active population in the same age group)14.714.513.213.314.113.011.711.811.3..Activity rate (15-64 year-olds)58.259.460.461.863.165.066.367.6...People at risk of poverty or social exclusion (% total population)20.020.321.222.123.124.023.822.4...Persons living in households with very low work intensity (% of total population aged below 60)9.49.29.28.99.09.09.89.2...General government balance (% of GDP)-3.2-3.3-3.2-2.6-3.7-2.6-2.0-1.3-0.7-0.6-0.6Tax-to-GDP ratio (%)33.133.832.533.433.633.733.733.033.333.433.2Structural budget balance (% of GDP)..-3.8-2.0-2.8-1.9-3.4-2.9-1.4-0.7-0.5General government gross debt (% of GDP)66.467.867.670.468.068.764.360.859.658.055.6forecast 
 
 
 
 
 
 
 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

substantial. 

the 

Overall, Malta has made limited (8) progress in 
country-specific 
2016 
addressing 
recommendations.  There  has  been 
limited 
progress  in  improving  the  sustainability  of  public 
finances. The authorities have made some progress 
in  strengthening  labour  supply  by  improving 
access and participation in lifelong learning, with a 
focus on the low-skilled. 

(8)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

the 

implementation  of 

Progress  with 
the 
recommendations addressed to Malta in 2016(7) 
has to be seen in a longer term perspective since 
the  introduction  of  the  European  Semester  in 
2011.  

Substantial  progress  has  been  made  in  recent 
years  in  diversifying  the  energy  mix.  The 
electricity 
Italy  was 
interconnector  with 
completed, providing a link with mainland Europe. 
In addition, there have been notable investments in 
upgrading  the  energy  infrastructure  and  switching 
electricity  production  from  oil  to  natural  gas. 
Nevertheless,  progress  with  improving  energy 
efficiency,  strengthening  energy  production  from 
renewable  sources  and  containing  greenhouse  gas 
emissions is still limited.  

There  has  been  some  progress  with  improving 
the  business  environment.  The  authorities  have 
launched  a  comprehensive  judicial  reform  with  a 
view  to  tackle  the  inefficiencies  in  the  judicial 
system. Various initiatives have been put in place, 
including non-debt instruments, to improve access 
to  finance  for  SMEs.  Substantial  improvements 
were achieved in the public procurement system. 

Some  progress  was  also  achieved  in  improving 
human  capital  development.  Some  progress  has 
been  made  in  reducing  early  school  leaving, 
incentivising 
the  professional  development  of 
teachers. Policies to improve the work-life balance 
and  make  work  pay  have  helped  to  lower  the 
gender  employment  gap,  although  it  remains 

(7)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular section 3.  

10 

Box 2.1: CSR implementation table Overall assessment of progress with 2016 CSRs: Limited CSR 1: In view of the high risk of a significant deviation, achieve an annual fiscal adjustment of 0.6 % of GDP towards the medium-term budgetary objective in 2016 and in 2017, by taking the necessary structural measures.  Step up measures to ensure the long-term sustainability of public finances.        Limited progress in ensuring the long-term sustainability of public finances.  CSR 2: Take measures to strengthen labour supply, in particular through increased participation of low-skilled persons in lifelong learning. Some progress on increasing participation of low-skilled persons in lifelong learning.   
 
                                                           
 
 
 
 
 
 
 
                                                           
 
 
 
 
 
2. Progress with country-specific recommendations 

11 

 Box 2.2: Contribution of the EU Budget to structural changeMalta is an important beneficiary of European Structural and Investment Funds (ESI Funds) with an allocation of up to EUR 828 million till 2020. This is equivalent to around 1.3% of GDP annually (over 2014-2017) and 28% of national public investment1. Out of the EU financing EUR 34 million is planned to be delivered via financial instruments, which is more than a three-fold increase compared to the 2007-13 period. Malta also contributes EUR 15 million to the SME initiative. By 31 December 2016, an estimated EUR 156 million, which represents about 19 % of the total allocation for ESI Funds, have already been allocated to concrete projects.  Financing under the European Fund for Strategic Investments, Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is additional to the ESI Funds. By end 2016, Malta has signed agreements for EUR 39 million for projects under the Connecting Europe Facility. The EIB Group approved financing under EFSI amounts to EUR 6 million, which is expected to trigger nearly EUR 17 million in total investments (as of end 2016)  ESI Funds helped progress on a number of structural reforms in 2015 and 2016 via ex-ante conditionalities2 and targeted investment. Examples include the timely transposition of public procurement and environment directives, as well as structural reforms in the areas of research, development and innovation, transport infrastructure, education, employment and social inclusion. For example, smart specialisation strategies spur and coordinate innovation investments between public and private sectors, and transport plans provide a coherent framework to facilitate the implementation of more sustainable and efficient mobility measures, alongside with the development of mature transport infrastructure projects. These reforms prepared the ground for better implementation of public investment projects in general, including those financed from national sources and from other EU instruments. Fulfilment of ex-ante conditionalities is on track. In addition to the above, administrative reforms support is available through targeted financing under the European Social Fund, advice from the Structural Reform Support Service and, indirectly, through technical assistance  The relevant CSRs focusing on structural issues were taken into account when designing the 2014-2020 programmes. These include addressing the labour-market relevance of education and training, improving the labour-market participation, diversifying the energy mix by increasing the share of energy produced from renewable sources and supporting more sustainable and efficient mobility solutions in the transport sector.   In addition to challenges identified in the past CSRs, ESI Funds address other structural obstacles to growth and competitiveness. ESI Funds support contributes to increase the proportion of GDP invested in R&I from 0.72% to at least 2%, to preserve natural resources and to meeting EU targets for reducing greenhouse gases and use of renewable energy (to 10% of total energy consumption). ESI Funds support contributes also to increasing employment to 70 % of the working age population, and to attain a tertiary education rate of 33 %, reducing early school-leaving from 33.5 % to 10 %, and lifting around 6 560 people out of the at-risk-of-poverty-or-social-exclusion category.  https://cohesiondata.ec.europa.eu/countries/MT                                                                  1 National public investment is defined as gross capital formation + investment grants + national expenditure on agriculture and fisheries 2 At the adoption of programmes, Member States are required to comply with a number of ex-ante conditionalities. For Members States that do not fulfil all the EACs by the end 2016, the Commission has the possibility to propose the temporary suspension of all or part of interim payments. The analysis of the fulfilment of the EACs will be finalised in the course of 2017.  
 
 
 
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  RECENT BUDGETARY DEVELOPMENTS AND 

MAIN DRIVERS 

Section  3.1.2).  However,  in  the  medium  to  long-
term  horizon,  it  is  unclear  how  these  initiatives 
would impact on the fiscal position of the country.  

thus  making 

The  fiscal  position  improved  over  the  last 
decade,  following  a  strengthening  of  revenues, 
supported  by 
favourable  macroeconomic 
conditions.  Public  finances  benefited  from  the 
favourable  macroeconomic  conditions.  However, 
the  latter’s  contribution  to  the  improvements  in 
public  finances  is  expected  to  moderate  in  the 
medium-term, 
the  balancing  of 
expenditure  and  revenue  more  challenging.  Since 
Malta’s  accession  to  the  EU,  the  average  growth 
rate  of  tax  revenue  is  above  the  EU  average,  and 
has  been  increasing  in  recent  years.  In  particular, 
since 2013, the average growth rate of tax revenue 
in Malta reached twice the rate observed in the EU 
(8.0 % against 3.4 %). In addition, non-tax revenue 
recently  increased  substantially  thanks  to  the 
proceeds 
Investor 
Programme  that  was  introduced  in  2014.  This 
programme  gathered  revenues  of  around  0.7 %  of 
GDP in 2014-2015. 

International 

from 

the 

The  reliance  on  corporate  income  taxes  is 
higher  than  the  EU  average.  While  the  share  of 
taxes on production and imports is in line with the 
EU  average,  the  share  of  current  taxes  on  income 
is higher in Malta compared to the EU. Net social 
contributions  represent  a  lower  portion  of  tax 
revenues  (see  Graph  3.1.1)  and  the  reliance  on 
corporate taxation is much higher in Malta (almost 
triple)  compared  to  the  EU  average.  In  terms  of 
GDP,  earnings  related  to  corporate  taxation  have 
increased  by  1  pp.  in  2011-2014  (from  5.3 %  to 
6.3 % of GDP) while it remaining at 2.4 % of GDP 
on average in the EU. Corporate taxation therefore 
has  stood  out  as  a  significant  and  growing  source 
of  tax  revenue  for  Malta  in  the  last  few  years. 
Risks to the resilience of tax revenues could come 
from  economic  shocks  or  changes  in  the  area  of 
corporate  tax  policy.  The  adopted  corporate  tax 
initiatives (9) aim to reduce tax avoidance (see also 

(9)  Several  initiatives  at  EU  level  were  adopted  to  boost  tax 
transparency,  with  the  automatic  exchange  of  information 
on  tax  rulings  and  the  introduction  of  country-by  country 
reporting. Further initiatives were taken to ensure that taxes 
are  paid  where  the  value  is  generated,  for  example  the 

Graph 3.1.1:  Breakdown of tax revenue by detailed tax 

categories in 2015, MT and EU28 (% of GDP) 

Source: European Commission 

Public  outlays  have  been  increasing  at  a  fast 
pace. Public expenditure in Malta stood at 41.2 % 
of  GDP  in  2015.  On  average,  public  expenditure 
increased by 5 % annually since Malta’s accession 
to the EU, broadly in line with the average nominal 
GDP  growth  rate.  The  pace  of  expenditure 
accelerated  recently,  and  total  expenditure  growth 
reached  7.6 %  (against  1.8 %  in  the  EU)  over  the 
last  three  years  period,  driven  also  by  higher 
outlays for public investment.  

In  recent  years,  Malta  has  largely  achieved 
fiscal  consolidation  without  penalising  public 
investment.  In  the  past,  government  investment 
was used to compensate for slippages in budgetary 
execution. As a result, public investment as a share 
of GDP fell from 4.6 % in 2005 to 2.2 % in 2010. 
Over  the  past  two  years,  however,  government 
investment  increased,  reflecting  also  the  necessity 
to  shield  EU-funded  projects  from  cuts,  which 
account  for  a  large  share  of  public  investment. 
the  completion  of 
These  projects 

include 

Anti-Tax  Avoidance  Directive  (ATAD)  adopted  by  the 
Council in June 2016. 

12 

051015202530354045MTEU-28% of GDPNet social contributionsCapital taxesOther current taxesTaxes on the income or profits of corporationsTaxes on individual or household incomeTaxes on production and imports 
 
                                                           
 
                                                                                   
3.1. Public finances and taxation 

average (at 5.7 % of GDP in 2014, against 7.2 % in 
the  EU),  the  composition  appears  skewed  toward 
wages, with the health wage bill at 3.3 % of GDP, 
against  an  EU  average  of  1.9 %  of  GDP.  This  is 
due to the high and increasing number of doctors, 
nursing  professionals  and  midwives  working  in 
hospitals since 2010. In addition, capital spending 
in the health sector in Malta is higher than the EU 
average  (0.6 %  of  GDP  against  0.2 %  of  GDP  in 
the  EU  in  2014),  and  spending  in  intermediate 
consumption  is  0.2  pps.  above  the  EU  average. 
Overall, spending for wages in both the education 
and the health sectors has increased in Malta in the 
last  five  years,  while  on  average  in  the  EU  it  has 
remained overall stable or has slightly declined. 

Graph 3.1.2:  General government employment, 

percentage of total employment 

Source: European Commission 

review 

The  Comprehensive  Spending 
is 
ongoing. The review started in 2014 and has so far 
covered  the  Department  for  Social  Security,  the 
Mater Dei Hospital (in 2015), and the Ministry for 
Education  and  Employment  (in  2016).  Each 
review  ended  with  the  publication  of  a  report 
which  included  recommendations  in  the  area  of 
social  security  and  for  the  Mater  Dei  Hospital 
(among  others,  budget  decentralisation  in  some 
departments  and  notional  billing).  Some  of  them 
have  already  been  implemented  and  others  are 
underway.  The  process  of  budget  decentralisation 
is expected to be launched for the entire Mater Dei 
hospital  during  2017  and  a  monitoring  and 
evaluation  team  is  being  set  up  and  will  be 
launched  during  2017.  Overall,  the  spending 

the  completion  of 

infrastructure  works  at  the  Mater  Dei  hospital’s 
new  wing, 
the  Oncology 
Hospital, road improvement and street lighting, the 
restoration  of  historical  places,  the  upgrading  of 
ports  and  the  acquisitions  of  new  fixed  assets. 
Consequently,  capital  spending  exceeded  the  EU 
average  in  the  past  five  years,  reaching  4.3%  of 
GDP in 2015, against 2.9 % in the EU. As a share 
of total government expenditure, public investment 
in  Malta  has  exceeded  the  EU  average,  reaching 
10.6 % in 2015, against 6.2 % in the EU (10).  

time, 

the  same 

the  share  of  public 
At 
expenditure devoted to current expenditure also 
increased.  The  average 
increase  of  current 
expenditure since Malta’s accession to the EU was 
higher (at 5.4 %) and even higher in the last three 
years  (at  6.1 %).  Also,  the  relative  share  of 
intermediate consumption and subsidies continued 
to  increase.  Nevertheless,  some  reductions  took 
place  in  some  categories,  as  the  allocation  of 
public  spending  to  social  protection  decreased 
substantially  (reflecting  also  the  counter-cyclical 
nature of such spending) together with the share of 
interest  expenditure.  A 
public  wages  and 
consideration  of  the  functional  classification  of 
expenditure, shows that social protection in Malta 
is among the lowest in the EU, at 13.7 % of GDP 
in 2014, and well below the EU average at 19.4 % 
of  GDP,  due  also  to  the  low  unemployment  rate. 
Wage bill reductions contributed to consolidation, 
despite 
that  general  government 
employment  levels  are  relatively  high,  exceeding 
the EU average and increasing at a faster rate (see 
Graph 3.1.2).  

fact 

the 

tertiary 

In  terms  of  public  expenditure  by  functional 
spending 
category,  education  and  health 
increased the most. Public education spending in 
Malta  is  high  relative  to  that  in  the  EU  (5.6 %  of 
GDP,  above  the  EU  average  of  5.0 %  of  GDP). 
is  partly 
Spending  on 
responsible  for  this  gap,  somewhat  at  odds  with 
demographic  trends.  In  particular,  student-teacher 
ratios  have  followed  a  decreasing  trend  and  are 
among the lowest in the EU at all education levels. 
In  addition,  higher  education  spending  has  been 
driven by a high wage bill. While the current level 
of public health spending in Malta is below the EU 

education 

(10)  The share of capital transfers was above the EU average in 
2013-2015. This was due also to capital injections into the 
national airline. 

13 

EU28BEBGCZDKDEEEIEELESFRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK10152025303510152025303520152009 
                                                           
 
3.1. Public finances and taxation 

royalties  payments 

interests  and 
(European 
Commission,  2016b),  vis-à-vis  third  countries  are 
features  of  the  tax  system  which  may  facilitate 
aggressive  tax  planning.  In  that  respect,  the  very 
high  level  of  inward  and  outward  foreign  direct 
investments (FDI) positions, the share of those FDI 
held  by  so-called 
'Special  Purpose  Entities' 
(SPE) (17),  but  also  the  high  level  of  dividends  or 
royalty  payments (18)  as  percentage  of  GDP 
suggest  that  the  country's  tax  rules  are  used  by 
companies that engage in aggressive tax planning. 
Within this context however, it is important to note 
that  corporate  tax  initiatives  (for  example  the 
amendment  to  the  Parent-Subsidiary  Directive  or 
the Anti-Tax Avoidance Directive) will strengthen 
Member  States'  anti-abuse  framework  and  boost 
the 
tax 
automatic  exchange  of  information  on  tax  rulings 
or on country-by-country reports). 

(for  example 

transparency 

through 

Malta  has  taken  steps  to  adjust  some  of  its  tax 
rules facilitating aggressive tax planning. In line 
with  Action  5  of  the  Base  Erosion  and  Profit 
Shifting project (see OECD, 2015) as endorsed by 
the Code of Conduct for Business Taxation, Malta 
took  measures  to  close  the  existing  patent  box 
regime. 

(17)  A special purpose entity is a legal entity that has little or no 
employment,  operations  or  physical  presence  in  the  tax 
jurisdiction  where  it  is  located.  It  is  related  to  another 
corporation often as a subsidiary, and is typically located in 
another tax jurisdiction. 

(18)  In  2015,  the  level  of  inward  and  outward  FDI  stock 
amounted respectively to 1646°% and 665°% of GDP. The 
share  of  inward  and  outward  FDI  stock  held  by  SPE 
amounted  respectively  to  96°%  and  98°%  of  GDP.  The 
flows of dividends paid (calculated as net income on FDI) 
amounted to 90°% of GDP. The royalties paid and received 
in 2015 amounted respectively to 2.8°% of GDP and 4.2°% 
of GDP. 

review  is  bringing  results  in  terms  of  short-term 
savings,  even  if  of  limited  amounts  at  first,  while 
contributing  towards  increased  effectiveness  in 
public spending. 

3.1.2.  TAXATION 

VAT tax compliance is improving in Malta, but 
some challenges remain. While the VAT gap (11) 
is  relatively  high  in  comparison  with  other  EU 
Member  States,  a  strong  revenue  performance 
helped  to  move  it  downwards  in  2014.  The  gap 
declined from 39 % of the total liability in 2013 to 
35 %  in  2014  due  to  a  10.3 %  increase  in  VAT 
revenues. 

tax  compliance  and  address 

A  number  of  relevant  measures  were  taken  to 
improve 
the 
shadow economy. A new Joint Enforcement Task 
Force to enhance tax compliance and to combat the 
shadow  economy  was  created  to  ensure  further 
cooperation  between  different  tax  administration 
departments  (Inland  Revenue,  VAT  and  Customs 
Departments,  with  the  participation  of  the  Tax 
Compliance  Unit)  and  to  facilitate  information 
them (12).  In 
sharing  among 
the  same  vein, 
property lease and renewal agreements will need to 
be registered with the Inland Revenue (13).  

Some  of  Malta's  tax  rules  may  be  used  in 
structures  of  aggressive  tax  planning (14) (15). 
The absence of certain anti-abuse rules (16) and the 
taxes  on  dividends, 
absence  of  withholding 

(11)  The  VAT  gap  represents  the  difference  between  the 
amount  of  VAT  actually  collected  and  the  amount  that  is 
theoretically collectable based on VAT legislation. 

(12)  Prioritising  control  and  more  frequent  spot  checks  on 
employers  recruiting  unregistered  workers,  owners  of 
rented  property  not  declaring  their  income  and  a  close 
monitoring of certain imported goods. 

(13)  Such  income  is  already  subject  to  a  reduced  income  tax 

rate of 15°%. 

(14)  For  an  overview  of  the  most  common  structures  of 
aggressive tax planning and the provisions (or lack thereof) 
necessary  for  these  structures  to  work,  see  Ramboll 
Management Consulting and Corit Advisory (2016), Study 
on  Structures  of  Aggressive  Tax  Planning  and  Indicators, 
European  Commission  Taxation  Paper  n°61.  It  should  be 
noted  that  country-specific  information  provided  in  the 
study gives the state of play by May/June 2015. 

(15)  Aggressive tax planning consists in taking advantage of the 
technicalities  of  a  tax  system  or  of  mismatches  between 
two  or  more  tax  systems  for  the  purpose  of  reducing  tax 
liability (see Commission Recommendation of 6 December 
2012 on aggressive tax planning (2012/772/EU)). 
(16)  For more details, see European Commission, 2016a. 

14 

 
                                                           
                                                           
3.1. Public finances and taxation 

Graph 3.1.3:  Charges for the use of intellectual property, 

Graph 3.1.4:  Components of total age-related expenditure 

2015 

Source: European Commission 

Source: European Commission, 2015 Ageing report 

Pension system 

3.1.3.  FISCAL SUSTAINABILITY 

Malta  faces  medium  sustainability  risks  in  the 
long term. With  government  debt below  the  euro 
area average and rapidly approaching the 60 % of 
GDP threshold, over the short term, Malta does not 
face significant fiscal risks. The same holds for the 
medium  term.  However,  Malta  appears  to  be  at 
medium  risk  in  the  long  term  due  to  a  relatively 
high  value  of 
long-term  fiscal 
the  required 
adjustment  (4.4  pps.  of  GDP)  needed  to  put  its 
debt on a sustainable path (European Commission, 
2015a).  The  projections  of  implicit  liabilities 
related  to  the  cost  of  ageing  reflect  the  long-term 
challenges  in  terms  of  an  ageing  population.  The 
steep increase in projected age-related expenditure 
is related to pension expenditure (3.2 pps. of GDP) 
but also healthcare and long-term care expenditure 
(respectively 2.1 pps. and 1.2 pps.).  

The  authorities  have  put  forward  several 
measures  to  address  challenges  posed  by  the 
pension  system.  Some  measures  were  introduced 
targeted  at 
the  2016  Budget, 
already  with 
addressing  sustainability  and  adequacy.  These 
measures  followed  the  proposals  of  the  Pension 
Strategy  Group  and  entered  into  force  in  March 
2016. A full assessment of the budgetary impact is 
still  missing,  but  initial  assessments  show  that 
measures  to  achieve  sustainability  are  not  yet  as 
ambitious  as 
term 
challenges. 

to  respond 

long 

the 

to 

adequacy 

indicators 

indicate 
Pension 
considerable  room 
improvement.  The 
for 
relative median income ratio of people aged 65+ at 
0.75  is  18  pps.  lower  than  the  EU-28  average  at 
0.93 (in 2015). The at risk of poverty rate of older 
people  at  21.0 %  stands  out  both  by  being  higher 
than for the rest of the population (15.3 %) and 6.9 
pps.  above  the  EU  average  at  14.1 %  (in  2015). 
The  percentage  of  women  without  pension 
entitlements  (the  gender  coverage  gap)  at  36.5  is 
one of the highest in the EU, where the average is 
at 6.8 (2014) (see Section 3.3).  

The  Government  has  responded  with  several 
measures 
improve  pension  adequacy, 
including  through  addressing  the  gender  gap. 
According  to  national  estimates,  the  measures 

to 

15 

0510152025IENLLUMTHUSEBECZSKHRCYFRPLSIROUKDKATBGESPTDEITEEELLVLT% of GDPCharges paidCharges received0510152025302013 MT2013 EU282060 MT2060 EU28% of GDPPensionsHealth careLong-term careEducationUnemployment benefits 
 
 
3.1. Public finances and taxation 

A significant part of private expenditure is out-of-
pocket  expenditure 
total  health 
expenditure in 2013, higher than the EU average of 
14.1 %),  which  has  increased  since  2003  (29 %) 
(European Commission, 2016d). 

(31.5 %  of 

Long-term care system 

The Maltese long-term care system does not yet 
meet  the  growing  demand,  although  numerous 
initiatives  are  being  undertaken  to  cater  for 
such a demand. At the end of 2014, the number of 
people in care homes financed by the government 
(both  public 
reached  3 147, 
and  private) 
complemented by private offer of 1 493 (European 
Commission,  2016e).  Despite  this,  long  waiting 
lists are reported (1 500 people at the end of 2015). 
As  a  result,  the  government  is  incentivising 
community-based  and  home  care,  which  are 
deemed  cost  saving  in  comparison  to  institutional 
or hospital care. A pilot project to co-finance 50 % 
of  the  professional  carer  salary  was  launched  in 
2016  and  100  people  from  the  waiting  list,  who 
employed a carer benefited from the scheme. As of 
2017,  according  to  the  2017  Budget  speech,  the 
scheme  will  be  extended  and  elderly  people  who 
live  at  home  and  who  are  on  the  waiting  list  for 
residential  care  will  receive  a  Carer  at  Home 
subsidy,  with  a  maximum  amount  of  5 200  euros 
per year.  

introduced 

government 

introduced in the 2017 Budget (19) could lower the 
poverty  risk  for  people  aged  62+  by  1.3  pps.  It 
could also improve the net replacement rate of the 
guaranteed  minimum  pension  by  almost  15  pps., 
up to 93.8 %. (20) In addition, in August 2016, the 
Maltese 
financial 
incentives  to  work  longer  in  the  private  sector. 
These financial incentives are expected to improve 
pension adequacy by increasing replacement rates. 
For  each  additional  year  that  the  retirement  is 
postponed beyond the current pensionable age the 
pension will be raised by between 5 % and 6.5 %. 
In  addition,  efforts  to  increase  female  labour 
market  participation  (see  Section  3.3)  through 
incentives  for  women,  including  revised  child-
bearing  credits,  are  likely  to  mitigate  current 
challenges. 

Healthcare system 

The  recent  reforms  implemented  in  Malta  are 
contributing  to  an  increasing  effectiveness  of 
the healthcare system. Recent policy actions such 
as  the  Health  Act,  the  Mental  Health  Act,  the 
completion  of  the  Health  Systems  Performance 
Assessment exercise, the National Health Systems 
Strategy, result in the strengthening of the national 
health  care  system.  This,  however,  has  been 
accompanied by an increase in total expenditure on 
health as a percentage of GDP over the last decade 
(from 8.1 % in 2003 to 9.8 % in 2014, according to 
World  Health  Organization  data),  slightly  below 
the EU average of 10.0 % in 2014.  

Private expenditure represents a relatively high 
share  of  total  health  expenditure.  In  2014, 
private  expenditure  in  Malta  was  31 %  of  total 
health expenditure, above the EU average of 23 %. 

(19)  A tax exemption on pension income of up to EUR 13 000 
per annum (plus an additional EUR 500 in 2017 and EUR 
1,000 in 2018 from other income) has been introduced for 
married  people  with  effect  from  2017  while  for  single 
persions  the  tax  exemption  on  pension  income.  will  be 
gradually  introduced  in  the  next  two  years.  In  the  latter 
case,  the  tax  exemption  will  be  on  pension  income  up  to 
EUR  10,500  in  2017,  while  in  2018  it  will  be  on  pension 
income  up  to  EUR13,000.      .  The  rate  of  the  minimum 
contributory  pension  for  married  persons  with  a  full 
contributory  period  will  be  raised  from  EUR  141.83  to 
EUR 147.58 (up by 3.9%) %). per week including the cost 
of 
the  Supplementary 
Allowance will also benefit mostly married pensioners with 
income not exceeding EUR 13,000 per annum. . 

increase.  A  reform  of 

living 

(20)  EU  peer-reviewed  effects  on 

the  sustainability  and 

adequacy of pensions are expected in early 2017. 

16 

 
                                                           
 
assets  consist  of  deposits  held  with  the  Maltese 
banks. In addition, 19 % of total investment assets 
of life insurance companies and 5% of the assets of 
non-life  providers  is  exposed  to  the  Maltese 
sovereign. 

In  the  banking  sector,  risks  to  profitability 
remain. At 6.4 % at Q2 of 2016, the ratio of bank 
non-performing  loans  is  close  to  the  average  of 
other  euro  area  countries.  Nevertheless, 
it 
constitutes  a  legacy  burden  for  the  core  domestic 
banks  in  view  of  the  high  associated  costs  of 
managing them and of limitations imposed by the 
small  size  of  the  economy.  Whereas  the  banks 
need  to  comply  with  the  five-year  targeting 
programme  with  respect  to  bad  assets,  strict 
legal 
and 
supervisory 
framework  should  assure  their  further  reduction. 
The 
the 
construction  sector,  which  is  a  legacy  from  the 
credit 
Protracted 
crisis 
developments  in  a  low  interest-rate  environment 
put an additional strain on profitability. 

largest  stock  of  NPLs  remains 

the  proper 

subdued 

actions 

period. 

in 

for 

Non-resident  deposits  could  pose  a  structural 
challenge 
liquidity  management.  Non-
resident  deposits  coming  from  Libya  have,  in 
recent  years,  increased  in  the  domestic  banks.  In 
some domestic banks they constituted a large share 
of new inflows. Although the total reliance of such 
deposits is still relatively low, it exposes the banks' 
funding  to  volatility  risk,  especially  in  case  of 
the 
intensified  geopolitical 
minimum  capital  and  liquidity  requirements  for 
these banks are already higher than for others, the 
situation  warrants  the  continued  attention  of  the 
supervisor. 

tensions.  Whereas 

3.2.  FINANCIAL SECTOR 

Financial services are one of the cornerstones of 
the  Maltese  economy.  They  accounted  for  6.7 % 
of  the  gross  value  added  in  2015,  higher  than  the 
euro  area  average  (4.9 %).  The  financial  services 
sector 
the  main  employers, 
accounting for 5.2 % of total employment in 2015, 
two times higher than in the euro area. 

is  also  one  of 

The  financial  system  is  characterised  by  a 
significant  number  of  foreign  institutions  also 
attracted  by  the  favourable  tax  environment. 
Malta  is  relatively  attractive  as  a  domicile  for 
foreign  financial  companies  for  various  reasons, 
including:  (i)  it  is  the  only  EU  Member  State 
utilising  the  full  imputation  system  of  company 
taxation  and  it  offers  a  refundable  tax  credit 
scheme, (ii) it has an extensive network of double 
taxation  treaties,  and  (iii)  it  has  an  attractive  tax 
residency status for individuals.  

The  supervision  of  the  internationally-oriented 
business,  however,  is  challenging.  The  financial 
sector  carries  out  most  of  its  activities  outside 
Malta. The ability of a relatively small supervisory 
authority to oversee a large system, in particular in 
the  insurance  sector (21)  but  also  in  banking  is 
under  pressure.  The  Malta  Financial  Services 
Authority,  in  consultation  with  the  ECB,  has 
recently  requested  the  withdrawal  of  the  banking 
license  of  a  small  internet  banking  provider  that 
collects  deposits  also  outside  Malta.  Even  if 
potential  weaknesses  in  internationally-oriented 
institutions  do  not  pose  direct  risks  for  domestic 
financial stability, the reputation of the jurisdiction 
could be put at risk.  

Linkages  point  to  a  potential  channel  of 
contagion  risk,  in  case  of  distress.  The  life 
insurance sector is dominated by two firms. One is 
a  subsidiary  of  a  core  domestic  bank,  while  the 
other is  majority owned by another core domestic 
bank. These insurance companies account for 97 % 
of  the  assets  of  the  life  insurance  sector  and  for 
97 %  of  the  total  gross  written  premium  by  the 
sector  operating  in  Malta.  Interconnectedness  is 
driven  by  ownership  but  also  by  operational 
processes  and  systems  (e.g.  banc-assurance  in  the 
life  insurance  sector).  An  additional  contagion 
channel  is  the  fact  that  over  10  %  of  insurers’ 

(21)  In  the  insurance  industry,  unlike  in  banking,  the  home 
supervisor remains solely responsible for the supervision of 
companies doing business abroad. 

17 

 
 
                                                           
 
 
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR SUPPLY 

Labour  market  participation  continues 
to 
improve. Malta is approaching its national Europe 
2020  target  employment  rate  of  70 %,  largely 
driven  by  increases  in  female  labour  market 
participation and employment. This is a result of a 
trend  (see  Graph  3.3.1) 
long-term  structural 
following  changes  in  the  societal  structure  and 
progress  in  female  educational  attainment.  The 
latter  have  been  reinforced  by  recent  make-work-
pay  policies  focused  on  activation  (including  the 
free  child  care  scheme,  tapering  of  benefits  when 
taking  up  a  job,  and  in-work  benefits,  see  Box 
3.3.1).  Impact  estimates  by  the  authorities  show 
that free childcare can be effective in facilitating a 
more rapid return to the labour market for mothers 
within  the  first  three  years  of  childbirth  (see  also 
European  Commission,  2015b  and  European 
Commission,  2016a).  Although  the  historically 
female 
impact  of  motherhood  on 
strong 
employment is fading over time, stakeholders still 
report  labour  market  obstacles  for  women  with 
young  children,  resulting  from  a  weak  work-life 
balance. (22) 

A  pronounced  gender  gap 
in  employment 
persists, mostly driven by low-skilled and older 
women. Notwithstanding significant improvement 
in  recent  years,  the  gender  employment  gap  (20-
64) is the largest in the EU and stood at 27.8 % in 
2015 (23).  While  employment  of  women  with 
medium  to  high  skills  attainment  exceeds  EU 
averages,  for  the  low-skilled employment  remains 
low (see Graph 3.3.2). Employment rates of older 
and  low-skilled  women  have  improved  notably  in 
recent  years,  but  they  remain  considerably  below 
the  EU  average  (see  section  on  Labour  and  skills 
shortages).  These  groups  make  up  a  substantial 
share  of  the  working  age  population  (respectively 
25 % and 17 % of age group 20-64) and could thus 
strengthen labour supply. The share of low-skilled 
single-earner  households 
these 
households  experience  a  higher  risk  of  poverty 
(see  Section  3.3.3).  In  addition,  low  female 
employment  restricts  women's  access  to  pension 
entitlements  (see  Section  3.1.3  and  European 

is  high  and 

(22)  Insufficient  flexible  working  arrangements  in  the  private 
sector,  parental  leave  design,  incompatibility  of  working 
hours with school opening, etc. 

(23)  Defined  as  a  gap  in  employment  rates  between  men  and 

women 

Commission,  2016a)  may  constrain 
progress in lower the poverty risk. 

further 

Graph 3.3.1:  Time trends in labour market participation 
rates of women by age group 

Source: European Commission 

Graph 3.3.2:  Female employment rates, 2015 

Source: European Commission 

3.3.2.  LABOUR AND SKILLS SHORTAGES 

There  are  increasing  signs  of  tightening  in  the 
labour  market.  In  2016,  almost  one  fourth  of  all 
companies in the industry sector report that the low 
availability of labour is constraining their business. 
This is one of the highest shares in the EU, and it 
has  increased  significantly  in  recent  years.  At  the 
same time, the number of new job openings is high 

18 

010203040506070809015-2425-2930-3435-3940-4445-4950-5455-642000200520102015010203040506070809010025-3030-3435-3940-4445-4950-5455-5960-64EU28 low-skilledEU28 medium-skilledEU28 high-skilledMT low-skilledMT medium-skilledMT high-skilled 
 
                                                           
 
 
 
3.3. Labour market, education and social policies 

(the vacancy rate was 3.1 % in the first quarter of 
2016 the highest in the EU). (24) 

Graph 3.3.3:  Labour shortages as reported by the industry, 
services and construction sectors 

who  are  currently  inactive  and  would  like  to 
reintegrate  into  the  labour  market.  The  challenge 
of  (re)activating  is  exacerbated  by  the  strong 
gender,  skills  and  age  bias  in  the  composition  of 
the  unemployed  population:  36 %  of  all  the 
unemployed  in  the  age  group  20-64  are  women, 
22 %  are  above  50  and  72 %  have  no  upper 
secondary school qualification. 

Employers  are  increasingly  relying  on  foreign 
labour  to  address  labour  and  skill  shortages. 
The  share  of  foreign  workers  rose  from  1.3 %  in 
2000  to  14.7 %  in  2015. (26)  The  share  of  EU 
citizens  in  particular  surged  (see  Graph  3.3.4). 
While in the past most of the foreign labour force 
was  employed  in  high-skilled  jobs,  an  increasing 
share  of  foreigners  are  now  taking  up  low-skilled 
jobs, pMalta is registering an increase in the share 
of  foreign  workers  across  all  skill  levels.  An 
increasing  share  of  foreigners  are  now  taking  up 
low-skilled jobs, pointing towards labour shortages 
across abroad skills spectrum. In 2014, the share of 
EU  foreign  workers  in  elementary  jobs  stood  at 
9 %,  while  the  share  of  non-EU  nationals  in 
at  33 % (27).  The 
elementary 
government  took  actions  to  support  the  labour 
market  inclusion  of  low-skilled  non-EU  nationals 
through  tackling  irregular  forms  of  employment 
and precarious work conditions and facilitating the 
validation  of  qualifications 
in  childcare  and 
construction. 

stood 

jobs 

(26)  Based  on  data  from  the  Employment  and  Training 
Corporation.  In  the  regular  Labour  Force  Survey  of  the 
same  year  however, 
to  be 
the 
underestimated. 

figures 

appear 

(27)  Elementary  jobs  comprise  simple  and  routine  tasks, 
tools  and  some  physical  effort. 
requiring  hand-held 
http://www.ilo.org/public/english/bureau/stat/isco/isco88/9.
htm  

* 2016 average includes data until Q3 
Source: European Business Surveys 

Qualitative evidence points to skills shortages in 
many occupations. Particularly affected are high-
skilled jobs in sectors such as healthcare, finance, 
and ICT. Shortages of skilled professionals reflect 
also  the  still-low  share  of  tertiary  level  graduates 
(one of the lowest in the EU). In addition, unfilled 
vacancies  are  reported  in  the  hospitality,  tourism 
and social work sector. This might be partly due to 
relatively 
conditions, 
unattractive  working 
including wages and working hours (see European 
Commission,  2016a).  The 
recent  National 
Employee  Skills  Survey (25)  stresses  the  main 
difficulties in filling vacancies for clerical support 
workers,  professionals  and  service  and  sales 
workers.  Foreign  companies  also  identify  skills 
shortages  as  obstacles  to  expansion  (Ernst  & 
Young, 2016). 

to 

The  government  is  taking  measures  to  address 
growing  labour  shortages.  Efforts  are  being 
undertaken 
education, 
including by reducing dropouts (see Section 3.3.4) 
and  on  the  upskilling  and  reskilling  systems  for 
adults.  This  is  expected  to  help  the  unemployed 
find  a  job  more  easily,  but  also  to  support  those 

strengthen 

initial 

(24)  See Eurostat variable jvs_q_nace2 
(25)  National Employee Skills Survey 2016, joint project of the 
National  Commission  for  Further  and  Higher  Education, 
Malta Enterprice and Jobsplus 

19 

0.05.010.015.020.025.030.020132016*20132016*20132016*IndustryServicesConstructionEU28MT 
 
                                                           
                                                           
3.3. Labour market, education and social policies 

Graph 3.3.4:  Foreign employment, by occupational level 

Graph 3.3.5:  At-risk-of-poverty-and-social-exclusion rate, 

different groups 

ILO classification of occupations: ISCO 1-3 high skilled; ISCO 
4-8 medium-skilled; ISCO 9 low skilled. 
TCN - Third country nationals 
EEA – European Economic Area 
EFTA – European Free Trade Association 
Source: National data - Jobsplus 

3.3.3.  SOCIAL POLICY  

low-skilled  parents, 

The overall risk of poverty and social exclusion 
decreased in 2015, but remains high for elderly, 
low-skilled  and  people  with 
children,  the 
disabilities.  Monetary  poverty  for  people  over  65 
years  continued  to  increase  in  2015  for  both  men 
and women (see also Section 3.1.3). Child poverty, 
despite an overall decline in 2015, has increased in 
single-earner  households (28)  while  for  children 
with 
this  has  decreased. 
Poverty  and  social  exclusion  risks  of  the  low-
skilled,  where  there  is  a  high  concentration  of 
single-earner  households,  have  also 
increased 
steadily  in  recent  years.  The  low-skilled  are  three 
times more likely to face in-work poverty than the 
medium-skilled. (29)  In  addition,  Malta  has  one  of 
the  lowest  employment  rates  of  people  with 
disabilities  in  the  EU,  with  only  28.2 %  in  2014 
(against  EU  average  of  48.7 %).  Although 
educational  attainment  among  people  with 
disabilities  is  increasing,  the  majority  are  low-
skilled. 

(28)  Households with medium work intensity (0.45<WI<=0.55) 
(29)  In-work  poverty:  10.2 % 
those  with  education 
attainment ISCED 0-2, 2.7 % for ISCED 3-4 and 0.6 % for 
ISCED 5-8 

for 

Source: European Commission 

Social  transfers  remain  important  to  reduce 
poverty. The impact of social transfers was below 
the  EU  average  in  2015  but  recent  reforms  are 
likely  to  improve  it.  The  adequacy  of  income 
support  for  the  working  age  population  with  the 
lowest  incomes  and  for  minimum  income  earners 
in  particular  remains  above  the  EU  average. 
Nevertheless,  given  the  rise  in  labour  earnings  at 
the higher-end of the income spectrum, the relative 
adequacy  of  minimum  income (30)  and  other  out-
of-work benefits slightly declined in recent years.  

for 

include 

current 

support, 

a  new  proposal 

Malta  is  placing  emphasis  on  raising  active 
inclusion  and  addressing 
social 
challenges.  Policy  actions,  extended  under  the 
2017  Budget, 
the  making-work-pay 
package  (see  European  Commission,  2016a), 
housing 
a 
comprehensive  national  child  policy,  efforts  to 
upgrade  skills  levels  of  the  population  and  recent 
measures 
improve  pension  adequacy  (see 
Section  3.1.3).  Efforts  to  invest  in  child  care  are 
bearing fruit, but uneven geographical coverage of 
child  care  facilities  and  lack  of  outreach  notably 
for children from low socio-economic background 
remains an issue. The progress in upgrading skills 
levels  will  further  contribute  to  improving  social 
the 
outcomes, 
poverty. 
intergenerational 

in  particular  by  preventing 

transmission 

of 

to 

(30)  The  adequacy  of  MI  support  measured  relative  to  the 
poverty line set at 60% of the national median equivalised 
disposable income. 

20 

02,0004,0006,0008,00010,00012,00014,00016,00018,000EU,EEA,EFTATCNEU,EEA,EFTATCNEU,EEA,EFTATCN000714Low-skilledMedium-skilledHigh-skilled051015202530350506070809101112131415% of populationChildren (<18y)Working age (18-64)Elderly (65+)Low-skilled (18-64) 
 
                                                           
 
                                                           
3.3. Labour market, education and social policies 

extending  opportunities  for  a  ‘second-chance 
education’. The ‘Alternative Learning Programme’ 
and  other  preventive  and  compensatory  measures 
aim at addressing early school leaving . The 2014 
Early  School  Leaving  Strategy  is  under  revision 
focusing on new vulnerable groups. Moreover, the 
updated Youth Guarantee Scheme targets potential 
school dropouts through a combined programme of 
mentoring  and  traineeships.  All  of  these  policy 
measures are welcome.  

Despite  significant  progress,  the  qualification 
level  of  adults  remains  low.  The  share  of  low-
qualified adults is the highest in the EU - 56.5 % in 
2015  (25-64).  Only  about  20 %  of  adults  have 
tertiary  education  attainment  and  22.7 %  are 
medium  skilled.  In  addition,  the  share  of  low-
qualified youth (25-34) is among the highest in the 
EU  (37.1 %  vs.  16.6 %),  which  is  driven  by  the 
high rate of early school leavers. In comparison to 
the  native  population,  the  foreign-born  population 
has  on  average  a  higher  level  of  skills.  In  2015, 
45.7 %  of  foreigners  living  in  Malta  were  low-
skilled  (ISCED  0-2)  and  31.3 %  had  tertiary 
education  (ISCED  levels  5-8),  compared  with 
57.4 %  and  18.5 %  of  the  native  population, 
respectively.  As  a  result,  they  are  able  to  take  up 
higher-skilled jobs, thus filling skill shortages.  

Graph 3.3.6:  Population distribution by educational 

attainment and country of birth 

Source: European Commission 

is 

expected 

Moreover,  the  increasing  availability  of  care 
services and financial support to home care for the 
elderly 
family 
responsibilities  of  women.  In  addition,  a  special 
policy focus is directed to people with disabilities 
(see  European  Commission,  2016a)  to  improve 
their employment and social status. 

ease 

the 

to 

3.3.4.  EDUCATION AND SKILLS 

in 

the  OECD  Programme 

Despite  significant  investment  in  the  education 
system,  basic  skills  attainment  among  young 
people  remains  weak.  The  performance  of  15-
year  olds 
for 
International  Student  Assessment  (PISA)  2015 
tests  remained  below  the  EU  average,  despite  an 
improvement  on  2009  levels. (31)  However,  since 
performance also worsened in most EU countries, 
the gap with the EU average shrank in reading and 
science. Socio-economic status is found to strongly 
influence  student  performance  (OECD,  2016; 
European  Commission,  2016a).  Performance  is 
also  clearly  related  to  the  type  of  school,  with 
students 
‘independent’ 
performing the best. They are followed by Church 
school pupils and then State school pupils. Another 
2015  international  survey  on  13-14-year  olds  - 
Trends  in  International  Mathematics  and  Science 
Study 
findings 
-  confirmed 
(Ministry  for  Education  and  Employment,  2016). 
This may suggest a persistent fragmentation of the 
education  system  and  a  lack  of  inclusiveness  of 
vulnerable  children,  in  particular  from  poorer  and 
low-skilled families.  

(i.e.  private) 

(TIMSS) 

school 

these 

Drop-out  rates  from  the  education  system 
remain  high.  The  early  school  leaving  rate  has 
fallen significantly in recent years, from 27.2 % in 
2008  to  19.8 %  in  2015.  However,  this  remains 
one  of  the  highest  in  the  EU.  The  gender  gap  is 
more  than  double  the  EU  average.  Moreover, 
activation  for  early-school 
leavers  remains  a 
challenge  and  translates  into  a  high  share  of 
in 
inactive  young  people  who  are  neither 
training. 
employment  nor 
Subsequently,  leading  to  high  inactivity  rates 
among 
on 
skills  programmes  and 
strengthening  basic 

in  education  or 

adults.  Policy 

actions 

focus 

(31)  Compared to 2009, performance  significantly improved in 
maths  while  it  remained  broadly  stable  in  reading  and 
science. 

21 

0%10%20%30%40%50%60%70%80%90%100%EU-28Extra-EU-28MTlow-skilledmedium-skilledhigh-skilled 
                                                           
 
 
3.3. Labour market, education and social policies 

22 

 Box 3.3.1: Selected highlights  making-work-pay measuresThe package of making work pay measures has been implemented since 2014. It is targeting mainly women to address the challenge of low participation, which was a subject of country-specific recommendations in 2012, 2013 and 2014. In these years, Malta registered one of the lowest employment rates of women and the highest gender employment gap in the EU. The make-work-pay policies focus on facilitating (re)entry into the labour market, and reinforcing changes in the societal structure and progress in women's educational attainment.  The free childcare scheme: Introduced in April 2014 the scheme aims to exploit the full potential of each household member whilst finding an adequate work-life balance. Free childcare services for children aged 0-3 years old are delivered for families where both parents are in employment, in education or actively seeking a job. Free childcare is also provided to single-parent households given that the same conditions (employment, education) are met. In addition, tax deductions for parents choosing to send their children to private childcare were introduced. A gradual tapering of benefits for those entering into employment: retaining 65% of a benefit in the first year of employment and 45% and 25% in the following years, aiming at limiting dependency on social benefits and providing more security while (re)entering the labour market. In-work benefits: introduced in 2015 to address inactivity traps and to improve the situation of low-income households, targeting low-to-medium income families where both spouses (or single parents) are in employment and have dependent children up to 23 years of age. The scheme was further extended, under the 2016 Budget, to one-earner households, however with a much smaller yearly benefit. The in-work benefit is calculated on net income and does not result in a reduction of any other benefit that a family is entitled to, such as Children’s Allowance.  The success of the package can be attributed to both, the effective targeting and the comprehensiveness of the package which consists of several interconnected policy measures. The total budgetary cost of the package is rather limited, amounting to around 0.06% of GDP in 2014 and 2015 each. According to national estimations, the three reforms have encouraged 2,032 persons to engage in employment by the end of 2015, relative to 2013, leading to: (i) a 0.07 pps. increase in the employment rate; (ii) a 0.40 pps. decline in the unemployment rate; and (iii) a 0.63% increase in real GDP       Table 1:Labour market indicatorsMaltaEUMaltaEUEmployment rate (20-64 years old)   1. Female49.862.653.664.3   2. Male79.474.381.475.9   3. Gender employment gap (2-1)29.611.727.811.64. Unemployment rate6.410.95.49.4Source: European Commission20132015 
 
 
 
 
 
3.3. Labour market, education and social policies 

related 

legislative 

developments 

formal  and  informal  learning  and  a  skills 
forecasting  and  anticipation  system.  In  addition 
to significant institutional changes, there have been 
to 
major 
validation  of  informal  and  non-formal  learning, 
such  as  the  set-up  of  a  Sector  Skills  Council  and 
Sector  Skills  Units.  Moreover,  skills  profiling  is 
introduced  as  one  of  the  assessment  steps  for 
unemployed  people  at  the  JobsPlus.  The  skills 
forecasting  and  anticipation  system  has  not  yet 
been  consolidated,  but  Malta  is  currently  working 
with the European Centre for the Development of 
Vocational  Training  -  Cedefop  on  developing  a 
suitable skills forecasting model, including through 
a  comprehensive  skills  anticipation  review. In  the 
meantime, a number of surveys were conducted by 
different institutions to form the basis of any future 
framework.  In  2016  the  National  Commission  for 
Further  and  Higher  Education,  in  collaboration 
with JobsPlus and Malta Enterprise, conducted an 
employee  skills  survey  looking  at  the  current  and 
future supply and demand for workers in different 
sectors  (see  Section  3.3.2).  In  addition, 
the 
National  Skills  Council  was  set  up  in  December 
2016. 

The  provision  of  skills  does  not  adequately 
match  those  demanded  by  the  labour  market. 
The  economy  is  registering  a  high  growth  in  ICT 
services,  but  the  share  of  graduates  in  Science, 
Technology and Mathematics is still lower than the 
EU  average  —  1.5 %  compared  to  1.8 %.  While 
ICT  specialists  represent  a  relatively  high  and 
increasing share of the workforce (4.6 % compared 
to  3.7 %  in  the  EU),  only  52 %  of  the  population 
had at least basic digital skills (EU average 55 %) 
in 2015. In addition to the gap in professional and 
technical  skills,  employers  stress  the  weakness  in 
soft/transversal  skills,  such  as  communication, 
English  language,  team  work,  problem-solving, 
customer handling, etc. (National Employee Skills 
Survey, 2016). 

to 

ones 

lifelong 

remains 

Although  the  government  is  enabling  access  to 
lifelong  learning  and  second-chance  education 
programmes, 
low. 
participation 
Overall,  the  low  participation  rate  in  further 
education and training is mainly driven by the very 
low  attendance  of  the  low-skilled.  Older  cohorts 
are  also  characterised  by  lower  participation  in 
(European 
younger 
comparison 
Commission, 2016a). At all ages, the participation 
of  women  is  slightly  higher  than  that  of  men. 
Education  and 
learning  systems  are 
strengthened  through  the  implementation  of  the 
Lifelong Learning Strategy. Efforts to improve the 
Vocational  Education  and  Training  system  are 
strengthening  work-based 
complemented  by 
employers. 
learning 
Vocational  subjects  introduced  in  the  national 
curriculum of secondary schools are now accepted 
to  fulfil  the  criteria  to  start  a  post-secondary 
course. (32)  The  offer  and 
the  quality  of 
are 
and 
apprenticeships 
improving. (33)  Moreover,  a  harmonised 
legal 
framework 
the 
and 
‘Workbased  Learning 
Apprenticeship  Act’  is  being  finalised,  and  it  will 
for  Work-Placements 
provide  a 
Apprenticeships.  In  addition,  JobsPlus  offers 
trainings  for  upgrading  job-related  skills  for  both 
the unemployed and employees. 

partnership  with 

traineeships 

framework 

and 

Malta  makes  particular  efforts  in  building  a 
national  framework  for  the  validation  of  non-

(32)  Agribusiness,  engineering/technology,  health/social  care, 

hospitality and ITC 

(33)  MCAST  developed  partnerships  with  almost  900 
companies to organise work-based programmes and almost 
500 of them are currently engaged in sponsorships. 

23 

 
                                                           
 
3.4. INVESTMENT 

3.4.1.  INVESTMENT OVERVIEW 

the  main  contributor 

Investment  was 
to 
economic  growth  in  2015. Following  a period  of 
moderating  shares  of  investment  relative  to  GDP, 
there has been a spectacular increase in 2104-2015. 
In particular, gross fixed capital formation (GFCF) 
surged  by  a  record-high  52 %  year-on-year  in 
2015.  While  investment  in  the  EU  has  not 
recovered  pre-crisis  levels,  GFCF  in  Malta  is 
currently  well  above  its  2007  peak.  Taking  into 
account  the  structure  of  the  domestic  economy, 
investment has generally been more dynamic than 
in  other EU  economies  with  similar  specialisation 
into business  and  recreational  services  (see Graph 
3.4.1). Available data for 2016 already points to a 
slowdown as the peak has passed and investment is 
starting to decrease. 

Graph 3.4.1:  Investment dynamics in selected Member 

States 

also saw the introduction of very capital-intensive 
activity in the transport sector. (34) While the latter 
leads to a higher investment ratio, the phenomenon 
is  rather  specific  to  this  particular  sector.  The 
capital intensity (35) of the rest of the economy has 
remained broadly unchanged. 

the 

brought 

have 
of 

about 
components 

a 
years 
Recent 
rearrangement 
of 
investment.  Residential  construction  investment 
has  shrunk  considerably  since  its  peak  in  2007. 
Despite  a  modest  improvement  in  2015,  it  has 
become  among  the  least  dynamic  components  of 
investment.  It  was  gradually  replaced  by  non-
residential  construction  and  metal  products  and 
machinery, notwithstanding the temporary spike in 
the  latter  (see  above).  Investment  in  transport 
equipment  also  appears  to  have  become  a  major 
component,  reflecting  recent  developments  (see 
above).  While 
investment 
remains relatively low, reflecting still limited R&D 
expenditure 
section  on  Research  and 
Development). 

improving,  other 

(see 

Graph 3.4.2:  Main components of investment in Malta 

EU-5: Ireland, Cyprus, Luxembourg, Netherlands, UK 
Source: European Commission 

The recent investment surge reflected both one-
off and structural sector-specific factors. Public 
investment  surged  reflecting  the  conclusion  of 
projects financed under the 2007-2013 EU Budget 
framework.  A  number  of  large  projects  in  the 
energy  sector  boosted  investment  in  2014-2015 
(See  European  Commission,  2016a).  With  the 
latter nearing completion, their temporary boost to 
investment  should  dissipate.  The  new,  more 
efficient  capital  stock  put  in  place,  however, 
should  contribute  to  more  vigorous  economic 
activity,  provided  that  the  efficiency  gains  trickle 
down to the rest of the economy. Meanwhile, 2015 

Source: European Commission 

Infrastructure 
still  poses 
across  Malta 
considerable  challenges.  The  situation  varies 
considerably  across  areas.  Malta  ranks  25th  of  the 
world  in  the  2016-2017  Global  Competitiveness 
report  in  port  infrastructures  and  26th  in  air 

(34)  A  large  aircraft  leasing  company  relocated  to  Malta  in 

2015. 

(35)  The  ratio  of  gross  fixed  capital  investment  to  gross  value 

added. 

24 

151719212325270001020304050607080910111213141516f17f18f% of GDPMTEU-5012345678910040506070809101112131415% of GDPResidential constructionNon-residential constructionMetal products and machineryTransport equipmentOther 
 
 
 
                                                           
3.4. Investment 

particular, the average of issued permits over 2016 
has  recovered  to  its  2009  levels.  The  volume  of 
property  transactions  was  also  very  dynamic  in 
2014 and 2015. The results of the survey of factors 
limiting 
these 
developments. The share of companies that did not 
indicate  any  constraining  factors  has  increased 
notably since 2014. 

construction 

reflect 

also 

Graph 3.4.3:  Construction sector indicators 

Source: European Commission, Central Bank of Malta, 
National Statistical Office 

The  housing  market 
is  currently  close  to 
balance  currently,  but  the  ongoing  trends  may 
lead  to  upward  pressure  on  prices.  Current 
estimates  show  that  the  excessive  price  growth 
prior  to  2008  has  corrected  and  there  does  not 
appear  to  be  overvaluation  of  house  prices  (see 
Graph  3.4.4  and  Central  Bank  of  Malta,  2016e). 
This  also  reflects  the  strong  income  growth  in 
recent years. The current policy stance is assessed 
as  appropriate  (ESRB,  2016).  Nevertheless,  while 
housing demand appears to be growing at a steady 
pace,  income  growth  is  projected  to  slow  down. 
The main risks are faced by households, in view of 
their increasing ratio of debt to income and a high 
debt  service  ratio,  and  by  banks,  in  case  of  a 
sudden drop in the value of their collateral.  

Investment 

infrastructures. 

has 
increased 
infrastructures  with 

transport  infrastructures  but  only  100th  in  road 
transport 
in 
considerably, 
infrastructures 
important 
especially  road 
singular  investment  projects  such  as  the  Kappara 
Junction  project  started  in  2016.  Despite  some 
fluctuations,  the  number  of  projects  increased  by 
139.8 % between 2008 and 2014. Labour and skill 
shortages  are  particularly 
this 
segment,  given  that  it  employs  the  majority  of 
workers  in  the  construction  sector  (89 %  in  2013, 
European Commission, 2016i).  

important  for 

3.4.2.  CONSTRUCTION AND HOUSING MARKET 

The  housing  market  faces  a  range  of  supply 
constraints.  Construction  is  naturally  limited  by 
the  availability  of  development  zones  on  the 
islands. (36)  Real  estate  development  should  also 
be  seen  in  a  broader  policy  context,  taking  into 
account  also  environmental  and  transport  aspects 
(see  section  Sectoral  Policies).  Apart  from  this 
structural  constraint,  external  financing  is  limited 
due  to  tighter  lending  standards  by  banks.  Skills 
and labour shortages in the construction sector are 
emerging  as  a  major  problem  despite  the  increase 
in  engineering  and  architecture  students  in  recent 
labour  market 
years,  reflecting  also  growing 
tightness.  Time  and  costs  of  obtaining  building 
permits  and  licenses  pose  additional  barriers  to 
construction. 

At  the  same  time,  the  demand  for  housing 
remains strong. Population growth has picked up 
since 2012, reflecting strong net immigration. The 
steady upward trend of mortgage loans points to a 
sustained  demand  for  housing.  The  share  of  buy-
to-let  purchases  is  also  on  the  rise.  Housing 
demand has also been encouraged by fiscal policy, 
such as incentives for first-time buyers, schemes to 
attract  high  net-worth  individuals  as  well  as  the 
citizenship programme. 

Notwithstanding  the  constraints,  recent  trends 
point  to  a  rebound  in  supply.  Despite  the 
burdensome  procedures,  building  permits  have 
been  on  a  rapid  recovery  path  since  2014.  In 

(36)  In  addition,  there  is  a  significant  number  of  vacant 
properties. Not all of them, however, can be considered to 
be  on  the  market.  The  authorities  are  introducing  fiscal 
incentives  for  the  restoration  of  dwellings  in  urban 
conservation areas. 

25 

05010015020025030006q106q307q107q308q108q309q109q310q110q311q111q312q112q313q113q314q114q315q115q316q116q3Loans for construction + RE activitiesLoans for housing purchaseBuilding permimts, useful areaProperty transactions 
                                                           
 
3.4. Investment 

Graph 3.4.4:  Housing price overvaluation gap with respect 

to main supply and demand fundamentals 

collaborating  with  a  university  or  public  research 
centre. 

Graph 3.4.5:  Number of public-private co-publications per 

million population 

A Vector Error Correction Model has been estimated for a 
panel of 21 EU countries, using a system of five fundamental 
variables; the relative house price, total population, real 
housing investment, real disposable income per capita and 
real long-term interest rate. A country-specific estimation on 
top of the panel estimates is conducted whenever the time 
series allow for a sound econometric analysis, leading to a 
valuation gap calculated as a simple average of the 
individual and the panel estimate. 
Source: European Commission 

3.4.3.  RESEARCH AND DEVELOPMENT 

leading 

Important  steps  have  been  taken  to  strengthen 
the research and innovation (R&I) system. R&I 
performance has improved, leading to a narrowing 
of  the  innovation  gap  with  the  EU  average,  as 
measured by  the  European  Innovation  Scoreboard 
(EIS) (37).  R&D  investment,  in  particular  by  the 
public  sector,  has  grown  considerably  in  recent 
scientific 
years 
output. (38) 
R&D 
investment,  both  public  and  private,  remains  low, 
the  quality  of  scientific  and  technological  output, 
and  the  availability  of  researchers  underperform 
the  EU  average.  Finally,  some  other  challenges 
remain, in particular in areas where progress until 
now  has  been  limited  like  in  science-business 
linkages  (see  figure  3)  or  the  share  of  enterprises 

higher-quality 
notwithstanding, 

This 

to 

(37)  http://ec.europa.eu/DocsRoom/documents/17848.  Malta  is 

classified into the "moderate innovator" group. 

(38)  Scientific  quality  is  measured  as  a  percentage  of  total 
scientific publications of the country within the 10% most 
cited  scientific  publications  worldwide.  It  increased  from 
4.2 % in 2000 to 7.9 % in 2013.  

Source: European Commission  

that 

the  Maltese 
The  structural  changes 
require  more 
undergoing 
is 
economy 
investment  in  knowledge  and  intangible  assets 
to  sustain  productivity  growth  in  the  future. 
However,  Malta  has  one  of  the  lowest  levels  of 
Business  Expenditure  in  R&D  in  the  EU,  at  just 
0.5 % of GDP in 2014. In addition, venture capital 
markets are underdeveloped and the ease of doing 
business in Malta, as measured by the World Bank, 
is one of the lowest in the EU. The key policies in 
this  respect  are  the  Smart  Specialisation  Strategy 
and  the  alignment  of  the  National  R&I  Strategy, 
which  are  in  the  process  of  implementation.  This 
includes  the  mobilisation  of  additional  financing 
for research towards the seven key areas identified 
under  the  Smart  Specialisation  Strategy.  Timely 
and  efficient  implementation  would  contribute  to 
building the R&I eco-system in Malta. 

3.4.4.  ACCESS TO FINANCE 

Favourable  economic  conditions  contribute  to 
favourable  financing  conditions.  According  to 
the  Survey  of  Access  to  Finance  of  Enterprises 
(SAFE),  a  quarter  of  the  polled  firms  recognise 
that  the  availability  of  external  financing  has 
improved  owing  to  improving  macroeconomic 
conditions.  This  ratio  is  about  a  third  higher  than 

26 

-30-20-10010203040000306091215050100150200250USKRJPEUCNDKSENLFIBESIATDEUKLUFRIEHUITESCZHRELSKPTCYEEPLROMTBGLTLVCHISNOILTR20142009 
 
                                                           
 
3.4. Investment 

the  Development  Bank  will  ensure  the  efficient 
transfer  of  the  funds  to  the  potential  recipient 
businesses,  while  also  avoiding  crowding  out 
private  initiatives.  It  is  also  crucial  that  efficient 
and  arms-length  risk  management  is  ensured  to 
avoid  piling  up  bad  assets  on  the  government's 
balance sheet. 

The  authorities  have  also  made  a  diversified 
range  of  alternative  mechanisms  of  financing 
available.  They  aim  to  foster  investment  (soft 
loans,  rent  and 
loan 
interest  rate  subsidies, 
the 
guarantees),  SMEs  and  SME  growth, 
upgrading of the qualifications of personnel, R&D 
and  start-up  firms  (Business  Start  and  Start-up 
Finance).  In  addition,  Malta  has  signed  three 
financial  instruments  worth  EUR  32  million  with 
the  European  Investment  Bank (40)  during  2016. 
These  horizontal  measures  may  be  complemented 
by  new  sectoral  measures 
that  have  been 
announced  in  the  2017  budget  aiming  at  specific 
activities  such  as  hospitality  services.  However, 
this year's SAFE survey shows a sharp increase in 
the 
the 
administrative  difficulties  found  when  trying  to 
to  public  support  measures  for 
have  access 
financing  (over 
times  higher 
compared to 2015). 

importance  attached  by  business 

two  and  half 

to 

(40)  Innovfin  Large:  20  millions  euros  loans  guaranteed;  SME 
Initiative  supports  Banif  Bank  to  provide  around   €6 
million of new loans to SMEs in Malta, over the next two 
years; and SME Guarantee: 6 million euros of guarantee on 
loans for innovative SMEs in Malta approved through APS 
Bank. 

the average for the EU. The financing structure of 
businesses  remains  based  mainly  on  bank  credit 
and  72 %  of  firms  indicate  preference  for  bank 
financing  if  external  funding  is  needed.  The 
positive  financing  conditions  make  firms  highly 
confident  that  they  will  get  bank  credit:  84 %  of 
Maltese  businesses  are  confident  that  their  banks 
would  provide  the  financing  they  need  if  they 
approached  them.  This  compares  very  positively 
with the EU average 67 %.  

reflects  market 

Nevertheless,  the  authorities  have  identified 
market  failures  in  bank  lending  that  obstruct 
firms'  access  to  financing.  Estimates  by  the 
Central Bank of Malta point to a credit gap (39) of 
15 %-18 % of the credit stock in Q3 2014 (Central 
Bank  of  Malta,  2016c).  The  credit  gap  has  been 
projected  to  continue  growing  -  a  view  that  is 
corroborated by the subdued lending developments 
in  2015-2016.  This 
failures 
stemming out of high concentration in the banking 
sector  and  asymmetric  information  available  to 
market participants (Central Bank of Malta, 2015). 
The  apparent  under-provisioning  of  credit, 
however,  reflects  also  interplay  of  demand  and 
supply  factors.  Despite 
the  relatively  stable 
financial stability indicators, lending standards are 
tight  on  account  of  stricter  regulatory  and 
collateral  requirements  as  well  as  tough  risk 
assessment. High corporate indebtedness generally 
reduces firms' credit worthiness and companies are 
showing 
internally-
generated funds. 

reliance  on 

increasing 

The Malta Development Bank is being set up to 
address  these  failures.  This  new,  fully  state-
owned  credit  institution  is  expected  to  have  an 
authorised  capital  of  100  million  euro  within  five 
years that could go up to 200 million (of which 30 
million  euro  will  be  the  initial  paid  up  capital). 
Credit activity is to  target  SMEs, who  are usually 
most  affected  by  the  market  failures.  In  addition, 
25 % of the value of operations will be invested in 
infrastructure  projects  either  co-financed  with 
private  investors  or  under  Market  Equivalent 
Operator conditions. The new bank could increase 
the  supply  of  public  financial  support  by  800 
million  to  one  billion  euro  in  the  form  of  loans, 
equity support or guarantees. At this stage, there is 
little  public  information  available  on  how  exactly 

(39)  The  difference  between  the  actual  loans  to  non-financial 

corporations and the predicted level. 

27 

 
                                                           
                                                           
 
3.4. Investment 

28 

 Box 3.4.1: Investment Box - MaltaSection 1. Macroeconomic perspective  Investment has been strong, following period of stagnation. The economy entered into a strong investment cycle in 2014 on the back of both the private sector and the government. Although the business sector remains the main driver of investment, public sector capital spending has contributed to the increase in investment in the last two years reflecting the finalisation of projects funded by the 2007-2013 EU financial framework. For more information on the investment trends, refer to Section 3.4.  Section 2. Assessment of barriers to investment and ongoing reforms      Barriers to private investment in Malta are reflected in the European Commission's assessment of investment environments (1). Some reforms have been adopted or are in the pipeline, in particular in the areas of the judicial system and skills mismatches, but some barriers remain to be addressed. Main barriers to investment and priority actions underway  Regulatory and administrative burden hampers the business investment. Simplified procedures have been introduced with a view to tackle the administrative hurdles in the creation and registration of firms, getting electricity and obtaining construction licenses. As regards the judicial system, new measures on second chance and insolvency have been proposed by the government. (see Section 3.6).  Skill shortages across a wide spectrum of sectors weigh on investment. There are increasing signals of tightness in the labour market, constraining firms' expansion plans and growth prospects. Increasing reliance on foreign labour to some extent helps to ease the impact of this challenge (see Section 3.3).   The insufficient capacity to innovate continues to hamper private investment. The R&D and innovation environment is among the least attractive aspects for foreign investment of Malta's business environment. R&D investment, both public and private, remains low. The quality of scientific and technological output, and the availability of researchers underperform the EU average. Key challenges to be tackled include a weak human resources base in science and technologies and the lack of critical mass in specific research areas. The key policies in this respect are the Smart Specialisation Strategy and the alignment of the National R&I Strategy, which are in the process of implementation (see Section 3.4).                                                            (1) See ‘Challenges to Member States’ Investment Environments’, SWD (2015)   http://ec.europa.eu/europe2020/challenges-to-member-states-investment-environments/index_en.htm and 2016 Country report for Malta.  Table 1:Regulatory/ administrative burdenTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomEducation CSREnergyLegend:TransportNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
 
 
 
3.5. SECTORAL POLICIES 

There  are  signs  that  the  current  physical 
infrastructure  may  be  insufficient  to  cope  with 
the  current  pace  of  development.  Despite 
ongoing  improvements,  the  overall  quality  of  the 
existing  road  network  remains  of  insufficient 
quality. (41)  The  rapid  increase  in  the  use  of  cars 
over  the  years  has  brought  about  a  steep  rise  in 
traffic  congestion.  Success  in  maritime  trade  has 
reflected  an  efficient  service  provision.  However, 
as  the  current  trade  offering  and  spare  capacity 
approach their limits, bottlenecks at the ports may 
jeopardise  future  economic  growth.  Anecdotal 
evidence  suggests  that  planned  large-scale  urban 
development 
is 
expected  to  put  a  further  strain  on  the  already 
overworked utilities, including the sewer system. 

in  densely-populated  regions 

(European 

Commission, 

A  comprehensive  approach  towards  achieving 
green  growth  has  particular  benefits.  The 
islands  face  geographical 
isolation  and  very 
limited availability of natural resources and land in 
a  context  of  an  increasing  population (42)  and 
growing  economic  activity.  The  structure  of  the 
economy  to  some  extent  takes  account  of  these 
2016a). 
factors 
Established  patterns  of  growth,  infrastructure  and 
consumption, 
path 
however,  may 
dependencies  that  accentuate  the  risks  for  the 
environment.  The  absence  of  a  comprehensive, 
long-term  approach  could  intensify  the  resource 
bottlenecks  and  the  impact  of  climate  change, 
therefore  also  hindering  growth  prospects.  The 
potential  benefits  of  the  transition  towards  a 
circular  economy  were  highlighted  also  in  the 
2017 Annual Growth Survey. 

create 

3.5.1.  CLIMATE 

Meeting  the  national  2020  target  for  climate 
remains  a  challenge.  Malta  is  the  only  EU 
Member  State  that  has  missed  its  target  for 
reducing  greenhouse  gas  emissions  outside  the 
Emissions  Trading  System  for  2013,  2014  and 
2015. (43)(44)  This is due to a dramatic increase in 

(41)  Malta  ranks  91st  for  quality  of  road  infrastructure  in  the 

2015-2016 WEF Global competitiveness report 

(42)  Malta  is  by  far  the  most  densely  populated  island  in  the 

EU. 

(43)  Figures for 2015 are still only estimates. 
(44)  According  to  the  2016  Eurostat  Energy,  Transport  and 
Environment Indicators yearbook, Malta is the EU Member 
State  with  the  highest  increase  in  greenhouse  gases 

emissions  from  hydrofluorocarbons  and  a  marked 
increase  of  greenhouse  gas  emissions  from  the 
transport  sector  in  the  context  of  economic  and 
population  growth.  Developments  in  transport 
have had a particularly significant impact, since it 
represents  half  of  the  total  emissions  covered 
under the Effort Sharing Decision (406/2009/EC), 
while  also  showing  one  of  the  most  dynamic 
increases in emissions.  In this context, Malta may 
have  to  update  its  projections  for  2020  based  on 
recent emissions data. 

3.5.2.  ENERGY  

The  policy  strategy  has  focused  on  tackling 
security of supply and dependence on imported 
oil. The fuel import dependency ratio is 97.3 % in 
2015,  translating  into  one  of  the  largest  energy 
trade  deficits  in  the  EU  (9.3 %  of  GDP).  The 
national  authorities’  strategy  has  focused  on 
diversifying  the  sources  of  energy  and  upgrading 
the  energy  infrastructure  to  improve  security, 
lower  costs,  and  reduce  carbon  and  non-carbon 
emissions. While not fully implemented yet, these 
measures have already resulted in lower electricity 
tariffs  for  households  and  businesses.  In  addition, 
the  state  power  utility,  Enemalta  turned  profit  in 
debt-repayment 
thus 
2016, 
capacity. (45) 

improving 

its 

Achieving  the  national  energy  efficiency  target 
remains  a  challenge.  The  measures  that  would 
have  the  highest  impact  on  lowering  generation 
costs have already been taken. From this point on, 
improving  energy efficiency will  have  the highest 
potential  to  further  reduce  energy  costs  and  raise 
income.  The 
competitiveness  and  disposable 
national energy efficiency target for 2020 has been 
relaxed  so  as  to  account  for  the  high  economic 
growth.  Malta 
its  primary  energy 
consumption  by  15%  from  2014  to  2015.  Final 
energy consumption increased by 5% from 2014 to 
2015,  partly  as  a  result  of  buoyant  economic 
activity, making the achievement of the indicative 
national  2020  energy  efficiency  targets  more 
challenging.  

reduced 

emissions since 1990, while the EU as a whole has reduced 
emissions by over 22 %. 

(45)  Enemalta's  debt  is  the  largest  contingent  liability  of  the 

government. 

29 

 
 
                                                           
                                                                                   
3.5. Sectoral policies 

continuation of) a diverse set of measures such as 
infrastructure  works,  intelligent  transport  systems, 
fleet  renewal,  modal  shift  and  incentives  for 
behavioural  change.  While  these  measures  are 
projected 
improvements 
compared  to  business  as  usual,  congestion  is  still 
projected  to  rise  and  greenhouse  gas  emissions 
from  transport  to  decrease  only  modestly  until 
2030. (47) 

to  make  significant 

Table 3.5.1:  Selected targets of National Transport Strategy 

and Operational Transport Master Plan 

The promotion of renewable energy provides an 
opportunity to exploit domestic energy sources. 
The national authorities have put emphasis on the 
promotion  of  solar  energy.  Furthermore,  heat 
pumps  are  used  to  cover  heat  demand  in  winter 
and  biodiesel  is  used  in  transport.  Starting  from  a 
very  low  level,  Malta  succeeded  in  increasing  its 
renewable  energy  share  to  4.7 %  in  2014,  largely 
supported  by  EU-funded  photovoltaic  schemes. 
These schemes will continue through to 2020. This 
is above the indicative trajectory towards the 2020 
target 
renewables 
deployment  will  be  needed  to  achieve  the  target. 
Malta has launched a process to update its National 
Renewable  Energy  Action  Plan  accordingly.  The 
consultative  document  prepared  for  the  action 
plan,  however,  points  to  a  limited  domestic 
potential for renewable energy. 

significant 

further 

but 

3.5.3.  TRANSPORT 

Despite  improvements,  road  infrastructure  is 
under  heavy  pressure  and  often  highly 
congested.  Congestion  is  a  major  challenge  to 
sustainable  development  in  Malta.  The  external 
cost of traffic congestion has been estimated at 274 
million  euros  per  year  for  2012  (University  of 
Malta,  2015)  and  projected  to  rise  significantly  if 
there  are  no  policy  changes  (Transport  Malta, 
2016a  and  2016b) (46).  In  addition,  this  situation 
has  considerable  environmental  impacts  as  well. 
The authorities have introduced relevant measures, 
such  as  stimulating  public 
transport  usage, 
incentives  for  cleaner  cars  and  addressing  school 
transport, however congestion remains high.  

The government adopted an ambitious National 
Transport Strategy with a 2050 horizon and an 
Operational  Transport  Master  Plan  to  2025. 
The  estimated  budget  is  231  million  euros  for 
2016-2020 and an additional 397 million euros for 
2021-2025.  The  adoption  of  the  Strategy  and 
Master  Plan  was  an  ex-ante  conditionality  for 
unlocking  ESIF  funding  to  the  transport  sector. 
The  Strategy  and  Master  Plan  are  comprehensive 
while  also  putting  significant  emphasis  on  the 
challenges  of  road  congestion  and  climate  change 
(see  Table  3.5.1).  The  documents  include  (the 

(46)  This includes the opportunity costs of time and fuel wasted 
in  congested  traffic,  accidents,  air  pollution,  greenhouse 
gas emissions and noise. 

* still subject to change due to ongoing analysis of CO2 
emissions from transport 
Source: Transport Malta 

3.5.4.  ENVIRONMENT AND RESOURCE 

EFFICIENCY 

is  key 

for 
Improving  resource  efficiency 
sustainable  growth  given  the  very 
limited 
available  resources. (48)  Both  water  and  waste 
management  are  urgent  concerns.  There  is  ample 
scope  to  improve  waste  performance  since  the 
waste recovery rate is still one of the lowest in the 
EU (49). The Commission has provided a roadmap 
for  compliance  in  which  economic  instruments 

(47)  It  should  be  noted  that  there  are  several other  measures 
contained  in  the  Transport  Master  plan  which  would  also 
have a positive impact on GHG reduction. These measures 
could not be inputted into the Transport Model in order to 
quantify  their  individual  and  cumulative  impacts  because 
the respective policies or measures had not been developed 
to a sufficient level of detail to enable accurate modelling. 
(48)  Malta  has  announced  that  it  will  contribute  towards  the 
is 
circular  economy  and  sustainability  agendas,  and 
currently  implementing  its  Green  Economy  Strategy  and 
Action Plan of Malta (adopted December 2015). 

(49) At  the  same  time,  the  share  of  toxic  waste  in  total  waste 
remains well below the EU average. The landfilling rate of 
municipal  waste  (88 %)  is  much  higher  than  the  EU 
average of 28 %. In addition, the recycling and composting 
rate  of  municipal  waste  (12%)  remains  below  the  EU 
average  (44 %)  and  the  2020  target  (50 %)  (Eurostat, 
http://ec.europa.eu/eurostat/web/waste/transboundary-
waste-shipments/key-waste-streams/municipal-waste). 

30 

Starting pointMaster PlanStrategy20152025203014.4km19km20.8km29.8km46km60.9km14.8km/h17.5km/h20km/h99.9%80%50%532 ktCO2 equiv.527 ktCO2 equiv.525 ktCO2 equiv.57%47%41%8%11%15%292 (2014)235204Modal share of non-motorised tripsRoad accident grievous injuriesTEN-T core networkTEN-T Comprehensive networkBus average speed at AM peakConventionally-fuelled carsNon-ETS GHG emissions from transport*Share of car drivers (relative to 1990 level) 
                                                           
 
 
 
                                                           
3.5. Sectoral policies 

play  a  crucial  role (50).  The  government  is  also 
taking  up  the  challenge  of  sustainable  water 
management, in particular on addressing the over-
abstraction  from  the  scarce  water  reserves  and 
nitrate pollution. (51) Important economic activities 
on  the  islands,  such  as  tourism,  crucially  depend 
on a stable water supply. 

(50) Support to Implementation – Municipal Waste, available at 
http://ec.europa.eu/environment/waste/framework/support_
implementation.htm 

(51) In  2014-2020  the  European  Structural  and  Investment 
Funds will contribute some 87  million euro for improving 
the  efficiency  and  quality  of  the  water  supply  and  water 
management and conservation system. 

31 

 
                                                           
3.6. PUBLIC ADMINISTRATION 

3.6.1.  EFFICIENCY OF THE PUBLIC 

ADMINISTRATION 

sector 

efficiency 

is  higher 

than 
Public 
neighbouring  Member  States,  but  performs 
below potential  and  the  EU  average.  According 
to  the  Institutional  Delivery  Indicator (52),  Malta 
performs  relatively  well  compared  with  other 
neighbouring  Member  States  although  it  has  not 
showed  a  net  improvement  in  the  last  ten  years 
(see  Graph  3.6.1) (53).  Still,  an  overall  average 
rating  on  public  administration,  as  per  the  2016 
Small Business Act Fact Sheet, suggests that Malta 
is  performing  well  below  its  potential,  especially 
given its small size without a complex regional set-
up.   

Graph 3.6.1:  Institutional delivery indicator, Malta and 
neighbouring Member States 

Source: World Bank Governance Indicators 

The  business  environment  continues  to  be 
burdened 
administrative 
inefficient 
procedures. (54)  According  to  the  2017  World 

by 

(52) The  Institutional  Delivery  Indicator  is  an  arithmetic 
average of four components of the Governance Indicators: 
Government  Effectiveness,  Regulatory  Quality,  Rule  of 
Law  and  Control  of  Corruption  as  defined  by  K.  Masuch, 
E.  Moshammer,  B.  Pierluigi  (2016).  The  indicator,  which 
takes  values  between  +2.5  and  -2.5,  captures  how  well 
national  administrative  and  governmental  institutions  are 
able to deliver a level playing field for all economic actors. 
(53) This evolution is consistent with the findings of Fernandez-
Villaverde (2013) who concludes that the windfall gains of 
EMU  accession  and  the  inflows  of  capital  they  imply, 
discourage the introduction of new reforms. 

(54) The  effective  impact  of  these  barriers  on  the  birth  rates  is 
hard  to  measure.  Until  2013,  Malta  presented  a  low  firm 
birth  rate  (Eurostat,  2016a)  but  a  new  time  series  shows 

Bank  Doing  Business  report,  starting  a  new 
business  is  hampered  by  numerous  procedures, 
even  though  the  actual  cost  does  not  seem 
excessively high. As a result, the environment for 
starting a business ranks 132nd position out of 190 
countries,  worsening  marginally  compared  to  the 
previous  year  (where  it  ranked  131st).  Other 
the  operation  of 
administrative  obstacles 
businesses  include  getting  electricity  connections, 
despite recent improvements, and construction and 
other permits. The relative ranking of dealing with 
construction  permits  worsened,  despite  some 
improvement in terms of costs. The procedures are 
relatively  cumbersome  and  numerous.  Altogether, 
there are 15 procedures and they take an estimated 
167 days to complete them. 

to 

Malta  is  a  leading  EU  Member  State  in  the 
supply  of  e-government  facilities.  There  is  a 
broad  range  of  services  offered  to  citizens  to 
interact with the national administration. This is in 
contrast  with  the  relatively  high  complexity  and 
burdens  that  certain  administrative  procedures 
entail.  In  addition,  Malta  compares  favourably  in 
other  aspects  that  are  important  for  business  such 
as  tax  procedures  and  the  predictability  of  the 
national administration. 

Several measures were recently implemented to 
simplify the procedural burden of starting new 
businesses  (European  Commission,  2016g). (55) 
In  the  first  half  of  2016,  the  national  authorities 
implemented  the  first  and  second  phases  of  a 
radical  simplification  reform  of  the  bureaucratic 
processes for entrepreneurs. This reform entails the 
identification 
all 
administrative processes from the start-up phase to 
closure  through  internet-based  applications.  The 
first  phase  targets  specifically  the  setting  up  of  a 
business  by  a  self-employed  or  a  company.  As  a 
result, new companies could start operating within 
two  or  three  days  by  filling  out  a  short  electronic 
form  on  an  online  portal  following  a  two-steps 
procedure (56). Also the total cost for the applicant 

simplification 

and 

of 

considerable differences with the past figures for 2014. It is 
also  worth  noting  that  Malta  has  the  highest  rate  of  firms 
with high-growth potential in the EU (Eurostat, 2016b). 
(55) These  reforms  are  not  included  in  the  Starting  a  business 
indicator  of  the  World  Bank  Doing  Business  Indicators 
since  they  were  introduced  after  June  2016,  the  reference 
date for the 2017 publication. 

(56) This  implies  a  considerable  reduction  in  the  procedural 
burden as, according to the World Bank ‘Doing Business’ 

32 

00.20.40.60.811.21.4051015CYELITESMT 
 
 
                                                           
                                                                                   
3.6. Public administration 

days. When legal periods of inactivity and the time 
that  applications 
the 
applicant / architect are removed, this would result 
in an even shorter processing timeframe. . 

remain  suspended  by 

Graph 3.6.2:  Public Administration Responsiveness to SME 
needs - Malta 2015 -Variation with respect to 
EU average (in number of standard deviations) 

Data bars pointing right show better performance than the 
EU average; data bars pointing left show weaker 
performance than the EU average 
1 - Time to start a business  
2 - Cost of starting a business  
3 - Paid-in minimum capital  
4 - Time required to transfer property  
5 - Cost required to transfer property 
6 - Number of tax payments per year 
7 - Time it takes to pay taxes  
8 - Cost of enforcing contracts  
9 - Fast-changing legislation and policies are a problem for 
doing business  
10 - The complexity of administrative procedures is a 
problem for doing business  
11 - SMEs interacting online with public authorities  
12 - Licenses and permit systems  
13 - Start-up procedures 
14 - Burden of government regulations 
Source: European Commission (2016b) 

3.6.2.  JUDICIAL SYSTEM 

Rigid  insolvency  regulations  hinder  the  quality 
of  the  business  environment.  The  cost  of 
enforcing  contracts,  the  cost  and  duration  of 
insolvency  and  bankruptcy  procedures  and  the 
lending rights are included in a second main group 
of issues that still harm the quality of the business 
environment  in  Malta.  These  problems  stem  from 
and 
regulations, 
administrative  practices.  Minor 
improvements 
were  registered  in  the  resolution  for  insolvency 

institutional  weaknesses 

is  reduced  to  100  euros.  In  addition,  Maltese 
residents  setting  up  as  self-employed  could  start 
operations by following a simple, no cost one-step 
procedure on the start-up portal that takes only one 
day. The second phase of the reform extends these 
facilities  to  foreign  nationals  and  partnerships. 
This 
the 
requirement  of  a  Trade  Licence  and  a  significant 
reduction of the time to obtain services (estimated 
at  around  50 %).  A  third  phase,  which  should  be 
completed  by  the  first  quarter  of  2017,  will  focus 
on  the  tail-end  of  the  life  of  a  business,  implying 
further simplification. 

simplification 

repealing 

includes 

the  appointment  of 

A  second  important  simplification  measure 
followed  the  effective  introduction  of  a  College 
of Regulators. This new body is directly attached 
to  the  Office  of  the  Prime  Minister.  It  was 
announced  in  2011  but  became  fully  operational 
only  recently  with 
the 
Members of the Board. Among other functions, it 
will  conduct  ex  post  audits 
that 
simplification reforms are effective and inform on 
new proposals ensuring the systematic application 
of the SME test. The government committed only 
in 2015 to subject all relevant legislative acts to a 
SME test, although the test was already enshrined 
in the 2011 Malta Small Business Act. Since then, 
the  number  of  fully  executed  tests  has  been  very 
limited  and  not  all  relevant  legislations  -  such  as 
those announced in the annual budget speech - are 
subjected to the test. 

to  verify 

Structural changes were introduced to increase 
the  efficiency  of  the  planning  authorisation 
process.  This  is  achieved  mainly  by  splitting  the 
Malta  Environment  and  Planning  Authority 
(MEPA)  into  two  agencies:  one  dealing  with 
environmental protection and the other with spatial 
planning (57).  As  mentioned  before,  the  impact  of 
construction permits and licenses was identified as 
a  barrier  to  investment  in  construction.  The  de-
merger of the MEPA is already effective and aims 
at reducing the time for planning applications from 
over 210 to 100 days. In the first few months since 
the split, this target has been achieved as the actual 
average  number  of  days  for  authorisations  is  100 

report  and  to  the  SBA  Factsheets  (European  Commission, 
2016h), the number of procedures to start a new business in 
Malta was 10. 

(57) The two agencies are the Planning Authority (PA) and the 

Environment Resources Authority (ERA). 

33 

-2.5-1.5-0.50.51413121110987654321 
                                                                                   
 
3.6. Public administration 

the  civil  procedure  have  been 
aspects  of 
modernised  by 
in 
the  adoption  of  Act  IV 
September  2016. (58)  The  system  of  Court 
Attorneys  for  assisting  judges  is  almost  fully 
operational  one  year  following  its  adoption  and, 
according to Maltese authorities, it started having a 
positive effect including on the further reduction of 
backlogs.  

a 

the 

law 

judiciary, 

establishes 

that  scrutinises 

The  implementation  of  judicial  reforms  has 
continued. The reform aims to improve the system 
of  the  appointment  of  judges  and  remedy  the 
in 
persisting  shortcomings  of 
particular lengthy procedures and backlogs. A law 
was adopted on 5 August 2016 on the appointment 
and disciplinary procedures of the members of the 
Judicial 
judiciary.  The 
Appointment  Committee 
the 
nomination  of  a  candidate  to  be  made  Magistrate 
or  Judge.  The  Cabinet  retains  discretion  over 
whose  appointment  to  propose  to  the  President of 
the  Republic,  as  long  as  the  candidate  is  deemed 
suitable  by  the  Judicial  Appointment  Committee. 
The  composition  of  the  Judicial  Appointments 
Committee comprises one out of the five members 
drawn  from  the  judiciary,  while  the  independence 
of  two  other  Members  (the  Ombudsman  and  the 
safeguarded. (59)  The 
Auditor 
functioning of the new system in practice will need 
to be followed. 

general) 

is 

(58) This  Act  aims  at  increasing  the  competence  of  the  Courts 
of  Magistrates,  increasing  the  competence  of  the  Small 
Claims  Tribunal,  extending  possibilities  for  summary 
procedures as regards claims and simplifying the service of 
documents including by electronic means and modernising 
appeal proceedings 

(59) Until  that  point,  there  was  no  judicial  appointment 
committee  and  judges  were  appointed  directly  by  the 
President  of  the  Republic  on  the  advice  of  the  Prime 
Minister. 

and  no  progress  in  contract  enforcements.  The 
legal  framework  on  restructuring  proceedings  is 
ineffective  and  does  not  permit  a 
timely 
restructuring.  These 
intervention  and  early 
the 
impact  on 
deficiencies  have  a  negative 
entrepreneurship  capacity  of 
firms  by 
local 
limiting  the  options  for  a  second  chance  to  those 
firms that encountered difficulties in the past. This 
places  Malta  at  the  bottom  of  the  EU  ranking  in 
this  area  according  to  the  EU  Annual  report  on 
European  SMEs  2015-2016  and  the  2017  World 
Bank  Doing  Business  report.  Malta  presents  very 
low  recovery  rates  as  a  percentage  of  the  total 
assets,  a  weak  legislation  and  very  long  time 
delays 
insolvency 
for 
proceedings.  

resolution 

the 

of 

New measures on second chance and insolvency 
have  been  proposed  by  the  government.  To 
address  the  shortcomings,  a  draft  amendment  to 
introducing  considerable 
the  Companies  act 
changes  to  the  legal  framework  on  insolvency, 
such  as  the  possibility  of  mediation,  was  tabled 
and  is  currently  being  considered  by  the  national 
Parliament.  The  proposed  initiative  includes  the 
creation  of  a  fund  that  will  finance  certified 
controllers  under  a  well-defined  system-  registry- 
that  will  assist  the  reconstruction  of  a  company. 
The  appointment  of  the  controller  will  be  by  the 
judiciary. This will allow for a mechanism of early 
intervention  for  companies  in difficulties  that  will 
reduce  the  burden  of  costly  bankruptcy  procedure 
rules,  especially  to  SMEs.  The  impact  of  these 
changes  in  their  final  scope  and  formulation 
remains to be analysed. 

rate 

clearance 

Scoreboard, 

There have been improvements in the efficiency 
of the judicial system. According to the 2017 EU 
Justice 
for 
administrative  cases  increased  from  28.6 %  in 
2010 to 410.7 % in 2015. Disposition time for both 
first  instance  administrative  cases  and  for  total  of 
first instance (other than criminal) cases decreased 
respectively from  2 758 days  in 2010 to 495 days 
in 2015 and from 866 days in 2010 to 447 in 2015. 
However,  disposition  time  for  these  cases  and 
litigious  civil  and  commercial  cases  remain  high. 
These  positive  developments  are  also  reflected  in 
the reduction of backlogs: in first instance courts in 
2014 the number of (other than criminal) pending 
cases  was  10 845,  reduced  to  9 459  in  2015.  On 
the quality of the justice system, there is room for 
improvement  on  the  training  for  judges.  Many 

34 

 
                                                           
ANNEX A 

Overview Table 

Commitments 

2016 country-specific recommendations (CSRs) 

CSR 1 

 

In  view  of  the  high  risk  of  a  significant 
deviation, achieve an annual fiscal adjustment 
of  0.6  %  of  GDP  towards  the  medium-term 
budgetary  objective  in  2016  and  in  2017,  by 
taking the necessary structural measures. 

  Step  up  measures  to  ensure  the  long-term 

sustainability of public finances. 

Summary assessment(60) 

Malta  has  made  limited  progress  in  addressing 
CSR1 (this overall assessment of CSR 1 does not 
include  an  assessment  of  compliance  with  the 
Stability and Growth Pact). 

  Malta  has  made 

the 

reform, 

in 
limited  progress 
improving 
sustainability  of  public 
finances. The Draft Budgetary Plan reports on 
the  initiatives  to  address  the  fiscal  structural 
country  specific  recommendations,  although 
no new elements are reported compared to the 
situation in spring. In particular, in the area of 
pension 
some  measures  were 
introduced  already  with  the  2016  budget, 
targeted  at  addressing  sustainability  and 
adequacy. A full assessment of the budgetary 
impact is still missing, but initial assessments 
show  that  measures  to  achieve  sustainability 
are  not  yet  as  ambitious  as  to  respond  to  the 
long  term  challenges.  In  addition,  the  2017 
budget introduced a number of new measures 
targeted at increasing pension income. Policy 
action  to  improve  the  sustainability  of  the 
healthcare  system  is  ongoing.  However,  it  is 
uncertain  whether 
are 
sufficient to cope with the challenge of long-
term  sustainability.  An  estimate  of  their 
potential  impact  to  be  incorporated  into  the 
is  still 
long-term  budgetary  projections 

these  measures 

(60) The following categories are used to assess progress in implementing the 2016 country-specific recommendations: 
No progress: The Member State has not credibly announced nor adopted any measures  to address the CSR. Below a number of 
non-exhaustive typical situations  that could be covered under this, to be interpreted on a case by case basis taking into account 
country-specific conditions: 

•  no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  National  Reform  Programme  or  in  other  official 
communication  to  the  national  Parliament  /  relevant  parliamentary  committees,  the  European  Commission,  or  announced  in 
public (e.g. in a press statement, information on government's website);  
• no non-legislative acts have been presented by the governing or legislator body;   
•  the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions), 
while clearly-specified measure(s) to address the CSR has not been proposed. 

Limited progress: The Member State has: 
• announced certain measures  but these only address the CSR to a limited extent;    
and/or 
• presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative 

further work is needed before the CSR will be implemented;  

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR. 
Some progress: The Member State has adopted measures that partly address the CSR  
and/or  
the Member State has adopted measures that address the CSR, but a fair amount of work is still needed to fully address the CSR as 
only  a  few  of  the  adopted  measures  have  been  implemented.  For  instance:  adopted  by  national  parliament;  by  ministerial 
decision; but no implementing decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have 

been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

35 

 
 
                                                           
 
A. Overview Table 

CSR 2 

Malta  has  made  some  progress  in  addressing 
CSR2. 

missing. 

  Take measures to strengthen labour supply, in 
particular  through  increased  participation  of 
low-skilled persons in lifelong learning. 

  Malta  has  made 

is 

some  progress 

in 
strengthening  labour  supply  by  improving 
access  and  participation  in  lifelong  learning, 
with a focus on the low-skilled. The National 
Lifelong  Learning  Strategy 
under 
implementation,  with  relevant  upskilling  and 
reskilling  initiatives.  Literacy,  numeracy  and 
IT  courses  are  offered  in  the  community, 
including  through  cooperation  with  Local 
Councils and LEAP centres. ( ) Free of charge 
revision  classes  are  provided  to  those  who 
failed  or  were  absent  for  their  examination. 
Besides the Alternative Learning Programme, 
two other programmes are offered to students 
who  at  the  end  of  compulsory  education 
acquire no or minimum qualifications: ‘Youth 
Inc.’  and  ‘GEM16+’.  Malta  is  working  to 
increase  access  to  second  chance  education 
for those with no formal secondary education 
certificate, through the Malta College of Arts, 
Science and Technology (MCAST). In 2016 a 
programme  called  Skills  Kits  which  offers 
more  flexible  and  customised  pathways  was 
is 
launched.  Counselling  and  orientation 
provided  for  students  in  education  through 
VET  and  higher  education.  In  addition 
services  are  available  to  unemployed  within 
Public  Employment  Services.  However,  less 
attention 
in 
to 
employment. 

those  already 

is  given 

Europe 2020 (national targets and progress) 

Employment rate target: 70% 

67.8% in 2015, up from 66.4% in 2014. 

Early school leaving target: 10% 

19.8% in 2015, down from 20.3% in 2014. 

Tertiary education target: 33% 

27.8% in 2015, up from 26.5% in 2014. 

At risk of poverty target in numbers of persons:  

94,000  at  risk  of  poverty  or  social  exclusion,  a 
decrease of 5,000 persons  in comparison to 2014 

Lifting 6,560 individuals from the risk of poverty 
or social exclusion 

In absolute terms – 14,00  more people are at risk 
of  poverty  or  social  exclusion  in  2015  than  in 

36 

 
 
A. Overview Table 

2008 

Greenhouse  gas 
(GHG) 
+  5%  in  2020  compared  to  2005  (in  sectors 
outside  the  scope  of  the  Emissions  Trading 
Scheme)  

emissions 

target:                     

2020 target: +5% 

According to the latest national projections 

submitted  to  the  Commission,  and  taking  into 
account existing measures, it is expected that the 
target  will  be  achieved:  -16%  in  2020  as 
compared  with  2005  (margin  of  21  percentage 
points) 

Non-ETS 2015 target: 6%.  

Greenhouse  gas  emissions  from  sectors  not 
covered  by  the  Emissions  Trading  Scheme 
increased by 25% between 2005 and 2015. 

2020 Renewable energy target: 10% of gross final 
energy consumption 

from  3.7% 

in  2014,  up 

in  2013. 
4.7% 
Preliminary 
indicate 
appropriate  progress  towards  the  2020  target, 
putting the ratio at 5.3%. 

estimates 

2015 

for 

National  energy  efficiency 
reducing 
primary  energy  consumption  by  0.726  Mtoe  and 
final energy consumption by 0.547 Mtoe 

target: 

Malta  reduced  its  primary  energy  consumption 
by -14.9% from 0.88 Mtoe in 2014 to 0.75 Mtoe 
in  2015.  Final energy consumption  increased by 
5% from 0.54 Mtoe in 2014 to 0.57 Mtoe in 2015 

R&D target: 2% of GDP 

0.77% of GDP in 2015 (provisional data) 

Notwithstanding  the  efforts  made,  Malta  has 
moved away from its 2020 target in recent years, 
partly due to the increasing GDP. 

37 

 
 
 
  
 
ANNEX B 

MIP Scoreboard 

Table B.1: 

The MIP scoreboard for Malta 

p: provisional. na: not available.  
Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective 
Exchange Rate), and International Monetary Fund 

38 

Thresholds201020112012201320142015Current account balance, (% of GDP) 3 year average-4%/6%-4.1-3.8-1.11.43.84.3-35%12.16.219.520.241.348.5Real effective exchange rate - 42 trading partners, HICP deflator3 years % change±5% & ±11% -0.7-5.0-7.6-1.30.1-0.2Export market share - % of world exports5 years % change-6%38.318.213.0-0.7-16.6-8.8Nominal unit labour cost index (2010=100)3 years % change9% & 12% 9.210.58.09.07.23.96%-1.1-3.50.6-1.52.42.8p14%6.87.20.42.77.45.4133%162.0158.5153.6146.6146.7139.160%67.670.067.668.467.064.0Unemployment rate3 year average10%6.66.76.56.46.25.916.5%12.410.96.21.76.31.3-0.2%1.62.73.74.64.54.50.5%0.40.40.2-0.2-0.3-0.72%-0.31.6-0.4-0.2-1.6-2.3Activity rate - % of total population aged 15-64 (3 years change in p.p)Long-term unemployment rate - % of active population aged 15-74 (3 years change in p.p)Youth unemployment rate - % of active population aged 15-24 (3 years change in p.p)External imbalances and competitivenessNew employment indicatorsNet international investment position (% of GDP)Deflated house prices (% y-o-y change)Total financial sector liabilities (% y-o-y change)Private sector credit flow as % of GDP, consolidatedPrivate sector debt as % of GDP, consolidatedGeneral government sector debt as % of GDPInternal imbalances 
 
 
 
 
 
ANNEX C 

Standard Tables 

Table C.1: 

Financial market indicators 

(1) Latest data Q2 2016. (2) Quarterly values are not annualised. * Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

39 

201120122013201420152016Total assets of the banking sector (% of GDP)746.9742.5656.2650.4539.3496.7Share of assets of the five largest banks (% of total assets)72.074.476.581.581.3-Foreign ownership of banking system (% of total assets)33.130.924.317.717.3-Financial soundness indicators:(1)              - non-performing loans (% of total loans)1.51.72.03.22.92.8              - capital adequacy ratio (%)54.651.946.425.121.223.2              - return on equity (%)(2)3.24.73.74.46.34.3Bank loans to the private sector (year-on-year % change)3.03.5-7.410.00.76.3Lending for house purchase (year-on-year % change)8.66.86.29.68.67.0Loan to deposit ratio94.589.873.766.463.062.9Central Bank liquidity as % of liabilities2.62.51.90.90.30.1Private debt (% of GDP)159.4154.6147.3140.9132.2-Gross external debt (% of GDP)(1) - public6.18.28.57.36.76.9    - private702.3713.2708.5716.4688.1628.6Long-term interest rate spread versus Bund (basis points)*188.1263.1179.3144.899.281.6Credit default swap spreads for sovereign securities (5-year)*253.2346.2215.8208.5208.5208.7 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Labour market and social indicators 

(1) The unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within 2 weeks. 
(2) Long-term unemployed are those who have been unemployed for at least 12 months. 
(3) Not in education employment or training. 
(4) Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally 
adjusted. 
Source: European Commission (EU Labour Force Survey). 

40 

201120122013201420152016 (4)Employment rate(% of population aged 20-64)61.663.164.866.467.869.4Employment growth (% change from previous year)2.92.53.75.13.53.5Employment rate of women(% of female population aged 20-64)43.846.649.852.053.655.2Employment rate of men (% of male population aged 20-64)79.079.279.480.481.483.0Employment rate of older workers (% of population aged 55-64)33.234.736.337.840.343.7Part-time employment (% of total employment, aged 15-64)12.613.214.215.514.514.0Fixed-term employment (% of employees with a fixed term contract, aged 15-64)6.56.87.57.77.47.4Transitions from temporary to permanent employment67.22.225.410.68.6-Unemployment rate(1) (% active population, age group 15-74)6.46.36.45.85.44.9Long-term unemployment rate(2) (% of labour force)3.03.12.92.72.42.0Youth unemployment rate (% active population aged 15-24)13.314.113.011.711.810.6Youth NEET(3) rate (% of population aged 15-24)10.210.69.910.510.4-Early leavers from education and training (% of pop. aged 18-24 with at most lower sec. educ. and not in further education or training)22.721.120.520.319.8-Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)23.424.926.026.527.8-Formal childcare (30 hours or over; % of population aged less than 3 years)4.01.03.06.0-- 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and social indicators (continued) 

(1) People at risk of poverty or social exclusion : individuals who are at risk of poverty and/or suffering from severe material 
deprivation and/or living in households with zero or very low work intensity.  
(2) At-risk-of-poverty rate : proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(3) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone. 
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months. 
(5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices = 100 in 2006 (2007 
survey refers to 2006 incomes) 
Source:  ESSPROS (for expenditure for social protection benefits), EU-SILC (for social inclusion) 

41 

Expenditure on social protection benefits (% of GDP)201020112012201320142015Sickness/healthcare6.05.85.96.06.2:Disability0.80.70.70.70.7:Old age and survivors10.29.910.29.89.7:Family/children1.21.21.11.21.2:Unemployment0.50.50.50.60.5:Housing0.20.20.10.10.1:Social exclusion n.e.c.0.30.30.30.30.3:Total19.118.618.818.618.8:of which: means-tested benefits2.52.52.42.42.5:Social inclusion indicators201020112012201320142015People at risk of poverty or social exclusion1 (% of total population)21.222.123.124.023.822.4Children at risk of poverty or social exclusion  (% of people aged 0-17)26.727.831.032.031.328.2At-risk-of-poverty  rate2 (% of total population)15.515.615.115.715.916.3Severe material deprivation rate3  (% of total population)6.56.69.29.510.28.1Proportion of people living in low work intensity households4 (% of people aged 0-59)9.28.99.09.09.89.2In-work at-risk-of-poverty rate (% of persons employed)5.96.15.25.95.75.4Impact of social transfers (excluding pensions) on reducing poverty34.032.837.132.633.231.2Poverty thresholds, expressed in national currency at constant prices5583259496116625965546863Gross disposable income (households; growth %)::::::Inequality of income distribution (S80/S20 income quintile share ratio)4.34.03.94.14.04.2GINI coefficient before taxes and transfers44.243.844.445.545.7:GINI coefficient after taxes and transfers28.627.227.127.927.7: 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.4: 

Product market performance and policy indicators 

(1) The methodologies, including the assumptions, for this indicator are shown in detail at : 
http://www.doingbusiness.org/methodology.   
(2) Average of the answer to question Q7B_a. '[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?'. Answers were scored as follows: zero if received everything, one if received 
most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is 
still pending or if the outcome is not known. 
(3) Percentage population aged 15-64 having completed tertiary education. 
(4) Percentage population aged 20-24 having attained at least upper secondary education. 
(5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail at :  http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm   
(6) Aggregate OECD indicators of regulation in energy, transport and communications. 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

42 

Performance indicators201020112012201320142015Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry------Labour productivity in construction------Labour productivity in market services------Unit labour costs (ULC) (whole economy, year-on-year % change)------ULC in industry------ULC in construction------ULC in market services------Business environment201020112012201320142015Time needed to enforce contracts(1) (days)-505.0505.0505.0505.0505.0Time needed to start a business(1) (days)-38.538.538.533.528.0Outcome of applications by SMEs for bank loans(2)-0.69-0.680.580.40Research and innovation201020112012201320142015R&D intensity0.620.670.830.770.750.77Total public expenditure on education as % of GDP, for all levels of education combined6.747.966.766.89--Number of science & technology people employed as % of total employment333637383737Population having completed tertiary education(3)141516171818Young people with upper secondary education(4)737476777678Trade balance of high technology products as % of GDP0.640.031.83-1.10-3.45-3.49Product and service markets and competition200320082013OECD product market regulation (PMR)(5), overall--1.57OECD PMR(5), retail--1.09OECD PMR(5), professional services--1.66OECD PMR(5), network industries(6)--2.28 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.5:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 prices) 
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR) 
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR) 
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR) 
          Waste intensity: waste (in kg) divided by GDP (in EUR) 
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP   
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP 
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change) 
Real unit energy cost: real energy costs as a percentage of total value added for the economy 
Environmental taxes over labour taxes and GDP: from European Commission's database, ‘Taxation trends in the European 
Union’ 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR)  
Real unit energy costs for manufacturing industry excluding refining : real costs as a percentage of value added for  
manufacturing sectors 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP 
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT. 
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste 
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP 
Proportion of GHG emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on greenhouse gas 
emissions 
(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency. 
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2005 EUR) 
Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport sector 
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels 
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk. 
Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies 
and solid fuels 
* European Commission and European Environment Agency 

Source: European Commission (Eurostat) unless indicated otherwise 

43 

Green growth performance201020112012201320142015MacroeconomicEnergy intensity kgoe / €0.140.140.140.120.110.09Carbon intensity kg / €0.550.560.560.480.44-Resource intensity (reciprocal of resource productivity)kg / €0.510.650.730.620.780.81Waste intensity kg / €0.24-0.25-0.25-Energy balance of trade % GDP1.1-2.8-12.2-9.2-14.9-Weighting of energy in HICP%6.286.657.317.578.057.40Difference between energy price change and inflation %27.10.4-2.0-1.6-17.0-8.7Real unit of energy cost% of value added4.86.46.55.75.4-Ratio of environmental taxes to labour taxesratio0.280.280.260.240.25-Environmental taxes% GDP2.93.02.82.72.9-Sectoral Industry energy intensity kgoe / € ------Real unit energy cost for manufacturing industry excl. refining% of value added5.910.09.49.78.0-Share of energy-intensive industries in the economy% GDP------Electricity prices for medium-sized industrial users€ / kWh0.180.180.180.180.180.15Gas prices for medium-sized industrial users€ / kWh------Public R&D for energy % GDP0.000.000.000.000.000.00Public R&D for environmental protection% GDP0.000.000.000.000.000.00Municipal waste recycling rate%5.211.412.18.17.46.3Share of GHG emissions covered by ETS*%60.660.261.857.655.739.2Transport energy intensitykgoe / €------Transport carbon intensitykg / €------Security of energy supplyEnergy import dependency%99.0101.3101.0104.197.797.3Aggregated supplier concentration indexHHI0.00.00.00.00.0-Diversification of energy mixHHI0.990.980.98--- 
 
 
         
 
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