COMMISSION STAFF WORKING DOCUMENT Country Report Malta 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 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
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: Malta, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 216 final  COMMISSION STAFF WORKING DOCUMENT Country Report Malta 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 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(2018) 120 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 

Annex A: Overview Table 

Annex B: Macroecnomic Imbalance Procedure Scoreboard 

Annex C: Standard Tables 

References 

LIST OF TABLES 

Table 1.1: 
Table 3.2.1: 
Table 3.4.1: 
Table 3.5.1: 
Table B.1: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 

Key economic and financial indicators - Malta 

Financial soundness indicators, total (i.e. domestic and international) banks, Malta (%) 

Enterprises, employment and value added by firm size class 

Largest sector of GHG emissions in 2015 (% of total GHG emissions) 

The MIP scoreboard for Malta (AMR 2018) 

Financial market indicators 

Headline Social Scoreboard indicators 

Labour market and social indicators 

Social inclusion and health indicators 

Product market performance and policy indicators 

Green growth 

LIST OF GRAPHS 

Graph 1.1:  Quarterly GDP growth, Malta and euro area 
Graph 1.2: 

Core HICP inflation, Malta and euro-area 

1 

4 

12 

16 

16 
21 
24 
30 
37 

41 

44 

45 

51 

11 
21 
35 
39 
44 
45 
46 
47 
48 
49 
50 

4 
4 

 
 
 
 
Export market share decomposition 

Current account in services (% of GDP) 

Current account decomposition (% of GDP) 

Decomposition of rate of change of unit labour costs 

Graph 1.3: 
Graph 1.4: 
Graph 1.5: 
Graph 1.6: 
Graph 1.7: 
Graph 1.8: 
Graph 1.9:  Government balance and debt (% of GDP) 
Graph 2.1:  Overall multiannual implementation of 2011-2017 CSRs to date 
Graph 3.1.1:  General government balance and the impact of the Individual Investor Programme 

Private sector debt: gaps to prudential and fundamental-based benchmarks 

Funding of non-financial corporations 

(% of GDP) 

Graph 3.1.2:  Average growth 2013-2016 of total current expenditure per inhabitants 
Graph 3.1.3:  Gross fixed capital formation in 2012 and 2016 (% of GDP) 
Graph 3.2.1:  Residential investment and building permits 
Graph 3.2.2:  Overvaluation gap of house prices 
Graph 3.3.1:  Employment rate by age and sex, 2016 
Graph 3.3.2:  Employment gap of persons with disabilities by gender and Member State (age 20-

64), 2015 

Graph 3.3.3:  Share of employers by sector reporting labour shortages in Malta 
Graph 3.3.4:  Early school leaving rate 
Graph 3.3.5:  Participation rate in education and training (25-64 years), 2016 
Graph 3.4.1:  Number of persons employed in SMEs 
Graph 3.4.2:  Value added of SMEs 
Graph 3.4.3:  World Bank 2017 Governance Indicators - Malta 
Graph 3.4.4:  Evolution of business R&D intensity and public R&D intensity in Malta, 2004-2016 
Graph 3.5.1:  Selected road transport indicators - Malta 
Graph 3.5.2:  GHG emission per capita  (kg CO2-eq/inhabitant) 
Graph 3.5.3:  WEF Travel and Tourism Competitiveness Index – Selected indicators 

LIST OF BOXES 

Box 1.1:  

The gaming sector 

Box 2.2:  

CSR implementation table 

Box 2.3:  

Tangible results delivered through EU support to structural change in Malta 

Box 3.3. 1:   Monitoring performance in the light of the European Pillar of Social Rights 

Box 3.3.5:  

Policy highlights 

Box 3.4.6:  

Investment Box -challenges and reforms in Malta 

6 
6 
7 
7 
9 
9 
9 
12 

16 
16 
17 
22 
23 
24 

26 
26 
27 
28 
31 
31 
32 
33 
37 
39 
40 

10 
14 
15 
25 
30 
36 

 
 
 
 
EXECUTIVE SUMMARY 

In  the  context  of  robust  economic  growth, 
Malta’s  key  challenges  mostly  concern 
its 
longer  term  sustainability.  Growth  prospects 
look  favourable  and  the  fiscal  outlook  remains 
positive,  on  the  back  of  a  significant  current 
account  surplus.  Yet,  the  mounting  pressure  on 
infrastructure and natural resources, rising housing 
prices,  as  well  as  shortages  of  labour  and  skills 
may  create  challenges  in  the  future.  Reducing  the 
infrastructure  gap, 
labour  supply, 
strengthening 
the  business  environment  and 
promoting environmental sustainability remain key 
policy  priorities  to  sustain  long-term  growth. 
Enhanced  supervision  in  the  financial  sector  is  an 
additional  important  factor  to  safeguard  financial 
stability  and  preserve  Malta’s  attractiveness  and 
good reputation as investment destination (1). 

improving 

Growth  has  remained  dynamic.  Real  GDP 
growth was among the highest in the EU in recent 
years.  It  reached  its  peak  in  2014-15,  averaging 
7.7%, driven also by a surge in investment related 
to  one-off  factors.  Despite  strong  net  service 
exports and robust private consumption, real GDP 
growth moderated in 2016 and is forecast to have 
remained  robust  at  6.9 %  in  2017.  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 
in 
under  5 %.  Immigration  flows  were  key 
offsetting  emerging  skills  gaps  and 
labour 
shortages.  

Going  forward,  growth  momentum  remains 
strong.  Real  GDP  growth  is  forecast  to  remain 
solid, reaching 4.9 % in 2018. Private consumption 
is  expected  to  become  the  main  driver  of  growth 
on  the  back  of  an  increasing  population  and 
growing disposable income. In addition, improved 
consumer confidence and consumption is expected 
to  result  in  a  somewhat  lower  household  saving 
rate.  Investment  is  forecast  to  recover,  led  by  the 
residential  construction  sector,  which  is  expected 
to continue growing strongly in 2018. Exports are 

(1)  This  report  assesses  Malta’s  economy  in  light  of  the 
European Commission’s Annual Growth Survey published 
on 22 November 2017. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
European  economy  more  productive, 
resilient  and 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  boosting 
investment,  pursuing 
structural reforms and ensuring responsible fiscal policies. 

forecast  to  continue  rising,  in  line  with  growing 
demand among Malta’s main trading partners. 

The  current  account  continues  to  show  a 
marked  surplus.  Since  2014,  the  current  account 
surplus  averaged  close  to  8 %.  In  mid-2017,  it 
reached a peak of 10 % of GDP. This high level is 
mostly attributable to the service sector, reflecting 
buoyant  activity  in  the  gaming,  tourism  and 
transport sectors. The autumn forecast projects the 
surplus  to  stabilise  below  10 %,  reflecting  rising 
exports. 

Strong  economic  growth  boosted  tax  revenues, 
in  particular  direct  taxes.  In  the  context  of  a 
fiscal surplus, expenditure remains quite dynamic, 
calling  for  a  close  monitoring.  Gross  government 
debt  has  dropped  below  60 %  of  GDP  already  in 
2016 and it is projected to continue falling. Despite 
some  progress, 
tax 
challenges 
compliance  remain  and  the  corporate  debt  bias 
remains high.  

concerning 

country-specific 

Malta  made  some  progress  in  addressing  the 
recommendations 
2017 
Initiatives are envisaged to expand the scope of the 
spending  review  and  ultimately  contribute  to 
increasing  effectiveness  in  public  expenditure. 
While  cross-border  supervision  remains  essential 
in particular in the insurance sector, some progress 
has  been  made  in  securing  more  resources  in  the 
supervisory departments.  

Regarding  the  progress  in  reaching  the  national 
targets  under  the  Europe  2020  strategy  Malta  has 
made  progress  towards  its  target  on  employment. 
However,  gaps  remain  with  respect  to  the  targets 
for  reducing  greenhouse  gases,  raising  R&D 
expenditure, 
energy 
provision,  improving  energy  efficiency,  reducing 
early  school 
tertiary 
education attainment, and reducing poverty. 

increasing 

renewable 

increasing 

leaving, 

the 

Malta performs relatively well on the indicators 
of 
the 
the  Social  Scoreboard  supporting 
European  Pillar  of  Social  Rights.  Malta 
continues  relevant  policy  action  to  address  labour 
market  integration  and  social  exclusion,  notably 
through  its  ‘make  work  pay’  policies.  However, 
high  early  school  leaving  rates,  the  high  gender 
employment  gap  and  labour  market  participation 
of people with disabilities merit attention. 

1 

 
 
                                                           
Executive summary 

Key structural issues analysed in this report, which 
point to particular challenges for Malta’s economy, 
are the following: 

  Short  and  medium-term  fiscal  risks  appear 
contained. Public finances have benefited from 
the strengthening of tax revenues, supported by 
favourable  macroeconomic  conditions.  The 
proceeds  related  to  the  Individual  Investment 
Programme  have  also  contributed 
this 
improvement. The spending review is expected 
to  be  conducive  to  more  efficient  expenditure 
performance.  In  the  long-term,  age-related 
public  spending  in  the  healthcare  and  pension 
systems  is  expected  to  increase  relatively  fast 
compared  to  other  EU  countries,  indicating  a 
possible challenge to fiscal sustainability.  

to 

lending  are  experiencing  rapid  growth,  which 
may  lead  to  increased  vulnerability  of  the 
economy to housing market developments, also 
considering that the bulk of new mortgages are 
at variable interest rates.  

  Malta’s labour market continues to perform 
strongly,  however  with  a  still  high  gender 
gap. Employment grows, in line with the high 
economic  growth.  The  employment 
rate 
reached  71.8  %  in  Q3  2017.  Wage  growth 
remains  modest,  despite  the  continued  fall  in 
unemployment.  A  large  gender  employment 
gap  persists,  as  employment  rates  are  high  for 
women  below 30, but they  considerably lower 
above this age.  

that  may  facilitate  aggressive 

  Some  indicators  suggest  that  Malta’s  tax 
rules  are  used  by  multinationals  engaged  in 
aggressive tax planning structures. Malta has 
taken  steps  to  amend  certain  aspects  of  its  tax 
system 
tax 
planning.  However,  the  existence  of  some  tax 
rules  (among  them  the  design  of  the  planned 
Notional 
the 
absence  of  withholding  taxes  on  payments 
made  by  companies  based  in  Malta,  combined 
with  a  lack  of  some  anti-abuse  rules,  suggest 
that  Malta's  tax  rules  may  still  be  used  in  tax 
avoidance structures.  

Interest  Deduction 

regime), 

  Ensuring  effective 

financial  supervision 
remains  a  challenge.  The  financial  sector  is 
characterised  by  a  large  number  of  foreign 
institutions,  in  particular  insurance  companies, 
predominantly  operating  cross-border.  The 
effectiveness  of  the  recently  adopted  anti-
money 
to  be 
thoroughly followed. In this context, ensuring a 
strengthened  supervisory  framework  is  crucial 
to  preserve  Malta’s  good  reputation  and 
attractiveness  as  an 
international  financial 
centre.  

legislation  has 

laundering 

  House  prices  have  surged  and  deserve 
continuous  monitoring.  Strong  economic 
activity,  favourable  labour  market  conditions, 
investment  in  real  estate  by  non-residents  and 
low  interest  rates  have  all  contributed  to  a 
sustained increase in house prices in the recent 
past.  Residential  construction  and  mortgage 

2 

  Skills 

have 

become 

shortages 

very 
pronounced.  Over  30 %  of  companies  report 
skills  shortages,  a  significantly  higher  share 
than previous years. These shortages are being 
filled  with  foreign  labour  across  all  skills 
levels. While investment in education and skills 
continues,  the  rate  of  early  school  leaving 
remains very high and has not improved much 
compared  to  the  previous  year.  Educational 
outcomes  remain  strongly  linked  to  socio-
economic  background.  Basic  skills  attainment 
among young people is still weak.  

  Poverty and social exclusion risks have been 
reduced  but  remain  substantial  for  some 
social 
population  groups.  Poverty  and 
exclusion  risks  declined  to  levels  last  seen  in 
2008.  However,  single-earner  households  and 
the  low-skilled  face  substantial  poverty  risks. 
There are obstacles to integration of the foreign 
population,  especially  non  EU  migrants  who 
face a high risk of poverty and social exclusion 
despite  a  high  employment 
rate.  Malta 
continues  to  strengthen  its  policies  for  active 
inclusion,  and  has  recently  adopted  a  Strategy 
on 
Income 
integration  of  migrants. 
inequalities  remain  below  the  EU  average 
thanks  to  low  market  inequalities  and  the 
features of Malta’s tax and benefits system.  

the 

  The  SMEs  sector  has  shown  a  considerable 
dynamism  in  recent  years,  despite  existing 
gaps  in  the  R&D  framework.  Growth  in 
terms  of  number  of  persons  employed  and 
value  added  has  been  above  EU  average  and 

 
 
time, 

same 

only  a  minority  of  firms  appears  to be finance 
constrained.  At 
the 
the 
predominance of micro and small firms, which 
have  to  rely  on  internal  funding  to  support 
R&D  activities,  and  the  size  of  local  market 
limit  their  innovation  potential.  While  Malta’s 
R&D  performance  has  recently  improved,  a 
better innovation ecosystem would enhance the 
capacity  of  innovative  companies  to  scale  up 
their activities. 

  Shortcomings 

in  the  judicial  and  anti-
corruption  framework  affect  the  business 
climate.  The  justice  system  continues  to  face 
challenges concerning its efficiency. According 
to  a  recent  Eurobarometer  Flash  Survey, 
corruption is perceived as a problematic factor 
for  doing  business  in  Malta.  The  fragmented 
landscape of anti-corruption institutions and the 
lack  of  formalised  institutional  coordination 
investigation  and 
may  hamper  effective 
prosecution of corruption allegations.  

investment,  and  generates 

  The  road  transport  sector  faces  major 
infrastructure  and  sustainability  challenges. 
Severe  traffic  congestion  constitutes  a  barrier 
to 
significant 
external  costs  and  greenhouse  gas  emissions 
(also given the expected increasing demand for 
transport).  The  authorities  have 
recently 
announced  a  project  to  upgrade  the  road 
infrastructure  over  a  period  of  seven  years, 
reduce 
which 
congestion costs and greenhouse gas emissions 
only modestly.  

is  however  expected 

to 

tackling 

including 

bottlenecks, 

  Increased economic activity may exacerbate 
in 
existing 
infrastructure,  and  put  further  pressure  on 
environmental  resources.  Moving  towards  a 
more  circular  economy  and 
the 
negative  externalities  from  the  construction 
sector  and  the  property  market,  for  example 
concerning  waste  disposal,  environmental 
impacts  and  energy  performance, 
remain 
challenging.  If  not  addressed,  bottlenecks  in 
natural  resources  and  infrastructure  may  also 
affect  the  development  of  the  tourism  sector, 
still  a  key  pillar  of  the  Maltese  economy. 
intensify 
itself 
Tourism  expansion  may 
pressure on the country’s resources.  

Executive summary 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Inflation  has  stabilised  at  relatively  low  levels. 
Following a period of volatility in the past, Malta 
has  shown  the  lowest  volatility  in  its  HICP 
inflation among the euro-area members since early 
2014. To a large extent, this reflects the regulation 
of  fuel  prices  by  the  government.  Thus,  while 
overall  HICP  inflation  has been  rising  in  the  euro 
area  since  2016,  in  Malta  it  remained  stable, 
averaging  just  over  1 %  in  the  twelve  months  to 
September 2017. 

Graph 1.2:  Core HICP inflation, Malta and euro-area 

Economic growth and inflation 

Malta’s  economic  performance  has  been 
in  recent  years.  Following  a 
outstanding 
relatively  quick  recovery  after  the  2008-09  crisis, 
the  Maltese  economy  got  a  second  wind  in  mid-
2012. As a result, it effectively decoupled from the 
euro-area economic cycle, avoiding the double-dip 
recession  observed  there  and  exhibited  growth 
rates  higher  than  its  pre-2009  peak.  Growth  has 
been  job-rich,  tapping  into  the  potential  of  the 
domestic  labour  force  and  the  still  relatively  low 
labour market participation rate. Increasing inflows 
of foreign labour have helped maintain the growth 
momentum  and  mitigated  skills  shortages  and 
wage pressures. 

Graph 1.1:  Quarterly GDP growth, Malta and euro area 

Note: Growth rates have been calculated on the basis of 4-
quarter moving sums of GDP 
Source: European Commission 

Growth  has  been  mainly  export  driven.  Net 
exports  accounted  for  about  half  the  increase  in 
real  GDP  since  2012  as  export  growth, 
in 
particular  of  services,  more  than  offset  a  rise  in 
imports.  The  latter  is  associated  with  buoyant 
domestic  demand,  reflecting  strong  household 
consumption  and  a  spike  in  investment.  Malta’s 
openness  to  trade  (measured  by  exports  plus 
increased 
imports  as  a  share  of  GDP)  has 
significantly  over  the  past  decade,  from  around 
200 % of GDP in 2006 to over 300 % in 2011-12, 
before subsiding somewhat to around 270 % as the 
weight of domestic demand in the economy started 
to rebound. 

Note: Area refers to the range of values in the euro-area 
Source: European Commission 

Growth  momentum  remains  strong  going 
forward. Real GDP growth reached 5.5% in 2016 
and accelerated in the first three quarters of 2017, 
registering  a  year-on-year 
increase  of  7.2%. 
External  demand  looks  to  be  the  main  driver  of 
growth  in  2017,  with  domestic  demand  playing  a 
secondary  role  due  to  a  strong  contraction  of 
investment  (reflecting  a  high  base  in  2016).  Real 
GDP growth is forecast to reach [6.9%] in 2017 as 
a whole, higher than the rate recorded in 2016. It is 
projected  to  slow  somewhat  in  2018  to  [5.6 %]. 
Private  consumption  is  expected  to  become  the 
main driver of growth, on the back of an increasing 
population and growing disposable income. At the 
same  time,  improved  consumer  confidence  and 
consumption  is  expected  to  result  in  a  somewhat 
lower household saving rate. Investment is forecast 
to  recover,  led  by  the  residential  construction 
sector,  expected  to  continue  growing  strongly  in 
2018.  Exports  are  forecast  to  continue  rising,  in 
line  with  growing  demand  among  Malta’s  main 

4 

-2-1012301Q101Q402Q303Q204Q104Q405Q306Q207Q107Q408Q309Q210Q110Q411Q312Q213Q113Q414Q315Q216Q116Q417Q3%EAMT-6-4-202468Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16Jan-17Jul-17% 
 
 
 
1. Economic situation and outlook 

Nonetheless,  the  sustainability  of  the  current 
employment  growth  may  be  hindered  by 
persisting  challenges.  Although  the  employment 
rate  is  at  69.6 %,  the  gender  employment  gap  is 
still  27.6 %.  The  participation  of  people  with 
disabilities in the labour market also remains low, 
in  educational 
improvements 
despite  modest 
tertiary 
participation.  Low 
and 
outcomes 
educational attainment and skills levels and higher 
risks  of  poverty  affecting  children  and  the  lower-
skilled  population  hamper  efforts  to  reach  overall 
sustainable and inclusive growth.  

While  inequality  in  both  income  and  wealth 
remain  moderate,  there  is  a  risk  of  unequal 
opportunities for the next generation. The share 
of income held by the richest 20 % of households 
was 4.2 times greater than that of the poorest 20 % 
in 2016. This is one of the lowest ratios in the EU, 
and unchanged from the previous year. Net wealth 
is  also  relatively  evenly  distributed,  reflecting  the 
even  distribution  of  housing  assets  across  the 
population.  However, 
for 
children  are  more  strongly  correlated  to  their 
socioeconomic background than in most other EU 
countries,  as  is  their  risk  of  poverty  (see  Section 
3.3.3). In addition, rising market inequalities might 
in  the  long  run  put  pressure  on  the  redistributive 
impact of the tax and benefits system.  

learning  outcomes 

Productivity and competitiveness 

Labour  productivity  is  improving  strongly. 
Nominal  unit  labour  costs  are  moving  broadly  in 
line  with  the  euro  area  (+0.9 %  compared  with 
0.8 %  in  2016,  respectively)  ,  benefiting  from 
robust  productivity  gains.  In  2016,  real  labour 
productivity  per  person  employed  decelerated 
compared 
to  2014-15  but  still  grew  at  a 
significantly  higher  pace  than  the  euro  area 
(+1.7 % vs 0.5 %, respectively).  

After  moderate  wage  growth  in  recent  years, 
the tightening labour market is expected to put 
increasing  upward  pressure  on  wages.  In  2016 
nominal  wages  increased  by  2.7 %  and  in  2017 
nominal wage growth is projected to have slowed 
down  to  2 %.  Real  wages  increased  by  1.1 %  in 
2016, and are projected to have stabilised in 2017. 
In  2018  and  2019  wage  growth  is  expected  to 
accelerate  somewhat,  as  a  result  of  the  tightening 

trading  partners,  resulting  in  a  further  increase  in 
the  current  account  surplus.  In  2019,  real  GDP 
growth is projected to slow down to 4.5 %, below 
potential  output.  Private  consumption  is  projected 
to  remain  the  main  driver  of  growth,  while  all 
demand  components  are  forecast  to  contribute 
positively.  

Risks  to  the  macroeconomic  projections  are 
linked  primarily  to  the  outlook  for  investment 
and  net  exports.  A  faster  realisation  of  planned 
infrastructure  projects  could  boost  growth  in  the 
near term. In addition, in view of Malta’s openness 
to trade, any volatility in its main exporting sectors 
would  have  a  disproportionately  large  impact  on 
real GDP growth. 

Malta’s key challenges are mostly related to the 
long-term  sustainability  of  its  growth  model. 
Overall,  Malta’s  recent  economic  performance 
appears to have been largely the result of structural 
change and, in the medium term,  it is expected to 
stabilise  and  remain  at  a  relatively  strong  rate. 
These prospects on economic activity are expected 
to  exacerbate  existing  bottlenecks,  including  in 
infrastructure,  and  to  put  further  pressure  on 
environmental  resources.  There  are  increasing 
signals  of 
labour  market, 
in 
constraining  firms'  expansion  plans  and  growth 
prospects  (see  Section  3.3).  Growing  reliance  on 
labour  and  skill 
foreign 
to  address 
labour, 
shortages,  may  pose 
the 
competiveness  of  the  Maltese  economy.  In  this 
context,  maintaining  Malta 
reliable 
jurisdiction  for  financial  and  gaming  services  is 
particularly important in light of sustaining Malta’s 
attractiveness  as  an  international  financial  and 
business location. 

tightness 

further 

risk 

the 

as 

to 

a 

Labour Market and social developments 

Labour  market  conditions  continue  to  be 
favourable.  The  unemployment  rate  dropped  to 
4 %    in  2017,  while  employment  growth  remains 
robust.  Youth  unemployment  remains  also  much 
below  EU  average.  Reliance  on  inward  labour 
migration  to  fill  vacancies  remains  substantial. 
Strong increases in labour supply, also on the back 
of  rising  inflows  of  foreign  workers,  served  to 
dampen the upward pressure on wages in 2016 and 
2017.  In  2018  and  2019  the  tightening  labour 
market  is  expected  to  put  increased  upward 
pressure on wages. 

5 

 
1. Economic situation and outlook 

Graph 1.4: 

Export market share decomposition 

Source: European Commission 

Keeping  pace  with  the  rise  of  new  sectors 
creates  challenges,  in  terms  of  governance  and 
infrastructure.  Malta  ranks  37th  out  of  137 
countries  in  the  2017-18  Global  Competitiveness 
last  year. 
Report, 
than 
insufficient 
Inefficient  public  administration, 
capacity 
inadequate  supply  of 
innovate, 
infrastructure and access to finance are reported in 
the  Global  Competitiveness  Report  as  the  main 
barriers to doing business in Malta. 

three  places  higher 

to 

External sustainability  

The  external  position  remained  robust,  relying 
on  a  high  current  account  surplus  and  a 
positive  net  international  investment  position. 
The  balance  of  Malta’s  net 
international 
investment position reached 64.5 % of GDP in Q2 
of  2017,  one  of  the  highest  in  the  EU  after  the 
Netherlands. Meanwhile, the surplus in the current 
account  reached  10 %  of  GDP  in  mid-2017 
reflecting  a  strong  surplus  in  the  services  account 
(see  Graph  1.5).  Exports  of  services  have  been 
boosted  predominantly  by  the  activities  of  the 
gaming industry (see Box 1.1), but supported also 
by sizeable gains in tourism and transport sectors.  

in 

Imports  of  goods  are  falling,  related  to  the 
recent  contraction 
investment.  In  2016, 
‘machinery  and  transport  equipment’  accounted 
for almost half (48.2 %) of the value of imports of 
goods.  Around  two  thirds  of  such  products  were 
imported  from  extra-EU  countries.  Real  imports 

labour  market (2).  Driven  by  increased  nominal 
wage  growth  and  moderate  productivity  gains, 
nominal unit labour costs are projected to increase 
by  1.3 %  in  2018  and  2019  (see  Graph  1.3).  A 
somewhat  accelerated  wage  growth  can  be 
considered sustainable, considering that real wage 
growth  has  remained  below  productivity  growth 
over  the  last  years,  and  given  Malta's  positive 
external position. 

Graph 1.3:  Decomposition of rate of change of unit labour 

costs 

Source: European Commission 

Malta  occupies  one  of  the  highest  positions  in 
the  EU  for  export  quality  in  manufacturing. 
Around  40 %  of  the  total  export  value  concerns 
products  of  top  quality  (vs  25 %  in  2011).  In 
exported  manufacturing  goods,  there  have  been 
relatively  large  swings  in  the  shares  of  high-tech 
and  medium-low  tech  goods  in  the recent past. In 
2016, the share of high-tech manufacturing exports 
amounted  to  43.2 %  (up  from  26.8 %  in  2015) 
while  the  share  of  medium-low  tech  products  fell 
to 34.8 % (from 50.7 % in 2015). 

The  services  sector  contributes  strongly  to  a 
positive  export  performance.  Buoyant  export 
performance  in  recent  years  has  resulted  in  rising 
export market shares, as gains in services markets 
offset losses in goods.  

(2)  Nominal wages are projected to increase by 3.4 % in 2018 
and 3.6 % in 2019. Real wages are expected to increase by 
remaining  below 
forecast  horizon, 
1.3%  over 
productivity growth (1.8 % in 2018 and 1.9 % in 2019). 

the 

6 

-6-4-20246802030405060708091011121314151617*18*19*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in Euro Area-20-15-10-50510152025050607080910111213141516Rate of change y-o-y (%)Contribution to EMS: goodsContribution to EMS: servicesExport market share growth yoy 
 
                                                           
 
1. Economic situation and outlook 

declined by 4% y-o-y in the first three quarters of 
2017,  due  to  the  large  drop  in  goods  imports  (-
11.2 %  y-o-y),  while  imports  of  services  fell  only 
slightly  (-0.2 %).  This  could  be  explained  largely 
by  the  decline  in  investment  in  machinery  and 
equipment (-34.8 % y-o-y during the same period). 

importance  of  cross-border  activities.  Revenues 
from the Individual Investment Programme (5) also 
contributed  sizeably  to  the  external  balance,  thus 
also helping explain the residual factor in 2016.  

Graph 1.6:  Current account decomposition (% of GDP) 

Graph 1.5:  Current account in services (% of GDP) 

Source: European Commission 

Source: European Commission 

The change in Malta’s current account position 
seems  to  be  of  structural  nature.  The  present 
level  of  the  current  account  surplus  significantly 
exceeds the current account norm (3), estimated by 
the Commission (see Graph 1.6). Even after taking 
into  account  the  impact  of  the  cycle  and  policy 
factors  there  remains  a  large  residual  that  cannot 
be  explained  by  fundamentals.  The  size  of  the 
residual could reflect the changing structure of the 
Maltese economy (4), including its emerging status 
as an international financial centre and the growing 

(3)  The  current  account  'norm'  benchmark  is  derived  from 
reduced-form  regressions  capturing  the  main  determinants 
of  the  saving-investment  balance,  including  fundamental 
determinants (e.g. demographics, resources), policy factors 
and global financial conditions. The methodology is akin to 
that  followed  by  IMF  External  Balance  Assessment.  See 
also  European  Commission,  2017, 
'Empirical  current 
account benchmarks: modelling the impact of demographic 
variables', LIME Working Group, 24 April 2017. 

(4)  Another structural factor driving the change in the current 
account  is  the  improvement  in  energy  intensity  (i.e.  kg  of 
oil equivalent per 1,000 EUR) which decreased from 162.2 
in 2004 to 114 in 2014. In 2015 it further declined to 90.8, 
below  the  EU  average  of  120.  This  shift  reflects  both  the 
the 
reduced 
improvement  in  the  efficiency  in  the  generation  of 
electricity.  Given  Malta’s  dependence  on  imported  oil, 
these developments impacted its current account position. 

importance  of  exports  of  goods  and 

7 

by 

rate, 

driven 

improved 

Lower import intensity and reliance on physical 
capital  is  coupled  with  a  sustained  saving  rate. 
Underpinning  the  improvement  in  the  current 
account  balance  is  a  recovery  in  the  national 
fiscal 
saving 
performance,  and  rising  corporate  and  household 
savings. The latter are the result of the emergence 
of  new  export-oriented  services  sectors  as  well  as 
the  restructuring  of  previously  existing  sectors 
which  has  led  to  higher  growth  in  profits.  In 
addition, the strong economic growth registered in 
recent years, combined with higher dependence on 
labour  in  the  new  economic  sectors,  has  raised 
disposable  income.  Conversely  investment  has 
slightly  declined.  In  particular,  private  investment 
in 2011-14 was below the average registered since 
EU  accession.  The  shift  from  capital  intensive 
industries  to  the  more  labour  intensive  sectors  is 
likely to have led to a compositional effect that has 
weighed  negatively  on  total  investment  growth. 
The  unusual  fluctuation  in  private  investment 
related to one-off large investment projects led to a 

(5)  The  Individual  Investment  Programme  was  established  by 
LN  47/2014.  This  scheme  grants  naturalisation  to  foreign 
individuals  and  their  dependants  following  substantial 
investment  and  a  due  diligence  process.  In  national 
accounts,  it  is  recorded  as  both  negative  government 
expenditure and exports of services. 

-40-20020406004050607080910111213141516% of GDPPersonal, cultural, and recreational servicesFinancial servicesTravelTransportCharges for the use of intellectual property n.i.e.Other business servicesOtherCurrent account in services, balance-15-10-50510150607080910111213141516ResidualCyclePolicy factorsGlobal financial factors / NIIPFundamentalsCurrent account % of GDP 
 
                                                           
 
                                                           
1. Economic situation and outlook 

Intercompany loans have become the main funding 
source for firms. Direct issuance of debt securities 
and  credit  from  non-bank  financial  institutions 
have  grown  rapidly,  albeit  from  a  low  base  (see 
Section 3.4). 

the 

On  the  liabilities  side,  domestic  banks  are 
highly  liquid.  The  main  funding  source  is  retail 
deposits,  most  of  which  are  from  domestic 
residents,  and  about  one  fifth  from  non-residents. 
Deposits  cover 
loan  portfolio,  and 
total 
domestic  banks  have  only  a  marginal  exposure  to 
ECB  funding,  i.e.  0.4 %  of  their  total  funding 
needs.  The  loan-to-deposit  ratio  has  gone  down 
significantly  in  the  past  five  years  and  now 
amounts  to  about  50 %.  However,  most  of  the 
deposits have a short-term maturity (90 % of them 
up to one year), which creates an increasing asset-
liability maturity mismatch, in particular compared 
to  mortgages,  whose  maturity  is  usually  25-30 
years.  Non-resident  deposits,  or  non-Maltese 
residents,  represent  about  14 %  of  total  deposits 
being  held  in  the  domestic  banking  sector.  Those 
coming from non-EU countries, e.g. Libya, expose 
the  banks’  funding  to  volatility  risk,  especially  in 
the  event  of  intensified  geopolitical  tensions. 
Whereas 
liquidity 
the  minimum  capital  and 
requirements  for  these  banks  are  already  higher 
than  for  others,  the  situation  warrants  continued 
attention by the supervisor (see also Section 3.2). 

Private 
corporations and households 

debt  — 

sector 

non-financial 

surge  in  private  investment  in  2015-16.  It  is 
expected  to  return  to  its  previous  levels  going 
forward.  Public  investment,  after  having  reached 
its  lowest  level  in  2010,  increased  until  2015 
thanks  also  to  the  EU  funds.  However,  in  2016  it 
diminished significantly, showing a gap compared 
to the average registered since EU accession. 

Financial sector 

Although the size of the total banking sector in 
Malta  declined,  the  domestic  sector  further 
expanded.  The  size  of  the  total  banking  sector  in 
Malta  declined  to  457 %  of  GDP  by  June-2017, 
from  510 %  end-2015.  However,  the  domestic 
sector further expanded, as total assets of domestic 
banks reached 218 % of GDP by June 2017, on the 
back  of  increased  lending  to  households.  The 
banks  have  continued  engaging 
in  mortgage 
contracts,  growing  8 %  y-o-y,  while  lending  to 
non-financial corporates remains weak. Growth in 
increased  balance 
mortgage 
sheet 
concentration 
for  domestic  banks,  whereby 
property-related  loans  represent  almost  60 %  of 
the  banks  apply  a 
resident 
stringent  credit  risk  policy,  applying  a  haircut  of 
about  30 %  on  the  market  value  of  the  property. 
Furthermore, 
authorities, 
approximately  half  of  housing  purchases  are 
funded  by  banks’  lending,  while  the  other  half 
comes from residents and non-residents’ cash. The 
exposure to the general government, both through 
direct  lending  and  through  holding  sovereign 
bonds, has declined (6).  

loans.  However, 

according 

lending 

the 

to 

Despite  the  increase  in  loans  to  the  private 
sector,  loans  to  non-financial  corporations  are 
declining.  Loans  to  non-financial  corporations 
have  continued  to  decline,  despite  favourable 
financing conditions. In yearly terms, the stock of 
loans  to  non-financial  corporations  fell  by  1 %  in 
October 2017, while growing by 2.5 % in the euro 
area.  This  could  be  partly  explained  by  the 
growing  services  sector,  which  is  highly  labour 
intensive  and  generally  requires  lower  capital 
investment, and thus may be contributing to lower 
demand  for  credit  (Central  Bank  of  Malta,  2017). 

(6)  Loans  to  the  general  government  were  1.6  pps.  lower  in 
June  2017  than  end-2016,  and  represented  6.5 %  of  the 
total  domestic  banks’  loan  portfolio.  Similarly,  banks 
reduced  their  exposure  to  the  Maltese  sovereign,  holding 
about EUR 1.7bn of short-term bills, representing 7.4 % of 
their total balance sheet. 

While  private  sector  debt  has  eased  in  recent 
years,  further  deleveraging  may  be  necessary. 
Consolidated  private  sector  debt  has  decreased 
relative to the size of the economy from its peak at 
over  160 %  in  2009  to  121.4 %  in  2016,  (though 
this was marginally higher than 2015). The decline 
has  been  mainly  due  to  passive  deleveraging  in  a 
favourable  macroeconomic  environment  by  non-
financial  corporations,  whose  debt  ratio  fell  from 
100.8 % in 2009 to 68.3 % in 2016. Nevertheless, 
both  household  and  corporate  debt  levels  stand 
above the prudential thresholds and fundamentals-
based  benchmarks  (Graph1.7),  suggesting  that 
further deleveraging may be necessary (7). 

(7)  Fundamental-based benchmarks are derived from reduced-
form regressions capturing the main determinants of credit 
growth. Stocks benchmarks are obtained by cumulating the 

8 

 
                                                           
                                                           
1. Economic situation and outlook 

Graph 1.7: 

Private sector debt: gaps to prudential and 
fundamental-based benchmarks 

Graph 1.8: 

Funding of non-financial corporations 

Source: European Commission 

equity 

instruments,  while 

The  capital  market  remains  underdeveloped. 
Maltese companies finance themselves mainly via 
debt 
financing 
constitutes  30.2 %  of  total  funding.  By  contrast, 
equity is the main source of company financing in 
the  euro  area.  The  amount  of  corporate  bond 
issuances  in  Malta  is  negligible,  yet  the  stock 
exchange  is  making  efforts  to  promote  their  use 
and expand it even to the SMEs. In the absence of 
a  sufficiently  deep  capital  market,  companies  use 
intra-group  financing  as  an  alternative  source.  In 
addition,  companies’  high  gross  operating  surplus 
(a result of the current favourable macroeconomic 
environment)  provides  an  additional  cushion, 
enabling  them  to  finance  investment  through 
retained profits. 

Source: European Central Bank and European Commission 

Fiscal developments 

Public  finances  appear  sound.  The  headline 
government  surplus  is  set  to  decrease  from  1.1 % 
of  GDP  in  2016  to  0.9 %  of  GDP  in  2017.  For 
2018 and 2019 a budget surplus of 0.5 % of GDP 
is projected (Graph 1.9). As a result of the stronger 
primary  balances  and  GDP  growth,  public  debt 
ratio  has  trended  downward,  falling  below  the 
60 %–of–GDP  threshold  already  in  2016.  The 
debt-to-GDP ratio is forecast to decrease further, to 
below 50 % in 2019.  

Graph 1.9:  Government balance and debt (% of GDP) 

credit flows predicted by the model.  Prudential thresholds 
represent  the  debt  threshold  beyond  which  the  probability 
of a banking crisis is high, obtained from the minimisation 
of  the  probability  of  missed  crisis  and  that  of  false  alerts. 
The  methodologies  are  explained  in  detail  in  European 
Commission  (2017),  "Benchmarks  for  the  assessment  of 
private debt", Note for the Economic Policy Committee. 

Source: European Commission 

9 

-20-100102030405060708004050607080910111213141516Prudential threshold - householdsFundamental benchmark - householdsPrudential threshold - non-financial corporationsFundamental benchmark - non-financial corporations0.0000.0050.0100.0150.0200.0250.0300102030405060Listedshares; 2016Debtsecurities;2016MFI loans;2016Grossoperatingsurplus:…Venturecapital (rhs);2010% of GDPFinancial2EU01020304050607080-4-3-2-101210111213141516171819% of GDP% of GDPGeneral government balanceDebt  (rhs) 
 
                                                                                   
 
 
 
1. Economic situation and outlook 

Box 1.1: The gaming sector 

The  gaming  sphere  in  Malta  has  grown  markedly  over  the  past  ten  years  (see  also  European 
Commission,  2017a).  As  a  result  of  these  developments,  the  gaming  industry  has  steadily 
increased  its  share  in  the  economic  activity  and  contributed  almost  12%  of  the  economic  value 
added in 2016. The gaming industry has become the third-largest sector in the economy, exceeding 
in  terms  of  value  added  other  traditionally  important  sectors.  Gaming  contributes  also  to 
generating value added in other major sectors, including professional services, financial and ICT 
activities, distributive trades and real estate. 

Malta  has  been  able  to  capitalize  on  its  EU  first  mover  advantage,  and  has  continued  to  be 
proactive  in  developing  its  regulatory  framework  to  sustain  the  island’s  competitive  edge  at  the 
forefront of the gaming sector. In 2016, the Malta Gaming Authority (MGA) continued working 
on the overhaul of its regulatory framework, started in early 2015, which is expected to come into 
force  in  2018.  The  new  licensing  framework  will  target  more  effectively  the  development  of 
business-to-business  activities,  enhance  the  efficiency  of  regulatory  processes  and  introduce 
flexibility  to  meet  current  and  future  dynamics  with  respect  to  technological  developments, 
consumer  protection  standards  and  market  demands.  It  will  also  increase  certain  powers  of  the 
regulator such as that of oversight.  

In  addition,  the  Fourth  Anti-Money  Laundering  Directive,  which  came  into  force  in  June  2015, 
was  finally  transposed  into  national  law  on  20  December  2017.  The  Directive  requires  iGaming 
companies  more  onerous  obligations  to  prevent  money  laundering,  while  bringing  about  an 
obligation  for  all  gambling  operators  to  conduct  customer  due  diligence  for  transactions  over 
€2,000.  Under  the  previous  Anti-Money  Laundering  Directive,  iGaming  operators  were  not 
subject  persons.  The  Fourth  Directive  also  set  the  obligation  for  remote  gaming  operators,  as 
subject persons, to appoint a Money Laundering Reporting Officer and to notify the appointment 
to both the Financial Intelligence Analysis Unit and the MGA. iGaming operators are also required 
to have systems and training in place to prevent money laundering and the financing of terrorism, 
such as customer due diligence procedures, record keeping and internal reporting procedures.  

10 

Table 1:Gaming sector indicators201420152016Number of companies in operation289         276         266         Gross value added (EUR mn)795.2      901.6      1,011.0   % of total GVA10.7%11.1%11.6%Employment (end of period, full-time equivalent)3,724      4,707      6,193      of which, land-based16.7%17.0%14.0%Gaming tax revenue (EUR mn)52.655.256.3% of total taxes on production and imports4.8%4.6%4.4%Source: Malta Gaming AuthorityThe land-based activities include, among others, casinos, gaming parlours, commercial bingo halls, national lottery, etc. 
 
 
 
 
 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators - Malta 

(1)  NIIP excluding direct investment and portfolio equity shares  (2) domestic banking groups and stand-alone banks, EU and 
non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches. 
Source:  Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise) 

11 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)2,51,76,47,25,56,95,64,5Potential growth (y-o-y)2,52,54,06,66,65,65,24,7Private consumption (y-o-y)2,10,82,35,83,1...Public consumption (y-o-y)1,03,83,03,7-2,5...Gross fixed capital formation (y-o-y)6,0-2,94,349,5-0,9...Exports of goods and services (y-o-y)7,46,72,54,14,5...Imports of goods and services (y-o-y) 7,66,30,47,41,6...Contribution to GDP growth:Domestic demand (y-o-y)2,80,62,712,30,9...Inventories (y-o-y)0,00,20,2-1,10,4...Net exports (y-o-y)-0,30,73,4-4,04,3...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0,50,81,62,63,02,82,31,8Capital accumulation (y-o-y)1,40,80,62,32,11,41,41,4Total factor productivity (y-o-y)0,60,91,91,71,51,41,41,4Output gap0,3-1,1-0,12,01,01,10,80,3Unemployment rate6,96,56,15,44,74,24,04,0GDP deflator (y-o-y)2,32,72,12,31,52,02,12,3Harmonised index of consumer prices (HICP, y-o-y)2,12,90,91,20,91,31,51,8Nominal compensation per employee (y-o-y)3,13,21,83,32,72,03,43,6Labour productivity (real, person employed, y-o-y)1,1-0,31,83,11,7...Unit labour costs (ULC, whole economy, y-o-y)1,93,5-0,10,21,01,11,61,9Real unit labour costs (y-o-y)-0,40,7-2,1-2,1-0,6-0,9-0,5-0,4Real effective exchange rate (ULC, y-o-y)1,90,90,6-3,10,51,41,70,2Real effective exchange rate (HICP, y-o-y)1,0-0,71,0-2,21,70,41,6.Savings rate of households (net saving as percentage of net disposable income)........Private credit flow, consolidated (% of GDP)9,87,73,32,811,1...Private sector debt, consolidated (% of GDP)138,0159,4140,0125,9128,6...of which household debt, consolidated (% of GDP)46,858,757,954,553,2...of which non-financial corporate debt, consolidated (% of GDP)91,1100,782,171,575,4...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)1,71,62,62,92,6...Corporations, net lending (+) or net borrowing (-) (% of GDP)........Corporations, gross operating surplus (% of GDP)24,125,2......Households, net lending (+) or net borrowing (-) (% of GDP)........Deflated house price index (y-o-y)13,5-0,70,45,14,8...Residential investment (% of GDP)6,93,92,63,23,9...Current account balance (% of GDP), balance of payments-5,0-2,25,74,66,69,69,49,8Trade balance (% of GDP), balance of payments-1,61,49,27,411,3...Terms of trade of goods and services (y-o-y)0,10,00,6-0,10,30,30,30,3Capital account balance (% of GDP)2,31,31,71,80,8...Net international investment position (% of GDP)30,711,035,152,246,5...Net marketable external debt (% of GDP) (1)87,2172,6219,1210,0214,1...Gross marketable external debt (% of GDP) (1)454,5713,7680,1551,3466,3...Export performance vs. advanced countries (% change over 5 years).36,90,4-0,56,3...Export market share, goods and services (y-o-y)-0,72,42,1-0,66,2...Net FDI flows (% of GDP)-155,4-79,2-86,2-96,1-83,7...General government balance (% of GDP)-2,9-3,1-2,1-1,11,10,90,50,5Structural budget balance (% of GDP).-2,6-2,4-2,10,80,60,10,4General government gross debt (% of GDP)67,267,166,160,357,755,051,748,9Tax-to-GDP ratio (%)33,033,433,833,033,633,333,433,4Tax rate for a single person earning the average wage (%)17,917,519,519,2....Tax rate for a single person earning 50% of the average wage (%)8,38,610,010,0....forecast 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

the 

implementation  of 

Progress  with 
the 
recommendations addressed to Malta in 2017(8) 
has to be seen in a longer term perspective since 
the  introduction  of  the  European  Semester  in 
2011.  Looking  at  the  multi-annual  assessment  of 
the  implementation  of  the  CSRs  since  these  were 
first  adopted,  87 %  of  all  the  CSRs  addressed  to 
Malta have recorded at least 'some progress'. 13 % 
of  these  CSRs  recorded  'limited'  or  'no  progress' 
(see  Graph  2.1).  Substantial  progress  and  full 
implementation have been achieved in the area of 
fiscal  policy  and  fiscal  governance  as  well  as  in 
several  areas  of  the  labour  market.  Other  areas 
with  substantial  progress  have  been  the  business 
environment and the energy sector.  

Graph 2.1:  Overall multiannual implementation of 2011-

2017 CSRs to date 

* The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact. 
** The multiannual CSR assessment looks at the 
implementation since the CSRs were first adopted until the 
2018 Country Report. 
Source: European Commission 

Public  finances  have  improved  since  Malta’s 
accession  to  the  EU.  The  budget  balance  has 
exhibited various trends since Malta’s accession to 
the  EU,  leading  to  the  opening  of  three  excessive 
deficit  procedures.  As  a  result,  the  budget  deficit 
averaged at 3.2 % of GDP in 2004-12. From 2013, 
a  continuing 
the  budgetary 
situation took place, leading to a budget surplus of 
1.1 %  of  GDP 
in  2016.  The  medium-term 
objective  was  achieved  three  years  ahead  of 
schedule.  In  the  same  year,  the  government  debt 
fell  below 
threshold.  The 
improvement in the fiscal position was the result of 
both  budgetary  measures  implemented  in  the 

the  60 %-of-GDP 

improvement 

in 

by 

recent  years  and  a  strengthening  of  revenues, 
supported 
favourable  macroeconomic 
conditions.  Conversely,  there  has  been  limited 
progress  in  improving  the  sustainability  of  public 
finances. 

including 

Substantial  progress  has  been  made  in  recent 
years in diversifying the energy mix. Significant 
efforts have been targeted at upgrading the energy 
infrastructure, 
switching  electricity 
production  from  oil  to  natural  gas.  Important 
measures in this area include the gasification of the 
Maltese  power  plants  and  the  completion  of  the 
electricity  interconnector  with  Italy.  Nevertheless, 
progress  is  still  limited  as  regards  improving 
energy  efficiency,  increasing  energy  production 
from  renewable  sources  and  reducing  greenhouse 
gas emissions, in particular in the transport sector.  

reforms 

ongoing, 

The  business  environment  is  improving  and 
judicial 
although 
are 
inefficiencies  remain  in  some  areas.  While  the 
numbers  of  days 
to  start  a  business  have 
diminished  and  the  length  of  public  procurement 
procedures  was  reduced, 
justice  system 
continues  to  face  a  number  of  challenges  and 
recent improvements to the insolvency framework 
still  need  to  be  translated  into  practical  effects. 
Various  initiatives  have  been  put  in  place  to 
improve access to finance for SMEs, including the 
set-up of the Malta Development Bank. Substantial 
improvements  were  achieved  in  reducing  the 
length of public procurement procedures. 

the 

Some  progress  was  also  achieved  in  improving 
human  capital  development.  This  was  partly 
achieved  by  reducing  early  school  leaving,  and 
incentivising 
the  professional  development  of 
teachers. The authorities have also improved skills 
governance  and  participation  in  adult  learning. 
Skill levels appear low, as it may take time before 
achievements  can  be  seen 
in  key  outcome 
indicators.  Substantial  progress  has  been  made  on 
policies  to  improve  the  work-life  balance  and 
"make  work  pay"  which  has  helped  to  lower  the 
gender  employment  gap,  although  it  remains 
substantial. 

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

past, see in particular section 3.  

12 

No Progress3%Limited Progress10%Some Progress45%Substantial Progress19%Full Implementation23%Malta -Level of implementation today of 2011-2017 CSRs 
 
 
                                                           
2. Progress with country-specific recommendations 

of 

participation 
learning 
programmes  and  the  reducing  of  the  number  of 
people living at risk of poverty (see also Box 2.2). 

skilled 

low 

in 

can 

from 

request 

Member  States 
the 
Commission  technical  support  to  prepare, 
design,  and 
implement  growth-enhancing 
structural  reforms.  The  Structural  Reform 
Support  Service  (SRSS)  provides,  in  cooperation 
with  the  relevant  Commission  services,  tailor-
made technical support, which does not require co-
financing  and  is  provided  at  a  Member  State’s 
request. The support addresses priorities identified 
in  the  context  of  the  EU  economic  governance 
process  (i.e.,  implementation  of  country-specific 
recommendations),  but  the  scope  of  the  SRSS 
support is wider as it can also cover reforms linked 
to  other  Commission  priorities,  or 
reforms 
undertaken at the initiative of Member States.  

Malta has requested technical support from the 
SRSS  to  help  implement  reforms  in  various 
areas  such  as:  public  administration,  growth 
and  the  business  environment,  public  financial 
management,  and  the  financial  sector.  In 
support 
the  SRSS  provides 
particular, 
in 
implementing 
introducing 
reviews, 
accrual  accounting 
standards,  developing  a 
national  energy and  climate  plan,  and  designing  a 
policy  framework  for  promoting  alternative  fuel 
infrastructure in transport.  

spending 

issues 

Malta has made some (9) progress in addressing 
the  2017  country-specific  recommendations. 
There has been some progress expanding the scope 
of  the  ongoing  spending  reviews  to  the  broader 
public  sector  and  in  introducing  performance-
based  public  spending.  This  also  contributes  to 
addressing 
the  2017  Council 
from 
Recommendation for the Euro Area on improving 
the composition of public finances. The authorities 
have made some progress in ensuring the effective 
national  supervision  of  internationally  oriented 
business by financial institutions licensed in Malta 
the  host 
by  strengthening  cooperation  with 
supervisors  in  the  countries  where  they  operate. 
This 
the  Euro  Area 
Recommendation  to  address  viability  risks  within 
the banking sector. 

line  with 

in 

is 

European  Structural  and  Investment  (ESI)  Funds 
are  important  in  addressing  key  challenges  to 
in  Malta, 
inclusive  growth  and  convergence 
notably  by  boosting  investment  in  R&D  and 
innovation  and  -  through  their  conditionalities  – 
ensuring 
transposition  of  public 
procurement  and  environment  directives.  ESI 
Funds  also  help 
relevance  of 
improve 
education and training so as to match skills supply 
the 
to 

labour  market  needs, 

they  support 

timely 

the 

the 

(9)  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. 

13 

 
                                                           
 
2. Progress with country-specific recommendations 

Box 2.1: CSR implementation table 

Malta 

CSR  1:  Expand  the  scope  of  the 
ongoing  spending  reviews  to  the 
broader  public  sector  and  introduce 
performance-based public spending. 
CSR  2:  Ensure  the  effective  national 
supervision of internationally oriented 
institutions 
financial 
business  by 
licensed  in  Malta  by  strengthening 
cooperation  with  the  host  supervisors 
in the countries where they operate. 

Overall  assessment  of  progress  with  2017 
CSRs: Some progress 
Some  progress  in  expanding  the  scope  of 
the  ongoing  spending 
the 
broader public sector. 

reviews 

to 

Some  progress  on  ensuring  the  effective 
national 
internationally 
oriented  business  by  financial  institutions 
licensed in Malta. 

supervision  of 

14 

 
 
2. Progress with country-specific recommendations 

Box 2.2: Tangible results delivered through EU support to structural change in Malta 

Malta  is  a  beneficiary  of  European  Structural  and  Investment  Funds  (ESI  Funds)  support 
with  an  allocation  of  up  to  EUR  828  million  until  2020.  This  represents  around  1 %  of  GDP 
annually  over  the  period  2014-18  and  28 %  of  public  investment (1).  By  end-2017,  an  estimated 
EUR 402 billion (49 % of the total) was allocated to projects on the ground. In this context, over 
2 900 firms have been selected to receive support for new productive investments; almost 240 jobs 
have  been  created  with  the  above  investments;  improvement  in  road  infrastructures  has  been 
achieved with new roads constructed and upgraded, such as the Kappara junction, which is part of 
the  main  EU  road  network  (Ten  T).  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  which  has  proved  to  be 
very successful, with an implementation rate of 100 %.  

ESI  Funds  help  address  structural  policy  challenges  and  implement  country-specific 
recommendations. ESI Funds address main structural obstacles to growth and competitiveness by 
contributing to improving the effectiveness of the justice system, the increase of the proportion of 
GDP invested in R&I, from 0.72 % to at least 2 %. They also contribute to increasing employment 
to  70 %  of  the  working  age  population.  A  substantial  number  of  measures  taken  in  response  to 
Malta’s  challenges  and  related  CSR  are  co-financed  by  the  European  Social  Fund  projects,  in 
particular  on  the  relevance  of  education  and  training  and  on  the  need  to  reduce  early  school 
leaving. For example, the Youth Guarantee 2.0 and the Access to Employment projects address the 
quality  of  labour  supply  and  the  participation  of  low  skilled  in  learning  programmes.  Other 
measures contribute to reducing the number of people that face poverty-or-social-exclusion risks.  
Various reforms were undertaken already as precondition for ESI Funds support (2). These 
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,  water  supply  including  agricultural  purposes.  The 
contribution  of  JASPERS  was  pivotal  in  developing  the  internal  capacity  for  maintaining, 
operating and updating the National Transport Model, with forecasting models up until 2025 and 
2050 to facilitate the implementation of more sustainable and efficient mobility measures. Smart 
specialisation  strategies  spur  and  coordinate  innovation  investments  between  public  and  private 
sectors, and transport plans provide a coherent framework. 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.  

Malta is advancing the take up of the European Fund for Strategic Investments (EFSI). As of 
December  2017,  overall  financing  volume  of  operations  approved  under  the  EFSI  amounted  to 
EUR  11  million,  which  is  expected  to  trigger  total  private  and  public  investment  of  EUR  34 
million. More specifically, 1 multi-country project involving Malta has been approved so far under 
the  Infrastructure  and  Innovation  Window,  amounting  to  EUR  5  million  in  EIB  financing  under 
the  EFSI.  It  concerns  the  RDI  sector  and  is  expected  to  trigger  about  EUR  17  million  in 
investments.  Under  the  SME  Window,  1  agreement  with  financial  intermediaries  has  been 
approved  so  far.  European  Investment  Fund  financing  enabled  by  the  EFSI  amounts  to  EUR  6 
million, which is expected to mobilise approximatively EUR 17 million in total investment.  

Funding  under  Horizon  2020,  the  Connecting  Europe  Facility  and  other  directly  managed 
EU funds is additional to the ESI Funds. By the end of 2017, Malta has signed agreements for 
EUR 45 million for projects under the Connecting Europe Facility.  

https://cohesiondata.ec.europa.eu/countries/MT 

(1)  Public investment is defined as gross fixed capital formation + investment grants + national expenditure on agriculture 

and fisheries. 

(2)  Before  programmes  are  adopted,  Member  States  are  required  to  comply  with  a  number  of  so-called  ex-ante 

conditionalities, which aim at improving conditions for the majority of public investments areas. 

15 

 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  RECENT DEVELOPMENTS IN FISCAL 

BALANCES AND MAIN DRIVERS 

The  fiscal  situation  has  improved  markedly.  In 
2016  Malta  moved  from  a  deficit  to  a  surplus 
position,  both  in  nominal  and  in  structural  terms. 
Also  the  debt  ratio  fell  below  the  60 %–of–GDP 
threshold. This improvement was the result of both 
budgetary  measures  implemented  in  recent  years 
and favourable macroeconomic conditions.  

Some fiscal revenues remain difficult to predict. 
The  general  government  balance  has  benefitted 
from the revenue from a particular budget measure 
i.e.  the  Individual  Investor  Programme  (IIP), 
which  was  introduced  in  2014.  The  proceeds 
related  to  this  programme  are  estimated  to  have 
reached  4.3 %  of  GDP  cumulatively  in  2014-17. 
But  it  is  difficult  to  predict  the  outcome  of  this 
measure in the medium term, since it is not linked 
to any macroeconomic development.  

Graph 3.1.1:  General government balance and the impact 

of the Individual Investor Programme (% of 
GDP) 

Source: European Commission 

At  the  same  time,  current  expenditure  was 
relatively  dynamic.  At  37.9 %  of  GDP  in  2016, 
total public spending appears low compared to the 
euro area average of 47.6 %. But Malta had one of 
the  highest  growth  rates  in  public  expenditure  in 
the EU over the last three years (at 5.6 % vs 1.5 % 

in  the  EU).  This  high  growth  rate  in  public 
spending  was  partly  due  to  increased  public 
investment related to the absorption of EU funds in 
2015.  Nevertheless,  current  expenditure  was  also 
very dynamic in the last three years, with a growth 
rate of 6.0 %, against 1.8 % in the EU.  

Graph 3.1.2:  Average growth 2013-2016 of total current 
expenditure per inhabitants 

Government outlays are measured in purchasing power 
parity to take account of the different level of prices across 
countries. 
Source: European Commission 

is  growing 

Expenditure  per  capita 
fast, 
especially  for  health  and  education.  While  the 
level  of  public  expenditure  per  capita  in  Malta  is 
below the EU average, its growth rate is one of the 
highest  in  the  EU  in  the  last  three  years  (Graph 
3.1.2).  The  functions  where  expenditure  per 
inhabitants  has  increased  most  are  health  and 
education.  In  the  long  run,  these  sectors  will  also 
face  pressure  from  the  ageing  population,  thus 
putting  additional  pressure  on  the  expenditure 
dynamic  (see  below).  Growth  rates  above  the  EU 
average  have  been  registered  also  for  economic 
affairs  and  general  public  services,  while  social 
protection  expenditure  is  growing  at  a  moderate 
pace. 

Malta  has  largely  achieved  fiscal  consolidation 
without penalising public investment, albeit the 
latter  is  low  compared  to  peer  countries.  After 

16 

-4-3-2-1012121314151617General government balanceGeneral government balance without Individual InvestorProgramme-10123456ROLVEELTMTPLSKHRBGCZDESIFRATEU-28EA-19LUHUESBEITUKSEELFIDKPTCYIENL 
 
 
 
declining  to  2.2 %  of  GDP  in  2010,  government 
investment  increased  to  4.3 %  of  GDP  in  2015, 
reflecting  also  the  necessity  to  shield  EU-funded 
projects from cuts, which account for a large share 
of  public  investment.  However,  in  2016  it  fell 
significantly to 2.5 % of GDP and it is projected to 
increase  only  marginally  in  2017,  due  also  to  the 
beginning  of  the  new  programming  period  and 
despite  the  accumulation  of  funds  in  the  National 
Development  and  Social  Fund (10)  related  to  the 
IIP.  As  a  result,  public  investment  accounted  for 
3.5 %  of  GDP  on  average  in  2014-16,  above  the 
EU average of 2.8 % (EA: 2.7 % of GDP), but one 
of the lowest among peer countries (small Member 
States). 

Graph 3.1.3:  Gross fixed capital formation in 2012 and 2016 

(% of GDP) 

Source: European Commission 

3.1.2.  TAXATION 

Malta’s  tax  system 
increasingly  relies  on 
corporate  income  tax.  In  2016,  Malta  had  an 
overall tax-to-GDP ratio of 32.7 %, well below the 
EU average of 38.9 % (11) (European Commission, 
forthcoming).  While 
taxes  on 
production  and  imports  is  in  line  with  the  EU 

the  share  of 

(10)  The  National  Development  and  Social  Fund  was 
established in 2015 and is expected  to receive 70% of the 
contributions  paid  by  the  IIP  applicants.  The  funds  it 
receives  must  be  used  in  the  public  interest,  including  on 
education,  research,  innovation,  social  purposes,  justice 
and 
the 
rule  of 
environment and public health. 

law,  employment 

initiatives, 

the 

(11)  Tax-to-GDP ratio differs from what indicated in Table 1.1 
as voluntary actual social contributions are not included. 

3.1. Public finances and taxation 

average, the share of taxes on individual income is 
lower  than  the  EU  average.  Social  contributions 
(5.5% of GDP) represent a relatively small portion 
of  tax  revenue  (against  12.1%  in  the  EU).  In 
proportion to GDP, corporate income tax revenues 
(6.5%) are the highest in the EU and 2.5 times the 
EU  average (2.6%).  Malta’s corporate  income  tax 
to GDP ratio has increased by 2.8 pps. from 2005 
to 2016 (from 3.7% to 6.5%), against a decrease of 
0.3 pps. on average in the EU. Corporate taxation 
therefore  stands  out  as  an  important  and  growing 
source  of  tax  revenue  for  Malta.  Malta’s  narrow 
tax  base,  combined  with  its  tax  compliance  and 
planning  challenges  (see  below),  could  adversely 
affect  the  country's  fiscal  position  in  the  case  of 
economic shocks or international corporate income 
tax reforms. 

Malta  has  proposed  a  measure  to  address  its 
relatively  high  corporate  debt  bias.  Debt 
financing  seems  encouraged  in  Malta  by  the 
corporate  tax  advantage  offered  on  debt  over 
equity.  As  a  result,  Malta  has  one  of  the  highest 
debt-equity  biases  (3.8 %)  in  the  EU (12),  and  has 
made  no  progress  in  addressing  it  in  recent 
years (13).  Some  steps  have  been  taken  to  reduce 
the  bias,  like  the  Notional  Interest  Deduction 
(NID)  regime  (available  from  2018),  which  is 
expected to make equity financing more attractive. 
In  particular,  it  will  allow  companies  and  foreign 
companies with permanent establishments in Malta 
to  claim  a  deduction  on  their  equity  against  their 
tax base. The deduction will be capped at 90 % of 
the  tax  base  and  any  excess  may  be  carried 
forward  to  be  deducted  in  future  years.  The  90 % 
cap  may  be  problematic  for  young  companies,  as 
they  tend  to  accumulate  early-year  losses.  The 
scheme also contains features which could have a 
high  impact  on  budget  revenues:  it  applies  to  all 
equity,  which  gives  a  windfall  for  pre-existing 
investments; and the scope of risk capital is broad 
and the current notional return rate is high, at about 
7 % (14).  

(12)  To be break even, an investment financed by debt needs to 
than  an  equity-financed 

lower  return 

earn  a  3.8 % 
investment. 

(13)  Malta  provides  a  full  imputation  system,  which  is  not 
reflected  in  this  data.  This  may  partially  offset  the 
corporate debt bias. 

(14)  The 7% consists of (i) the risk-free rate on the current yield 
to maturity for government stocks with a remaining term of 
approximately  20  years  –  which  is  currently  around  2 %, 
and (ii) a 5 % risk premium. 

17 

01234567EECYLVLUMTEU2820122016 
 
                                                           
                                                           
3.1. Public finances and taxation 

source  and  remittance  basis,  may  be  used  by 
companies to engage in tax avoidance practices. 

it 

is  subject 

Malta  has  taken  measures  to  amend  some 
aspects  of  the  tax  system  that  were  facilitating 
tax  planning.  The  Code  of  Conduct  on  Business 
Taxation  Group  has  approved  the  closure  of  the 
old  patent  box,  to  align  it  with  international 
developments.  However, 
to  a 
grandfathering  clause  that  lasts  until  June  2021. 
While the economic evidence on the effectiveness 
of  patent  boxes  as  a  means  to  encourage  R&D 
remains limited (CPB, 2014), they may be used as 
tax  competition  tools  (Alstadsæter  et.  al,  2017). 
Finally, 
the  EU  Anti-Tax 
Avoidance  Directives  (ATAD)  will  have  to  be 
transposed  into  national  law  by  the  end  of  2018 
and  2019.  The  directives  will  introduce  new  anti-
abuse  rules (20).  It  will  be  important  to  assess  to 
what  extent  this  change,  in  conjunction  with  the 
effect of the transposition of the ATAD, will limit 
the scope for aggressive tax planning in Malta. 

the  provisions  of 

Improving  VAT  tax  compliance  remains  a 
challenge,  but  significant  progress  has  been 
made.  Malta  recently  experienced  its  biggest 
decline in the VAT gap (21). In 2015, as a result of 
a 17 % decline in VAT total tax liability, there was 
a  considerable  drop  in  the  VAT  gap  –  to  23 % 
from  40 %  the  previous  year.  The  fall  is  due 
mostly to the impact on the e-gambling regime of 
the  introduction  of  the  new  Mini  One  Stop  Shop 
in 
regime 
accordance  with  EU  law.  However,  the  VAT  gap 
remains well above EU average (13 %).  

(MOSS) (22) 

introduced 

in  2015 

to 

lead 

to  engage 

that  engage 

in  aggressive 

those  payments  escaping 

Some  indicators  continue  to  suggest  that  the 
country’s  corporate  tax  rules  are  used  by 
companies 
tax 
planning.  As  shown  in  a  study,  Malta’s  high 
inward  and  outward  FDI  stock (15)  is  only  partly 
explained by real economic activities taking place 
in  the  country (16).  The  high  level  of  dividend, 
interest  and  royalty  payments (17)  as  a  percentage 
of GDP continue to suggest that the country’s tax 
rules  are  used  by  companies 
in 
aggressive tax planning. Companies  might choose 
to  invest  in  Malta  to  benefit  from  these  corporate 
tax  rules.  The  large  majority  of  FDI  is  held  by 
'Special  Purpose  Entities' (18).  The  absence  of 
withholding 
interest  and 
taxes  on  dividends, 
royalty payments made by Malta based companies 
tax 
may 
altogether, if they are also not subject to tax in the 
recipient  country.  This  may  facilitate  aggressive 
tax  planning19.  While  Malta’s  new  NID  regime 
will help to reduce the debt equity bias, the current 
anti-avoidance  provisions  included  in  the  law  are 
not  detailed  or  strong  enough.  For  example,  the 
NID  regime  includes  neither  comprehensive  anti-
earnings  stripping  nor  adequate  anti-cascading 
rules.  This 
lack  of  strong  anti-abuse  rules, 
combined  with  the  high  return  rate  and  not-
incremental  system  of  the  regime,  may  provide 
opportunities  for  tax  avoidance,  thus  pointing  to 
the  need  to  closely  monitor  the  effectiveness  of 
these  anti-avoidance  rules.  The  existence  of  some 
provisions  in  bilateral  tax  treaties  between  Malta 
and  other  EU  Member  States,  coupled  with  the 
Malta’s  tax  system,  where  a  company  being  a 
resident  but  not  domiciled  in  Malta  is  taxed  on 

(15)  In  2016,  the  level  of  inward  and  outward  foreign  direct 
investment  (FDI)  stock  amounted  respectively  to  1626% 
and 626% of GDP (among the 5 highest in the EU).  
(2018).  Aggressive  Tax  Planning 

indicators 

(16)  IHS 

forthcoming in Taxation Papers. 

(17)  The  flows  of  dividends  paid  (calculated  as  net  income  on 
FDI)  amounted  to  86.3  %  of  GDP  (the  2nd  highest  in  the 
EU).  The  royalties  paid  and  received  in  2016  amounted 
respectively  to  2.9  %  of  GDP  and  4.5  %  of  GDP  (the  4th 
highest in the EU).   

(18)  The  share  of  inward  and  outward  FDI  stock  held  by 
'Special  Purpose  Entities'  amounted  respectively  to  96% 
and  98%  of  GDP  in  2016.  A  special  purpose  entity  is  a 
legal entity that has little or no employment, operations or 
physical presence  in the jurisdiction where it is located. It 
is related to another corporation, often as its subsidiary, and 
is typically located in another jurisdiction. 
information  on 

interaction  between 
withholding tax and aggressive tax planning structures, see 
ZEW  (2016),  the  Impact  of  Tax  Planning  on  Forward-
Looking Effective Tax Rates, Taxation papers 64. 

19   For  more 

the 

The  2018  budget  introduces  measures  to  fight 
tax  evasion.  The  authorities  aim  to  fight  tax 
evasion  and  unfair  competition  by  increasing 
penalties for agreements settled both in and out of 
court.  And  the  Joint  Enforcement  Task  Force  is 
expected  to  continue fighting tax  evasion,  also  by 
increasing the number of inspectors.  

(20)  Such  as  CFC  rules,  interest  limitation  rules  and  rules 

countering hybrid mismatches. 

(21)  The VAT gap is the difference between the amount of tax 
actually collected and the theoretical net VAT liability for 
the economy, under the country’s current VAT system. 
(22)  The  MOSS  scheme  changed  the  way  VAT  was  invoiced 
for  exported  electronic  services,  obliging  VAT  from 
electronic  services  to  be  paid  to  the  country  where  the 
customer was resident. 

18 

 
                                                           
                                                           
3.1. Public finances and taxation 

these 

increased  effectiveness 

implemented, 
towards 

review  and  will  coordinate  in  the  future.  If 
initiatives  could 
properly 
contribute 
in 
public spending. The fiscal framework would also 
benefit  from  the  planned  introduction  of  accrual 
accounting  in  all  government  departments.  This 
project,  which  in  its  initial  stage  will  cover  only 
selected  departments,  should  encompass  them  all 
within 30 months. Once finalised, the new system 
should  generate  a  much  more  accurate  and 
transparent picture of public finances. 

3.1.4.  FISCAL SUSTAINABILITY 

sustainability  gap 

Malta  faces  medium  sustainability  risks  in  the 
long term. With government debt below the 60 %-
of-GDP threshold, Malta does not face significant 
fiscal  risks  over  the  short  or  the  medium  term. 
However,  according  to  the  Commission’s  long-
(the  S2 
term 
indicator (23)), Malta appears to be at medium risk 
in the long term. Risks to long-term sustainability 
are  driven  entirely  by  the  projected  cost  of 
population  ageing  (5.0  pps  of  GDP),  particularly 
higher  expenditure  on  healthcare  and  long-term 
care  (2.9  pps.  of  GDP),  but  also  higher  pension 
expenditure (1.8 pps. of GDP). 

indicator 

Pension system 

The  long  term  sustainability  of  the  pension 
system  has  improved.  Mainly  thanks  to  a  more 
positive  assessment  of  Malta’s  long-term  growth 
potential, the long-term sustainability prospects for 
pension expenditure have improved. However, the 
measures introduced in the 2016 budget had only a 
limited impact on long term sustainability, and this 
remains a challenge in Malta. 

3.1.3.  FISCAL FRAMEWORK AND EXPENDITURE 

REVIEW 

Public  finances  have  also  benefited  from  the 
strengthening  of  the  fiscal  framework  brought 
about  by  the  Fiscal  Responsibility  Act.  One  of 
the new features of the 2014 Fiscal Responsibility 
Act  was  the  creation  of  Malta’s  Fiscal  Advisory 
Council (MFAC), whose members were nominated 
in  January  2015  (see  European  Commission, 
2017a). The Council is already a firm fixture in the 
public  debate  on  fiscal  developments.  Up  to  now, 
the 
it  has  expressed  broad  endorsement  of 
government’s forecasts and assessed positively the 
compliance  with  national  fiscal  rules.  But  despite 
those  positive  opinions,  the  Council  regularly 
appealed  to  the  government  to  rigorously  execute 
its budgetary strategy. It also drew attention to the 
volatility of population projections and the related 
risk  in  assessing  the  long-term  sustainability  of 
public finances. Since the Council’s early years of 
operation  have  coincided  with  fairly  benign 
macroeconomic  and 
its 
effectiveness  is  yet  to  be  tested  in  hard  economic 
times. 

fiscal  developments, 

three  areas  of  public  spending 

The  expenditure  review 
is  ongoing.  The 
authorities  started  an  expenditure  review  in  2014 
that  are 
in 
particularly relevant for fiscal sustainability: social 
security, health and education. In 2017, the review 
programme  focused  on  other  services  within  the 
Ministry  for  Health,  including  the  Ministry  itself, 
Primary Care Services, Pharmacy Of Your Choice 
and the Contracts Procurement Services Unit. Each 
review  ended  with  the  publication  of  a  report 
which  included  recommendations,  some  of  which 
have  been  already  implemented  (mainly  for  the 
first  two  reviews)  and  some  of  which  are  in  the 
process of being implemented. 

Further  initiatives  are  envisaged  both  in  the 
area  of  spending  review  and  fiscal  framework. 
The  authorities  are  planning  that  a  review  will  be 
undertaken at the Management Efficiency Unit and 
the  Malta  College  for  the  Arts,  Sciences  and 
Technology.  They 
to 
are 
institutionalise the spending review function under 
a directorate in the Ministry for Finance that deals 
with  public  sector  performance  and  evaluation. 
This  directorate  will  also  be 
in  charge  of 
monitoring  the  recommendations  issued  in  past 
years  in  the  three  areas  covered  by  the  spending 

planning 

also 

to 

Measures 
improve  pension  adequacy 
continued,  but  the  gender  coverage  gap  in 
pensions  remains  high.  Last  year's  fiscal  reform 
introduced substantial tax exemptions on pensions. 
Efforts  towards  improved  adequacy  continue  e.g. 
fiscal 
with  upward  adjustments  and 
reforms. Nevertheless, in 2016 the risk of poverty 
and social exclusion increased to 26.1 % (2.4 pps) 

further 

(23)  The  S2  indicator  measures  the  upfront  adjustment  to  the 
current  structural  primary  balance  that  is  required  to 
stabilise debt-to-GDP ratio over the infinite horizon, taking 
into  account  any  additional  expenditure  arising  from  an 
ageing population. 

19 

 
                                                           
3.1. Public finances and taxation 

for  elderly  people,  against  very  dynamic  work 
incomes  (see  section  3.3).  Malta’s  26  pps  gender 
coverage  gap  (EU  average  5 %)  for  pensioners 
above  65  years  remains (24)  one  of  the  highest  in 
the EU. The lower economic activity of women in 
earlier  decades  has  led  to  poor  pension  coverage 
for older cohorts. The authorities envisage changes 
to  National  Insurance  contributions  seeking  to 
redress  the  situation  of  low  contributions  by 
women in particular (25). 

budgetary terms (OECD/European Observatory on 
Health Systems and Policies, 2017). 

Initiatives  are  being  undertaken  to  cater  for 
growing  demand  in  the  long-term  care  system. 
Due  to  the  increasing  demand  for  long-term  care, 
the  government  is  incentivising  community-based 
and home care, which are considered cheaper than 
institutional  or  hospital  care.  Better  coordination 
between  the  health  sector  and  the  social  sector 
would also help the sustainability in the long-term. 

Healthcare and long-term care system 

Indicators  on  health  outcomes  have  improved 
and  waiting  times  are  being  reduced.  The 
performance of the health system has improved, as 
evidenced  by  high  life  expectancy,  amenable  and 
preventable  mortality  rates  below  the  EU  average 
and generally low levels of unmet need. Access to 
innovative medicines, mainly for cancer treatment, 
was  improved  by  introducing  clinical  pathways 
and innovative procurement strategies. In addition, 
interventions  and 
waiting 
diagnostics  are  being 
to  an 
increased  capacity  and  commissioning  of  some 
services  from  the  private  sector.  Nevertheless, 
some  risk  factors  may  have  a  negative  impact  on 
fiscal  sustainability  in  the  future.  In  particular, 
rising obesity levels pose a significant challenge to 
public health (IHME, 2016). 

times  for  surgical 

tackled 

thanks 

from  hospital 

Challenges  remain  in  the  redistribution  of 
to 
resources  and  activities 
primary  care,  and  in  access  to  innovative 
medicines.  The  institutional  setting  of  primary 
healthcare provision puts pressure on both hospital 
and emergency care, also making the management 
of  care  for  patients  with  chronic  conditions  more 
complex.  Hospital  and  primary  care  are  not  well 
coordinated,  emergency  care  remains  inefficiently 
used,  thus  not  improving  the  efficiency  of  the 
health  system  nor  reducing  pressure  on  its  long-
term  sustainability.  Finally,  access  to  innovative 
medicines  remains  a  major  challenge,  also  in 

(24)  Measuring  the  gap  between  the  proportions  of  men  and 

women who are entitled to a pension. 

(25)  Contributory  and  non-contributory  pensions,  for  the  3rd 
year  running,  will  be  increased.  Increasing  further  the  tax 
exemption  ceiling  was  announced 
(2018  budget). 
Redressing  low  National  Insurance  contributions  will  take 
into  account  contributions  made  after  age  65  and,  will  be 
pro-rata, instead of full-rate, on net incomes of those retired 
before 65 years working part-time or self-employed. 

20 

 
                                                           
3.2.  FINANCIAL SECTOR 

Financial stability 

Good economic performance has been reflected 
also  in  the  performance  of  the  banking  sector, 
while  new  accounting  rules  call  for  extra 
provisions.  In  2017,  domestic  banks  further 
increased  their  profitability  on  an  annual  basis, 
although  this had  come  down  substantially  during 
the  crisis,  mainly  due  to  the  compressed  interest 
rate  margins.  The  profits  came  mainly  from 
improved  interest  margins,  with  higher  lending 
rates and expanded mortgages in terms of volume, 
and  flat,  low  deposit  rates.  Domestic  banks  are 
well  capitalised  according  to  the  local  supervisor, 
with capital ratios (CET1) at 15.5 % on September 
2017  (Table  1.1).  Although  Maltese  banks  are 
considered  well  provisioned,  with  half  of  their 
collateral  being  real  estate  property  whereby  10-
30 %  haircut  on  the  value  of  the  property  is 
applied,  extra  provisioning  is  called  for  following 
the  new  accounting  rules  (i.e.  IFRS9).  According 
to  EBA  estimates,  domestic  banks  will  need  to 
increase  their  provisions  by  around  13 %  on 
average  from  the  current  provisions  they  hold 
(under IAS39). The current coverage ratio stood at 
46.3 %  in  June  2017.  The  two  largest  domestic 
banks  increased  their  capital  buffers  in  Q3 2017, 
by 
them 
sufficient  comfort  for  the  upcoming  EU-wide 
stress test in 2018. 

issuing  subordinated  debt,  giving 

In  line  with  firms’  enhanced  financial  results, 
but  also  due  to  new  supervisory  rules,  credit 
improved.  Consistent  with  strong 
risk  has 
economic growth, the formation of new gross non-
performing  loans  (NPL)  has  declined.  Moreover, 
stricter supervisory rules on reducing NPL pushed 
domestic  banks  to  further  reduce  their  stock  of 
legacy assets to 4.3 % of total gross loans by June 
2017,  a  decrease  by  19 %  since  the  beginning  of 
the  year.  The  reduction  of  NPLs  was  conducted 
mainly  through  write-offs,  which  banks  managed 
to  afford  through  a  combination  of  higher  profits 
and  some  provisions.  While  legacy  exposures  to 
households  were  further  reduced,  and  stand  at 
the  corporate  sector  remain 
3.9 %, 
relatively  high,  at  10.2 %.  These  exposures  relate 
mainly  to  the  construction  sector,  where  a  large 
stock  of  NPLs  was  build  up  during  the  crisis 
period. The effort by domestic banks to reduce and 
write-off  legacy  assets  was  incentivised  by  the 
relevant  change  in  the  supervisory  requirements, 

those 

to 

notably  the  amended  Banking  Act,  published  in 
December 2016 (26). 

Table 3.2.1: 

Financial soundness indicators, total (i.e. 
domestic and international) banks, Malta (%) 

*ECB aggregated balance sheet: loans excluding to 
government and MFI/deposits excluding from government 
and MFI 
**For comparability only annual values are presented 
Source: ECB CBD 

and 

is  crucial. 

insurance  business  are 

international  dimension  of  the 
Given  the 
insurance  sector,  ensuring  effective  cross-
strengthening 
border 
supervision 
supervisory  capacity 
Insurance 
companies registered in Malta and writing business 
across  the  EU  are  under  direct  supervision  by  the 
Maltese  regulator,  the  Malta  Financial  Services 
Authority  (MFSA).  The  main  destinations  for 
cross-border 
the  UK, 
Ireland, the Netherlands, Italy and Germany. Over 
the  past  two  years,  five  new  foreign  financial 
companies  with  EU  cross-border  activities  were 
established in Malta. At the end of 2016, 95 % of 
the  non-life  insurance  business  and  over  70 %  of 
the  life  business  registered  in  Malta  was  written 
abroad. This aspect – together with the complexity 
of  insurance  business  models  and  products,  with 
increased  appetite  for  establishing  and  expanding 
specialised insurance vehicles – calls for stringent 
insurance 
supervisory 
attention.  Whereas 
supervision  has  been  strengthened  since 
the 
Solvency  II  regime  was  transposed  into  national 
law,  the  implementation  of  the  new  supervisory 
powers needs to be further monitored. In addition, 
the  MFSA  seems  understaffed  to  ensure  effective 
supervision of a large number of foreign financial 
companies (both banks and insurance companies). 

(26)  The  amended  Banking  Act  requires  any  credit  institution 
with  a  two-year  average  NPL  above  6%  to  draw  up  a 
concrete plan to bring the level of NPLs below this ceiling 
over  a  five-year  period.  If  they  miss  the  set  targets, 
automatic  sanctions  apply, 
including  higher  capital 
requirements, through retained profits. 

21 

20102011201220132014201520162017Q2Non-performing debt1.61.51.72.03.22.92.62.3Non-performing loans----6.05.14.13.7Non-performing loans NFC----9.19.37.47.9Non-performing loans HH----5.15.05.24.8Coverage ratio27.838.041.837.631.633.736.435.1Loan to deposit ratio*103.894.589.873.766.463.061.561.3Tier 1 ratio49.652.249.643.923.118.817.718.1Capital adequacy ratio52.054.651.946.425.121.220.220.3Return on equity**3.63.24.73.74.46.38.1-Return on assets**1.00.81.10.70.70.90.9- 
 
 
 
 
                                                           
 
3.2. Financial sector 

Lack  of  human  and  financial  resources  may 
undermine 
supervision, 
the  effectiveness  of 
especially  in  the  insurance  sector,  with  potential 
consequences  across  the  Single  Market,  given  the 
focus  on  cross-border  business.  Measures  to  ease 
restrictions on remuneration levels are in progress. 

tourism  sector  seems  to  put  pressure  on  house 
prices  and  availability,  as 
the 
percentage of tourists (share of guest nights) using 
private accommodation has increased from 34.4 % 
to 40.6 % (Malta Tourism Authority, 2016).  

in  2014-16 

Anti-money laundering  

a 

notified 

authorities 

Ensuring  an  effective 
legal  framework  to 
combat  money  laundering  remains  critical, 
given the size of Malta’s financial sector. Malta 
is  an  important  international  financial  centre.  The 
Maltese 
complete 
transposition  of 
the  Anti-Money  Laundering 
Directive  in  December  2017.  Further  analysis  is 
needed to assess if these measures are sufficient to 
ensure an effective framework for the fight against 
money  laundering  and  terrorist  financing.  The 
2018  EU  Justice  Scoreboard  examines 
the 
functioning of EU Member States’ justice systems 
when  dealing  with  money  laundering  criminal 
offences, but no data was available for Malta.  

Housing market 

include 

these  developments 

House  prices  are  increasing  sharply  driven  by 
several  factors.  In  recent  years,  house  prices 
increased  considerably,  by  5.8 %  and  5.6 %  in 
2015  and  2016,  respectively  (see  also  European 
Commission,  2017a).  This  growth  rate  was 
sustained in the first half of 2017, at 5.3%. Factors 
strong 
behind 
economic activity, buoyant labour market together 
with  rising  numbers  of  foreign  workers,  and  low 
interest  rates  which  make  property  a  more 
attractive  asset.  Lower  interest  rates  have  both 
reduced the cost of borrowing and boosted demand 
for  property  through  portfolio  rebalancing.  Some 
policy measures have also contributed to the recent 
rise  in  house  prices,  namely  the  stamp  duty 
exemption for first-time buyers (27), the Individual 
Investor Programme (IIP) (28), the reform to rental 
income tax legislation (all introduced in 2014) and 
the 2015 capital gains tax reform. In addition, the 

(27)  The  scheme  was  introduced  in  2013  and  subsequently 
extended.  It  provides  relief  from  the  duty  on  documents 
due  on  the  first  EUR  150,000  of  the  total  value  paid  to 
purchase  eligible  property.  The  2018  budget  further 
extended  the  scheme  for  first-time  buyers  and  introduced 
the reduction in duties for second-time buyers. 

(28)  IIP  applicants  are  required  to  make  an  investment  in 
property of at least €350,000 or rent a property for at least 
€16,000 per annum, both for at least five years. 

to 

seems 

construction 

Residential 
be 
experiencing  very  rapid  growth,  which  could 
further fuel price expectations. In response to the 
higher  demand,  supply  has  also  expanded,  with 
profitability  in  the  sector (29)  increasing  despite 
growing  costs.  Building  permits  have  been  on  a 
rapid  recovery  path  since  2014  and  the  increase 
was  more  pronounced  in  2016,  especially  for 
apartments  which  doubled.  Also  the  volume  of 
property transactions has been very dynamic since 
2014,  resulting  in  one  of  the  highest  rates  in  the 
EU  of  non-recurrent 
tax  on  property  as  a 
proportion of total taxation.  

Graph 3.2.1:  Residential investment and building permits 

Source: European Commission 

Despite  increasing  house  prices,  housing  in 
Malta is generally affordable, though there are 
increasing concerns for low-income households. 
Overall  housing 
favourable 
conditions 
(Housing Europe, 2015). Indeed, the overcrowding 
rate (30) in 2015 was at 3.5 %, one of the lowest in 
the EU, and considerably below the EU average of 
16.8 %.  However,  the  severe  housing  deprivation 
rate for tenants who rent at market price is 10.1 %, 
significantly higher than for home owners (0.5 %) 

are 

(29)  As measured by the gross operating surplus.  
(30)  The  overcrowding  rate  is  defined  as  the  percentage  of  the 

population living in an overcrowded household. 

22 

01234567805010015020025030004050607080910111213141516% of GDP2010=100Building permitsResidential investment (rhs) 
                                                           
 
                                                           
3.2. Financial sector 

Graph 3.2.2:  Overvaluation gap of house prices 

and also above the EU average (6.4 %). The share 
of  the  population  who  rent  at  market  prices  is 
currently  relatively  low  in  Malta.  Access  to 
affordable,  quality  housing  might  become  more 
difficult  for  low-income  earners,  due  to  increased 
demand  for  rental  housing  by  new  residents  and 
the already existing waiting lists for social housing 
(see also section 3.3). 

in 

thus 

House  prices  seem  broadly 
line  with 
fundamentals, though recent trends could result 
in  risks,  going  forward.  The  price-to-rent  ratio 
remains close to its 2007 peak. However, the other 
valuation  estimates  show  that  the  excessive  price 
growth prior to 2008 has corrected. Overall, these 
metrics  do  not  point  to  significant  risks  of 
overvaluation, although the trend is on the upward 
side, 
additional  monitoring. 
Approximate  information  on  the  ratio  between 
house  prices  and  household  income  in  Malta  can 
be  estimated  using  the  ECB  Household  Finance 
and Consumption Survey. This reflects the number 
of  years  of  income  per  capita  needed  to  buy  an 
average  100  m2  dwelling,  with  the  value  of  10 
being the prudential threshold. According to these 
data, the ratio of prices to income can be estimated 
at around 10 for Malta (31).  

requiring 

(31)  See  Bricongne,  J.-C.,  P.  Pontuch,  and  A.  Turrini 
(forthcoming),  Assessing  House  Prices:  Insights  from 
HouseLev,  a  new  dataset  of  prices  in  levels,  European 
Commission  Discussion  Paper.  Calculation  using  data  for 
around 3500 transactions in 2012, provided by the Maltese 
National Statistical Office is consistent with these findings, 
being only 10% below the figure obtained from HFCS. 

Source: European Commission 

Lending  to  households  led  to  rapid  growth  in 
mortgage  lending,  mainly  at  variable  rates. 
Lending  to  construction  and  real  estate  activities 
recovered,  in  particular  in  the  third  quarter  of 
2017, on the back of positive developments in the 
property  market.  At  the  same  time,  mortgage 
lending  remained  buoyant.  In  recent  years,  new 
mortgages  at  variable  rates  have  represented 
between  70.4  and  98.4 %  of  the  total.  A  further 
rise  in  interest  rates  could  have  some  impact  on 
both  households  and  domestic  banks’  balance 
sheets,  due  to  their  exposure  to  property-related 
loans.  In  light  of  this,  close  monitoring  of  the 
housing  market  would  help  prevent  possible 
adverse developments. 

23 

-60-50-40-30-20-100102030400001020304050607080910111213141516Model-based valuations gapPrice to income vs. historical averagePrice to rent vs. historical average 
                                                           
 
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR MARKET 

to  4 % 

On  the  back  of  strong  economic  growth, 
Malta’s  labour  market  outcomes  have  further 
improved.  The  employment  rate  rose  for  both 
women  and  men,  reaching 71.8 %  in Q3  of  2017, 
close  to  the  EU  average.  Activity  rates  have 
continued  to  rise.  The  unemployment  rate  has 
reduced  further 
in  2017.  Long-term 
unemployment is very low. Average wage growth 
remained moderate despite low unemployment and 
increasing labour shortages, but is expected to pick 
up  in  2018-19  (see  Section  1).  Labour  market 
outcomes  have  improved  on  the  back  of  strong 
economic  growth  in  recent  years,  supported  by  a 
well-functioning  social  dialogue.  The  Malta 
Council  for  Economic  and  Social  Development  is 
currently  being  restructured,  potentially  further 
improving social dialogue.  

at  82.9 %.  Employment 

The  employment  rate  for  prime  age  women  is 
improving  but  employment  rates  fall  sharply 
after  the  age  of  30.  The  female  employment  rate 
(20-64  years)  continued  its  steady  growth  to 
55.5 %  in  2016  but  implies  a  large  gender 
employment gap, except for women below 30: the 
employment rate for women 25-29 years has been 
high 
rates  drop 
considerably for women after 30. By contrast, the 
employment  rate  for  men  continues  to  rise  or 
remains  stable  above  the  age  of  30,  resulting  in  a 
large and growing employment gap from the 30-34 
age  group  onwards.  Policies  to  increase  female 
labour  market  participation  may  so  far  be  more 
effective 
the 
structural  change  required  at  older  ages  is  more 
challenging. 

for  younger  women  whereas 

the 

‘Make  work  pay’  policies  continue  to  support 
female  employment,  but  the  sharing  of  care 
responsibilities  between  women  and  men 
remains unbalanced. The 2018 budget announced 
'make  work  pay' 
several  extensions  of 
measures  that  could  improve  work-life  balance. 
These  include  income  tax  rebates  for  long-term 
unemployed  women  on  re-entering  work,  benefits 
and  maternity  leave  for  self-employed  women, 
expanding  availability  of  before  and  after  school 
care;  leave  to  care  for  sick  children;  financial 
incentives  for  employers  to  introduce  work-life 
balance measures. However, fathers still have very 

leave),  and  parental 

limited  entitlement  to  paid  leave  (only  1  day  of 
paternity 
is  not 
compensated.  This  often  prevents  men,  generally 
main earners, from taking it thereby reinforcing an 
imbalance  in  the  share  of  work  and  caring 
responsibilities between women and men.  

leave 

Graph 3.3.1:  Employment rate by age and sex, 2016 

Source: Eurostat – EU Labour Force Survey 

significant  efforts 

Participation  by  children  below  3  years  old  in 
formal  childcare  remains  below  EU  average. 
Despite 
to  offer  almost 
universally free childcare, current take-up is below 
EU  average  and  the  Barcelona  target  of  33 % 
coverage. (32)  Take-up  may  be  linked  to  female 
labour market participation and must be seen in the 
context  of  low  education  outcomes  and  high 
migrant  population,  where  participation  in  early 
childcare  has  been  associated  with  improved 
outcomes. 

The employment rate of people with disabilities 
is  low.  In  2015,  the  employment  rate  of  people 
with  disabilities,  at  25.8 %  (EU  average:  47.4 %) 
was the lowest in the EU, potentially reflecting the 
lack  of  effectiveness  of  the  measures  to  support 
labour 
their  employment.  Difficulties  on 
market  could  be  linked  to  the  gap  in  educational 
attainment  between  people  with  and  without 
disabilities  (also  the  largest  in  the  EU),  reflecting 
partly  the  difficulties  of  children  with  disabilities 
in reaching their full education potential.  

the 

(32)  Administrative data shows an increase in 2014-2017. 

24 

0102030405060708090100% of populationMT MaleMT FemaleEU-28 MaleEU-28 Female 
 
 
                                                           
3.3. Labour market, education and social policies 

Box 3.3.1: Monitoring performance in the light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights,  proclaimed  on  17  November  2017  by  the  European  Parliament,  the 
Council and the European Commission, sets out 20 principles and rights to benefit citizens in the EU. In light 
of  the legacy  of  the crisis and  changes in  our  societies driven  by  population  ageing,  digitalisation and  new 
ways of working, the Pillar serves as a compass for a renewed process of convergence towards better working 
and living conditions. 

Malta performs relatively well on the indicators of the Social Scoreboard (1) supporting the European 
Pillar  of  Social  Rights.  The  labour  market  situation  is  especially  good  in  Malta.  Over  the  year,  the 
unemployment  rate  continued  to  decline  to  presently  favourably  low  levels.  However,  Malta  has  a  high 
number  of  early  school 
low 
employment  rates  for  people  with  disabilities. 
Important  reforms  have  significantly  increased 
female  labour  market  participation  especially  of 
younger  women,  but  the  employment  rate  of 
women is still comparatively low.  

leavers  and 

High  early  school  leaving  rates  still  present 
obstacles  on  ensuring  equal  opportunities. 
Efforts to address the high flows of young people 
leaving school with low-skill levels and the high 
proportion  of  low-skill  levels  in  the  population 
have started to bear fruit, but still need to produce 
their full effect.  

through 

outreach 

services.  Malta's 

intensified 
families 

Malta 
has 
to 
disadvantaged 
well-
recently 
coordinated 
established LEAP centres, with EU funds support, 
provide  integrated  services  to  families  through 
holistic  and  accessible,  community  services. 
These  facilitate  access  for  jobseekers  and  also 
identify  and  reach  out  to  inactive  people.  These 
efforts  are  in  addition  to  “making  work  pay” 
policies, providing support through free childcare, 
in-work  benefit  and  benefit  tapering.  These  all 
contribute  to  reducing  inactivity,  poverty  and 
social  exclusion.  Success  is  evident  through  the 
strong reduction of inactive NEETs (those young 
people  neither  in  education,  employment  nor 
training)  and  the  low  proportion  of  long-term 

unemployed  

____________________________ 

1  The  Social  Scoreboard  includes  14  headline  indicators,  of  which  12  are  currently  used  to  compare  Member  States 
performance.  The  indicators  "participants  in  active  labour  market  policies  per  100  persons  wanting  to  work"  and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. Abbreviation: GDHI – gross disposable household income. 

25 

Early leavers from education and training (% of population aged 18-24)CriticalGender employment gapCriticalIncome quintile ratio (S80/S20)Better than averageAt risk of poverty or social exclusion (in %)Better than averageYouth NEET (% of total population aged 15-24)Better than averageEmployment rate (% population aged 20-64)Better than averageUnemployment rate (% population aged 15-74)Better than averageGDHI per capita growth N/AImpact of social transfers (other than pensions) on poverty reductionOn averageChildren aged less than 3 years in formal childcareTo watchSelf-reported unmet need for medical care Better than averageIndividuals' level of digital skillsBetter than averageSocial protection and inclusionDynamic labour markets and fair working conditionsEqual opportunities and access to the labour marketMALTAMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituations").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaveragebutitisimprovingfast.Formethodologicaldetails,please consult the draft Joint Employment Report 2018, COM (2017) 674 final. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.3. Labour market, education and social policies 

and  Mathematics 

workforce  in  2016  (compared  to  5.5 %  in  2009). 
While  Malta  is  experiencing  comparatively  high 
growth  in  ICT  services,  the  share  of  graduates  in 
is 
Science,  Technology 
insufficient to meet this demand and is well below 
the  EU  average:  1.5 %  compared  to  1.8 %.  Over 
two  thirds  of  foreign  workers  originate  from  the 
EU (71.8 %) (33), and less than a third are non-EU 
nationals.  Compared  to  the  native  population, 
foreign workers have on average a higher level of 
skills. Whereas in 2016, 30.8 % of foreigners (25-
64)  had  tertiary  education,  it  was  only  19.6 %  for 
the Maltese population in the same age group (34). 

Graph 3.3.3:  Share of employers by sector reporting labour 

shortages in Malta 

The European Business Survey (EBS) indicator considers the 
share of employers in the industry, services and construction 
sectors reporting that labour shortage is a major factor 
limiting production. 
Source: European Commission 

The last decade has also seen a steep increase in 
the  number  of  asylum  seekers  and  refugees  in 
Malta.  Per  capita,  Malta  receives  relatively  high 
numbers of asylum seekers and refugees. For third 
country  nationals  including  asylum  seekers,  a  Job 
Brokerage Office has been established to facilitate 
work opportunities, but there seems to be a lack of 
awareness  of 
this  service  among  potential 
employers. The service aims to give these workers' 
rights and opportunities to work under the standard 
conditions 
covering 
employment in Malta. While measures are in place 

provisions 

legal 

and 

(33)  Largest  share  of  EU  workers  as  a  proportion  of  foreign 
workers are from Italy 16.8 %, followed by UK 12.6 %. 

(34)  Data from the public employment service (JobsPlus). 

Measures to improve access to employment for 
people  with  disabilities  are  beginning  to  bear 
fruit.  In  2015,  steps  were  taken  to  enforce  a 
previous  measure  stipulating  a  2 %  minimum 
quota  of  people  with  disabilities  in  all  companies 
employing  more  than  20  people.  This  was  further 
supported  by  programmes 
increase  work 
readiness  for  people  with  disabilities  and  train 
employers  to  adapt  the  workplace.  National  data 
indicate  an  increase  from  just  11 %  in  2014  to 
close  to  60 %,  or  820  enterprises  are  now  hiring 
workers  with  disabilities 
in  2017. 
However, the latest available statistics on disability 
(see  Graph  3.3.2)  do  not  yet  give  a  full 
understanding of the labour market impacts. 

in  Malta 

to 

Graph 3.3.2:  Employment gap of persons with disabilities by 

gender and Member State (age 20-64), 2015 

The gap shown is the difference in the employment rate of 
people without disabilities and the employment rate of 
people with disabilities. 
Source: EU-SILC UDB 2015 

The  share  of  employers  reporting 
labour 
shortages  has  increased  substantially.  In  2017, 
more  than  30 %  of  companies  reported  labour 
shortages.  This  is one  of  the  highest shares  in  the 
EU  and  has  increased  significantly  compared  to 
2016  (see  Graph  3.3.3).  Shortages  are  most 
pronounced  in  the  services  sector,  with  almost 
40 % 
labour 
constraining  their  business.  Qualitative  evidence 
points at unfilled vacancies for high skilled jobs in 
sectors  such  as  healthcare,  finance  and  ICT, 
reflecting the fact that Malta has one of the lowest 
shares of tertiary level graduates in the EU.  

low  availability  of 

reporting 

Reliance  on  foreign  labour  to  address  labour 
and  skills  shortages  is  increasing.  The  share  of 
foreign  workers has  increased  substantially  across 
the 
all  skill 

levels  and  reached  16.7 %  of 

26 

2030405060708090EELVDKFILUSKATFRSENLSIPTDE*ITEUUKCYROCZESLTHUBGBEPLELHRIEMTPersons with disabilitiesPersons without disabilities47.4 %25.8 %Gap25.7 pps Gap over 42 pps 051015202530354045131617131617131617IndustryServicesConstruction%EU28MT 
 
 
                                                           
3.3. Labour market, education and social policies 

‘Work-based learning and the Apprenticeship Act’ 
– is currently being finalised. 

The  tertiary  educational  attainment  rate  is 
rising  steadily  but  still  below  the  EU  average. 
The  rate  for  people  aged  30-34  increased  by  6.4 
pps  over  the  last  five  years,  though  at  29.8 %  in 
2016, it remains one of the lowest in the EU. The 
gender  gap  is  relatively  low,  at  5  pps  against  9.5 
pps in the EU. At the same time, the employment 
rate  for  recent  tertiary  graduates  increased  by 
almost 4 pps between 2013 and 2015 and, at 97 %, 
is  one  of  the  highest  in  the  EU,  reflecting  the 
demand  for  highly  educated  and  skilled  labour  in 
Malta.  With  two  additional  Bachelor-awarding 
state  institutions,  Malta  now  has  three  such 
institutions,  the  University  of  Malta,  MCAST  and 
ITS.  In  April  2017  a  public  consultation  was 
launched  to  create  a  sustainable  framework  to 
support  higher  education 
to 
improve the quality of teaching and learning.  

institutions  and 

Graph 3.3.4:  Early school leaving rate 

Source: European Commission 

Skills levels and participation  in adult  learning 
are  growing but  remain  quite  low.  Participation 
in  adult  learning  (25-64)  slightly  increased  to 
7.5 % in 2016, but is still low compared to the EU 
rates  are 
average  of  10.8 %.  Participation 
especially low for the low-skilled, increasing only 
modestly to 3 % in 2016, against 4.2 % in the EU. 
Efforts  to  enhance  participation  in  education  and 
adult  learning  also  aim  to  improve  quality  and 
relevance to the labour market and should facilitate 
implementation  of  the  Council  Recommendation 

to facilitate their recruitment, there are indications 
that  certain  third  country  migrants  may  not  fully 
benefit  from  standard  rights  and  conditions  and 
may  also  encounter  discrimination  (see  FRA, 
2017). 

3.3.2.  EDUCATION AND SKILLS 

Despite  improvement  in  recent  years,  the  early 
school  leaving  (ESL)  rate  continues  to  be  a 
challenge.  In  2016,  Malta  had  one  of  the  highest 
ESL  rate  (19.6 %)  in  the  EU  and  is  still  far  from 
reaching its ambitious Europe 2020 national target 
of  10 %.  The  rate  is  considerably  higher  for  men 
than for women, and is especially high for people 
with  disabilities  (39.5 %  compared  to  the  EU 
average of 22 % in 2015). And the gender gap (7.3 
pps) is well above the EU average of 3 pps. Malta 
is  implementing  a  range  of  measures  designed  to 
prevent  or  compensate  for  early  school  leaving. 
Improvements may be seen in the longer term, but 
latest progress has not been impressive.  

the  OECD’s  Programme 

Learning  outcomes  are  strongly  influenced  by 
socio-economic background and type of school. 
Basic  skills  attainment  among  young  people,  as 
measured  by 
for 
International  Student  Assessment  (PISA),  has 
improved  somewhat  between  2009  and  2015,  but 
remains weak. Fifteen year olds perform below the 
EU average, and improvement was only significant 
in  mathematics.  Socio-economic  status  strongly 
influences student performance, as does the type of 
school,  with  ‘independent’  (i.e.  private)  school 
students  performing  best,  followed  by  church 
school  pupils  and  then  state  school  pupils.  These 
findings  were  confirmed  by  the  2015  Trends  in 
International  Mathematics  and  Science  Study 
survey of 13-14 year olds. 

training 

(VET) 
Vocational  education  and 
graduates  have  good  employment  outcomes. 
The  employment  rate  for  VET  graduates  was  one 
of  the  highest  in  the  EU  in  2016  (96.2 %  against 
75 % in the EU). Both the availability and quality 
of  work-based  programmes  have  increased  due  to 
an 
employers. 
However,  the  proportion  of  upper  secondary 
students  (ISCED  3)  in  VET  decreased  slightly  in 
2015 to 12.7 % and is far below the EU average of 
47.3 %.  A  standardised  legal  framework  –the 

partnership  with 

enhanced 

27 

1015202530354007080910111213141516MTEU-28ESITPT 
 
3.3. Labour market, education and social policies 

qualified  adults  aged  25-64  (54.8 %)  in  the  EU, 
although  it  was  decreasing.  Performance  on  basic 
digital  skills  has  improved  and  is  now  around  the 
EU  average.  To  address  this  issue,  the  Malta 
Communications  Authority 
the 
Ministry  for  Education  and  Employment  offers 
children regular coding sessions in schools. For the 
elderly,  both  the  MCA  and  the  Malta  Information 
Technology  Agency  (MITA)  have  a  number  of 
projects  offering  training  to  boost  basic  digital 
skills.  And  MITA  organises  summer  work 
placements for ICT students. 

(MCA)  and 

increased  public  expenditure 

Recent  actions  to  tailor  skills  to  the  needs  of 
innovative firms are an important step forward. 
The launch of several schemes (STEPS grants, the 
Reach  High  postdoctoral  grant  scheme),  coupled 
with 
tertiary 
education (see European Commission, 2018a) and 
improved  entrepreneurship  training  are  starting  to 
have  a  positive  impact.  Malta  ranked  first  in  the 
EU in terms of graduates in the field of computing 
(6 per thousand of population aged 25-34 in 2014) 
and  16th  for  new  graduates  in  science  and 
engineering  (15  per  thousand  of  population  aged 
25-34 in 2014).  

in 

3.3.3.  SOCIAL POLICY 

and 

economic 

Favourable 
employment 
conditions  led  to  a  significant  reduction  in  the 
proportion of people at risk of poverty or social 
exclusion. Poverty risks reverted to 2008 levels, as 
those at risk dropped by a further 2.3 pps to 20.1 % 
in  2016,  below  the  EU  average  (23.4 %).  From 
2015 to 2016 Malta almost halved severe material 
deprivation,  to  4.4 %  in  2016 (38).  Adults  and 
children  living  in  single-earner  households  face 
higher 
the 
importance  of  facilitating 
labour  market 
participation of second earners, most of them being 
women. The low-skilled also face a higher poverty 
risk  including  when  at  work,  as  in  work  poverty 
for the low skilled increased to 10.5 % in 2016.  

risks  of  poverty,  highlighting 

the 

The  elderly  and  people  with  disabilities  face  a 
relative increase of their risk of poverty, as they 

(38)  Severe  material  deprivation  reduced  by  3.7 pps.  This  was 
the driver of the upward trend seen in the number of people 
at  risk  of  poverty  or  social  exclusion  between  2008  and 
2014 when severe material deprivation reached 10.4 %. 

on Upskilling Pathways (35). The Continuous VET 
(CVET) strategy, supported by the ESF, combines 
a comprehensive set of measures including: career 
guidance,  retraining  and  up-skilling  of  workers  in 
shrinking  sectors;  and  a  framework  and  financial 
initiatives for employers to invest in CVET for the 
low-skilled 
(see  also  European  Commission, 
2017b). 

governance  by  bringing 

Measures  have  been  undertaken  to  improve 
skills 
together 
education  and  the  labour  market.  A  high  level 
National  Skills  Council  was  set  up  in  December 
2016  and  has  since  identified  three  priority  areas: 
work-based  learning;  digital  skills;  and  research 
and  development.  Moreover,  Malta  is  building  a 
national  framework  for  the  validation  of  non-
formal  and  informal  learning (36)  and  a  skills 
forecasting  and  anticipation  system (37).  However, 
the  impact  of  these  measures  will  become  visible 
only in the longer term.  

Graph 3.3.5:  Participation rate in education and training 

(25-64 years), 2016 

Source: European Commission 

Despite  improvements  in  recent  years,  Malta's 
workforce  remains  relatively  low-qualified.  In 
2016,  Malta  still  had  the  highest  share  of  low-

(35)  OJ C484, 24.12.2016 
(36)  The validation system is in place for the following sectors: 
automotive,  building  and  construction,  hair  and  beauty, 
health  and  social  care  (childcare).  And  steps  have  been 
taken in priority sectors such as hospitality and IT. 

(37)  Since  2016,  Malta  (in  collaboration  with  Cedefop)  is 
a 

forecasting  model,  using 

developing 
skills 
comprehensive ‘skills anticipation’ review. 

a 

28 

05101520253035400510152025303540SEFINLEEUKEUESDEMTBEIELTPLSKRO%%TotalProfessionals ISCO 1-3 
 
                                                           
                                                           
3.3. Labour market, education and social policies 

their 

integration 

into  society, 

Poverty  risks  for  third  country  nationals  have 
increased.  Despite  high  employment 
rates, 
poverty  risks increased for  third  country nationals 
by 9 pps since 2010 to 29.4 % in 2016, while their 
numbers  increased  more  than  threefold  over  that 
period. Evidence suggests that migrants in general 
are facing difficulties in accessing services needed 
including 
for 
language  training,  affordable  housing  (see  section 
on  housing  rents),  access  to  finance  and  health 
services.  In  addition,  third  country  migrants  face 
particular  challenges  opening  bank  accounts  and 
this  will  impact  more  on  refugees  and  asylum 
seekers.  Currently  measures  are 
to 
facilitate  the  recruitment  of  migrants  (see  Section 
3.3.1)  by  speeding  up  work  permit  applications 
and  introducing  the  Job  Brokerage  Scheme.  And 
Malta  has  recently  published  a  specific  migrant 
integration strategy. 

in  place 

mainly  depend  on  social  transfers.  People  with 
disabilities  (16-64  years)  in  Malta  face  a  greater 
risk of poverty or social exclusion (41.3 %, 2016) 
compared to EU averages (37.5 %, 2016). Malta’s 
welfare  system  does  go  some  way  protecting 
people with disabilities, but the lack of inclusion in 
education  and  the  labour  market  creates  a  high 
degree of benefit dependency. The share of elderly 
over 65 years (26.1 %) at risk of poverty continued 
to  increase,  and  is  higher  than  the  EU  average 
(17.7 %).  However,  the  comparatively  small  and 
declining  poverty  gap  from  the  median  income 
(11.1 %  compared  to  16.5 %  in  the  EU  in  2015) 
reflects  adequate  pension  levels  overall.  People 
who  mainly  depend  on  social  transfers  do  not 
immediately 
labour  market 
improvements,  and  the  impact  of  recent  measures 
to upgrade disability benefits cannot yet be seen in 
available income data.  

benefit 

from 

29 

 
3.3. Labour market, education and social policies 

3.4. INVESTMENT 

Box 3.3.5: Policy highlights 

Building an effective apprenticeship framework 

Malta  undertook  with  support  from  the  European  Social  Fund,  a  comprehensive  reform  of  their 
apprenticeship scheme. More emphasis was put on quality and on a reinforced employers' role in 
assessments. Apprenticeships have expanded to new sectors and participation increased more than 
five-fold with 900 interested companies and 455 participants (2015/2016). In 2016/17 around 18% 
of  students  in  the  European  Qualifications  Framework  (EQF)  level  3  programmes  were 
apprentices  and  in  level  4  the  take-up  was  40%  (CEDEFOP,  2017).  The  quality  criteria  include 
inter  alia  defining  rights  and  obligations  for  vocational  education  and  training  (VET)  providers, 
employers and learners, setting a minimum number of hours for work-based learning and linking 
remuneration  to  the  minimum  wage.  They  can  now  offer  over  half  of  EQF  level  3  and  4 
programmes  as  apprenticeship.  A  harmonised  legal  framework  "Work-based  learning  and  the 
Apprenticeship Act" is also being finalised.  

Malta  is  addressing  its  social  challenges  and 
strengthening  policies  for  active 
inclusion. 
Income inequalities are relatively stable and below 
the EU average, mostly due to low market income 
inequalities.  The  tax  and  benefit  system  reduces 
disposable income inequality substantially, but to a 
lesser  extent  than  the  EU  average.  Still,  Malta 
performs  above  EU  average  for  the  indicators 
related  to  adequacy  of  minimum  income  benefits.  
While  recent  reforms  set  out  to  increase  the 
redistributive impact of the tax and benefit system, 
the lagged effects are not yet reflected in aggregate 
economic  figures.  Malta  has  also  invested  in 
measures  to  reach  the  most  vulnerable  in  society 
with  the  support  of  EU  funds.  In  particular,  the 
LEAP  centres provide  personalised 
integrated 
to 
families, 
support 
employment and social services. More than 25 000 
households  have  received  food  support  through 
national and FEAD schemes.  

facilitating  access 

to 

Malta’s  social  protection  coverage  is  wide,  and 
gaps  are  limited.  Generally,  the  social  security 

for 

the  means-tested 

system  does  not  distinguish  between  the  self-
employed  and  employees  as  regards  benefit 
entitlement.  For  those  who  satisfy  the  relevant 
conditions,  entitlements  do  not  differ.  While  self-
employed  people  are  not  entitled  to  contributory 
unemployment  benefits,  unlike  employees,  they 
may  qualify 
‘social 
assistance’ and the tapering of benefits which was 
introduced with the ‘make work pay’ reforms (see 
European Commission, 2017c). The share of short 
term 
unemployment 
benefits (39) is significantly below the EU average. 
This is partly due to the short duration of benefits 
and  possibly  to  a  high  level  of  non-take  up  as 
unemployment spells are short and benefits are flat 
rate.  The  qualifying  period  for  the  receipt  of 
unemployment benefit is one of the shortest in the 
EU.  

unemployed 

receiving 

(39)  According  to  the  indicators  related  to  coverage  and 
adequacy  developed  as  part  of  the  benchmarking  exercise 
in  the  area  of  unemployment  benefits  and  active  labour 
market  policies  conducted  within  the  EMCO  Committee. 
See the draft Joint Employment Report 2018 for details. 

30 

 
                                                           
3.4. Investment 

3.4.1.  BUSINESS ENVIRONMENT AND PUBLIC ADMINISTRATION 

While  investment  in  Malta  has  recently  been 
highly  dynamic,  most  companies  consider  that 
investment  still  exist.  In  2016 
barriers  to 
investment 
increase, 
a  marginal 
registered 
following a sharp rise in 2015 (see also Box 3.4.1). 
Data  from  the  EIB  show  that  in  2017  most  firms 
(94 %)  based  in  Malta  considered  the  availability 
of  skilled  staff  as  a  barrier  to  investment  (EIB, 
2017)  (see  also  Section  3.3).  Business  regulation, 
transport  infrastructure  and  energy  costs  are  also 
mentioned  by  around  70%  of  firms.  Transport 
infrastructure appears to be a growing concern for 
companies  operating  in  Malta,  which  see  this 
aspect  as  the  major  priority  for  public  investment 
(see also section 3.5). 

The  Maltese  SME  sector  has  thrived  in  recent 
years. In 2015-2016, value added and employment 
by  SMEs  rose  by  7.0 %  and  4.2 %  respectively. 
This  dynamism  is  also  reflected  in  the  large 
number  of  high-growth  firms.  In  2015,  12.5 %  of 
all  firms  with  10  or  more  employees  were  high-
growth firms (40), second highest share in the EU. 
This upward trend is expected to continue in 2016-
2018.  Value  added  by  SMEs  is  projected  to  grow 
by 15.4 %, along with an increase of 6.3 % in SME 
employment,  corresponding  to  around  6,700  new 
jobs.  The  productivity  of  micro  firms  SMEs, 
calculated as value added per person employed, is 
higher  than  EU  average,  while  it  is  below  EU 
average for SMEs (see also Table 3.4.1). 

Nevertheless,  firms’  innovation  activities  and 
capacity  to  scale  up  their  investments  appear 
limited.  Firms’  share  of  turnover  relating  to 
innovation  remains  low  (4.1 %)  compared  to  the 
EU  average  (13.4 %) (41).  Recent  data  show  that 
although 
new 
products/services is the top investment priority for 
small and micro firms, the latter are also less likely 
to  develop  new  products,  processes  or  services 
than  medium  and  large  firms  (EIB,  2017).    The 
prevalence of micro and small size firms (both as a 
share  of  employment  and  value  added)  translates 

development 

the 

of 

(40)  Eurostat defines high-growth enterprises (growth by 10 % 
or more) as enterprises with average annualised growth in 
number  of  employees  greater  than  10  %  per  year  over  a 
three-year  period  (t  –  3  to  t)  and  having  at  least  10 
employees in the beginning of the growth (t – 3). 
(41)  Source: Eurostat, Community Innovation Survey 2014. 

into firms’ limited capacity to grow and undertake 
risky activities. Not surprisingly, the top sectors in 
terms  of  business  R&D  expenditure 
(ICT, 
electronic components and boards, pharma) are not 
amongst  the  top  contributors  to  gross  value-
added (42). 

Graph 3.4.1:  Number of persons employed in SMEs 

Index: 2008=100, estimates from 2015 onwards 
Source: European Commission 

Graph 3.4.2:  Value added of SMEs 

Index: 2008=100, estimates from 2015 onwards 
Source: European Commission 

In  relation  to  the  indicators  on  the  digital 
economy,  Malta’s  performance  appears  mixed. 
Malta  is  a  European  leader  in  fast  broadband  (30 

(42)  The  top  sectors  in  terms  of  gross  value-added  in  2016 
were:  wholesale  and 
retail,  public  administration, 
arts/entertainment,  professional,  scientific  and  technical 
activities. Source: Eurostat 

31 

80100120140080910111213141516*17*18*2008 = 100SMEs in MaltaSMEs in the EU80100120140160180200080910111213141516*17*18*2008 = 100SMEs in MaltaSMEs in the EU 
                                                           
 
 
 
                                                           
3.4. Investment 

for 

trust 

lower 

remarkably 

score  (37th  in  ranking,  with  a  value  of  4.6),  the 
ranking 
specific 
is 
components  such  as 
in  politicians  and 
favouritisms  in  decisions  of  government  officials. 
Inefficient government bureaucracy is identified as 
the  single  biggest  obstacle  in  doing  business  in 
Malta  according  to  the  GCI  survey’s  respondents. 
The  influence  of  private  interests  on  public 
decisions affects the business environment and the 
sustainability  of  Malta’s  development  model  (see 
also sections 3.4.4 and 3.5). 

Graph 3.4.3:  World Bank 2017 Governance Indicators - 

Malta 

Source: World Bank 

by 

restrictive 

Competition  in  business  service  sectors  is  still 
constrained 
requirements.  
Despite  the  full  transposition  of  the  Professional 
Qualifications  Directive (46)  in  the  fourth  quarter 
of 2017, certain services are still subject to specific 
requirements.  The  degree  of 
in 
professional  services,  which  often  represent  also 
key  inputs  for  manufacturing,  is  higher  in  Malta 
with  respect 
the  EU  average  (European 
Commission,  2015  and  2017e).  In  particular, 
restrictions  concern  architects,  civil  engineers, 
accountants, tourist guides, and lawyers (47). 

restrictions 

to 

(46)  Directive  2013/55/EU  of  the  European  Parliament  and  of 
the  Council  of  20  November  2013  amending  Directive 
2005/36/EC 
professional 
qualifications  and  Regulation  (EU)  No  1024/2012  on 
administrative  cooperation  through  the  Internal  Market 
Information System (‘the IMI Regulation’)) 

recognition 

the 

on 

of 

(47)  Requirements on personal liabilities for architects and civil 
engineers,  uncertainty  on 
for 
accountants and for tourist guide, limited scope of reserved 

activities 

reserved 

Mbps  and  above),  being  the  only  Member  State 
with full coverage of NGA networks. Malta is also 
very  advanced  in  the  provision  of  digital  public 
services. At the same time, it scores below the EU 
average in digital skills and in mobile broadband. 

is 

The  business  environment 
improving, 
although  inefficiencies  remain  in  some  areas. 
The  European  Commission’s  indicators  of  the 
responsiveness  of  administration  to  the  needs  of 
SMEs  (European  Commission,  2017d)  confirm 
that  significant  efforts  have  been  made.  For 
instance  the number  of days  to  start  a  business (3 
days)  has  improved  compared  to  last  year  (6.5 
days)  and  time  to  transfer  property  (15  days)  is 
shorter  than  the  EU  average  (23.8).  However,  the 
transferring  property  and  costs  of 
costs  of 
enforcing  contracts  are  very  high  (respectively 
13.5 %  of  property  value  and  35.9 %  of  claims 
against EU averages of 4.8 % and 22.0 %). Malta’s 
performance  under  the  indicators  on  the  ‘second 
chance’  area  is  particularly  weak (43).  However, 
the actual implementation of recent improvements 
to the insolvency legal framework (notably efforts 
to  reduce  the  time  for  restructuring  and  increase 
the  availability  of  qualified  practitioners) 
is 
expected to translate into practical effects over the 
next years.   

Indicators 

(WGI),  Malta’s 

The  perceived  quality  of  governance  seems  to 
have  slightly  decreased  over  the  last  decade. 
According  to  the  World  Bank’s  2017  Worldwide 
rank 
Governance 
between  2006  and  2016  in  almost  all  areas  of 
governance  has  slightly  worsened  (see  Figure 
3.4.3),  in  particular  concerning  the  areas  of  ‘Rule 
(44). 
of  Law’  and 
Furthermore,  according  to  the  World  Economic 
Forum  Global  Competitiveness 
(GCI) 
2017/2018 (45),  despite  an  overall  rather  positive 

‘Control  of  corruption’ 

Index 

(43)  The strength of the insolvency framework index (0 to 16) is 
only 7.5 well below the EU average of 11.88. The index is 
the  sum  of  the  scores  of  4  underlying  indices:  (1)  the 
commencement  of  proceedings  index,  (2)  management  of 
debtor’s assets index, (3) reorganization proceedings index 
and  (4)  creditor  participation  index.  Furthermore,  three 
years  are  needed  to  solve  insolvency  compared  to  1.97 
years on average in the EU. 

(44)  Between  2006  and  2016,  score  went  from  1.58  to  1.08  in 
the area of ‘Rule of Law’, and from 1.01 to 0.72 in the area 
of 
‘Control  of  corruption’.  Scores  on  governance 
performance  range  from  approximately  -2.5  (weak)  to  2.5 
(strong). 

(45)  The  rank  is  out  of  total  of  137  countries.  Performance 

values range from 0 (poor) to 7 (good).  

32 

5060708090100Rule of lawControl of CorruptionGovernment EffectivenessPolitical StabilityRegulatory QualityVoice and AccountabilityPercentile rank (0 to 100)20062016 
                                                           
 
                                                           
3.4. Investment 

3.4.2.  ACCESS TO FINANCE 

3.4.3.  RESEARCH AND DEVELOPMENT  

Only  a  minority  of  Maltese  firms  are  finance 
constrained.  In  October  2017,  6 %  of  SMEs  in 
Malta  considered  access  to  finance  as  the  most 
important  concern  (down  from  11 %  in  2013  and 
compared  to  an  average  of  7  %  at  EU  level). 
According to the EIB Investment Survey, in 2016 
firms in Malta largely depended on internal funds 
for  financing  their  investments  (almost  80 % 
against the EU average of 60 %); in 2017, internal 
funding  diminished  to  60 %  while  intergroup 
lending  emerged  as  a  supplementary  source  of 
finance  for  11 %  of  investments  (against  the  EU 
average of 3 %). The three most important sources 
of  external  financing  are  credit  lines  (relevant  for 
78 % of SMEs), bank loans (63 %) and trade credit 
(62 %), while equity financing is relevant for 25 % 
of  SMEs  (European  Commission,  2017f).  Among 
firms  applying  for  bank  loans  in  Malta,  the  share 
of  SMEs  that  did  not manage  to  get  the  full bank 
loan  financing  they  had  planned  for  during  2017 
decreased to 15 % from 29 % in 2014, in line with 
the EU (EU average: 17 % in 2017 against 34 % in 
2014). Furthermore, the share of bank lending has 
been falling. 

However,  the  current  reliance  on 
internal 
funding  might  constraint  access  to  finance  for 
innovative  firms  in  the  longer  term.  According 
to the Central Bank of Malta, the banking sector is 
reluctant  to  provide  credit  for  SMEs  investment, 
innovative  ones,  for  which  strong 
especially 
collaterals  are  not  available.  The  current  positive 
macroeconomic  conditions  and  liquidity  of  the 
market  allow  for  alternative  sources  of  finance 
(reinvestment  of  profits,  intra-sectorial  lending, 
foreign  lending).  However,  this  segment  of  the 
economy  remains  more  exposed  to  the  risk  of 
possible  downturns.  The  recently  launched  Seed 
Investment Scheme (see section 3.4.3) is expected 
to  boost  the  use  of  equity  funding  for  innovative 
start-ups.  In  the  future,  the  launch  of  the  Malta 
Development  Bank’s  lending  activities  would  set 
up  a  system  of  guarantees  to  remedy  the  market 
failure.  According  to  the  authorities,  this  bank  is 
expected 
long-term 
to  focus  on  finance  for 
infrastructural projects and for SMEs.  

activities  for  lawyers  to  facilitate  the  provision  of  legal 
consultancy services. 

innovation  ecosystem  and 

Malta’s  Research  and  Development  (R&D) 
performance has improved. The improvement in 
the  R&D  performance  is  partly  due  to  sustained 
efforts  by  the  public  authorities  to  build  an  R&D 
system  based  on  indigenous  strengths,  involving 
several  policy  measures  to  support  the  emergence 
of  an 
innovative 
firms (48). To increase the use of equity funding, in 
2016 
the  Seed 
Investment  Scheme,  which  provides  tax  credits to 
investors  investing  in  Maltese  start-ups  or  early 
stage  companies.  This  scheme  complements 
existing R&D tax credit schemes. However, better 
monitoring  and  evaluation  of 
the  different 
measures  would  help  to  better  understand  their 
effectiveness,  notably  in  boosting  private  R&D 
expenditure. 

the  government 

launched 

Graph 3.4.4:  Evolution of business R&D intensity and public 
R&D intensity in Malta, 2004-2016 

Business R&D intensity: Business enterprise expenditure on 
R&D (BERD) as % of GDP.  
Public R&D intensity: Government intramural expenditure on 
R&D (GOVERD) plus higher education. Provisional R&D 
expenditure data for 2016 register a relatively important 
decrease, which is mainly related to the completion of R&D 
capital infrastructure in the government sector in 2015. 
Source: European Commission 

Structural  factors  continue  to  hamper  the 
growth  of  R&D-intensive  firms  and  thus  the 
development of a thriving innovation ecosystem. 
Firms have limited capacity to scale up their R&D 

(48)  These include initiatives managed by Malta Enterprise and 

the Malta Council for Science and Technology. 

33 

0.10.20.30.40.504050607080910111213141516Public R&D intensityBusiness R&D intensity 
                                                                                   
 
                                                           
3.4. Investment 

activities,  due  to  their  small  size (49),  reliance  on 
internal  funding  for  R&D  expenditure  and  the 
limited  size  of  the  local  market.  Their  investment 
in  intangible  assets  (50)  has  declined  in  relative 
terms  since  2016  and  revolves  around  computer 
software,  databases  and  organisation/business 
processes,  which 
reflects  Malta’s 
partly 
specialisation in ICT (EIB, 2017). The overall lack 
of  critical  mass  is  further  evidenced  by  the  low 
business  enterprise  R&D  expenditure  (BERD) 
intensity  (with  0.39%  of  GDP  in  2016,  Malta 
ranked 23th  in the EU), which  moves  the  country 
further away from its target of 2% R&D intensity 
(see  Graph  3.4.4).  Evidence  also  indicates  the 
scope  for  innovative  firms  to  increase  their  R&D 
intensity, through better science-business linkages.  

3.4.4.  JUSTICE SYSTEM AND CORRUPTION 

Judicial system 

The  Maltese  justice  system  continues  to  face  a 
number of challenges. This concerns in particular 
very  long  proceedings  in  administrative  cases.  In 
2016, the average disposition time for first instance 
administrative  law  cases  was  1,464  days,  among 
the  longest  in  the  EU  (European  Commission, 
2018b).  Compared  to  2015  (495  days),  this 
represents  an  almost  threefold  increase.  In  the 
important  category  of  first  instance  litigious  civil 
and  commercial  cases,  disposition  remained  high 
in  2016  (432  days),  although  slightly  less  than  in 
2015 (445 days). 

The 
implementation  of  the  programme  of 
judicial  reforms  has  continued.  Judicial  reforms 
in the area of civil, commercial and administrative 
justice aim to improve the efficiency and quality of 
the  judicial  system.  The  2016  legislation  on  the 
appointment  of  judges  and  magistrates  has  been 
implemented,  and  in  2017  three  candidates  were 
appointed  (one  judge  and  two  magistrates).  Each 
judge (but not magistrates) is entitled since 2016 to 
be assisted by a court attorney, chosen by the judge 
and  appointed  for  a  3-year  (renewable)  mandate. 

(49)  R&D  expenditure  by  microenterprises  and  SMEs 
accounted for 85% of business enterprise R&D expenditure 
(BERD)  in  2014.  This  figure  is  one  of  the  highest  in  the 
EU, while the contribution of large enterprises to BERD is 
one of the lowest. 

(50)  Intangible assets are computerised information, innovative 

property and economic skills. 

rate 

According  to  Maltese  authorities,  court  attorneys 
have so far dealt with the preparation of over 2,000 
judgments  in  the  civil  area,  and  contributed  to 
substantially reducing backlogs and increasing the 
clearance 
instance  civil  and 
first 
commercial  litigious  cases.  Under  the  programme 
of  judicial  reforms  two  pieces  of  legislation  have 
further  court 
been  adopted,  which  aim  at 
improved 
specialisation, 
insolvency 
strengthened 
mediation (51). 

reduced 
proceedings 

backlogs, 
and 

for 

Initiatives are ongoing to improve the quality of 
the justice system, including e-justice. In March 
2017 the ‘MY CASE’ system became operational. 
It  allows  lawyers  and  their  clients  to  follow 
developments  in  their  judicial  cases  in  real  time. 
The  Legal  Aid  Agency  was  established  in  2014 
and  offers  its  services  to  the  most  needy.  The 
budget for legal aid is currently EUR 150,000 and 
will be increased to EUR 400,000 in 2018.  

Anti-Corruption 

Corruption  and  favouritism  are  perceived  as  a 
problematic factor for doing business in Malta. 
According to a recent Flash Eurobarometer survey, 
a majority of business representatives agreed with 
the  statement  that  favouritism  and  corruption 
hamper  business  competition  in  Malta  (85 %,  up 
from 78 % in 2015, EU average: 74 %). A similar 
share  of 
is 
widespread  in  Malta  (84 %,  EU  average:  67 %). 
Over  half  of  the  managers  surveyed  identified 
corruption  as  a  problem  when  doing  business 
(58 %, up from 44 % in 2015, EU average: 37 %), 
and disagreed that measures against corruption are 
applied  impartially  and  without  ulterior  motives 
(up  from  41 %  in  2015  to  57 %  in  2017,  EU 
average: 54 %) (European Commission, 2017g). 

thinks  corruption 

respondents 

the  Police, 

 There  is  a  fragmented  landscape  of  agencies 
corruption  allegations.  The 
dealing  with 
Attorney  General’s  Office, 
the 
Permanent  Commission  against  Corruption,  the 
Internal  Audit  and  Investigations  Department, 
within  the  scope  of  their  competence,  can  deal 
with  allegations  of  corruption.  However,  criminal 
investigations  are  carried  out  by  the  Police,  while 
prosecution  is  co-ordinated  between  the  Attorney 

(51)  Act  XI  of  2017  amended  to  the  Code  of  Organisation  & 
Civil Procedure; Act VIII of 2017 relative to Mediation. 

34 

 
                                                           
                                                           
General  and  the  Police.    The  Commissioner  of 
Police  and  the  Attorney  General  are  appointed  by 
the  government  and  the  Permanent  Commission 
its 
against  Corruption 
findings  to  the  government.  Other  organisations 
competent 
on 
processing 
corruption  allegations  in  their  own  competence 
have  faced  challenges  in  conducting  thorough 
enquiries  because  of  lack  of  necessary  means, 

is  designed 

information 

to  report 

for 

3.4. Investment 

powers  or  resources52.  The  absence  of  established 
procedures  to  ensure  independent  treatment  of 
cases  in  responding  to  corruption  allegations  may 
result  in  inconsistencies  in  handling  corruption 
allegations. 

52  "For  example,  the  Ombudsman  reports  to  the  House  of 
Representatives  but  his/her  recommendations  are  not 
binding. The Internal Audit and Investigations Department 
carries out financial investigations of suspected corruption 
of  public  officers,  but  is  not  empowered  to  conduct 
criminal investigations. 

Table 3.4.1:  Enterprises, employment and value added by firm size class 

These are estimates for 2016 produced by DIW Econ, based on 2008-2014 figures from the Structural Business Statistics 
Database (Eurostat). The data cover the ‘non-financial business economy,’ which includes industry, construction, trade, and 
services (NACE Rev. 2 sections B to J, L, M and N), but not enterprises in agriculture, forestry and fisheries and the largely non-
market service sectors such as education and health. The following size-class definitions are applied: micro firms (0-9 persons 
employed), small firms (10-49 persons employed), medium-sized firms (50-249 persons employed), and large firms (250+ 
persons employed).  
Source: DIW Econ 

35 

Class sizeEUEUEUNumberShare (%)Share (%)NumberShare (%)Share (%)EUR BillionShare (%)Share (%)Micro 26 80893.4 93.1  42 49731.5 29.9 1.735.9 21.1 Small 1 4975.2 5.8  31 38423.3 20.0 1.225.5 17.8 Medium-sized3311.2 0.9  33 15224.6 16.8 1.020.7 18.2 SMEs 28 63699.8 99.8  107 03379.3 66.6 3.982.0 57.1 Large600.2 0.2  27 86620.7 33.4 0.818.0 42.9 Total 28 696100.0 100.0  134 899100.0 100.0 4.7100.0 100.0 Number of enterprisesNumber of persons employedValue addedMaltaMaltaMalta 
                                                           
 
 
 
3.4. Investment 

Box 3.4.6: Investment Box -challenges and reforms in Malta 

Section 1. Macroeconomic perspective  

The  Maltese  economy  entered  into  a  strong  investment  cycle  as  of  2014.  The  level  of  investment  grew 
sharply  in  2015  and  marginally  increased  further  in  2016.  Provisional  data  from  2017  point  out  to  a 
contraction  in  investment  despite  dynamic  construction  activity  and  improved  firms’  balance  sheets, 
reflecting  the  still-high  base  from  2016.  The  recent  investment cycle  was  driven  by  both  the  private  sector 
and  the  government,  as  a  result  of  a  number  of  large  scale  projects  in  the  energy  sector,  other  private 
investments in particular in the aviation sector, and the finalisation of projects funded by the 2007-2013 EU 
financial framework.  

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 

  Skill  shortages,  in  particular  in  the  service  sector,  still  weigh  on  investment.  The  share  of  employers 
reporting labour shortages has increased substantially in 2017 and is one of the highest in the EU. The 
lack  of  availability  of  skilled  staff  has  resulted  in  increasing  reliance  on  foreign  labour.  A  series  of 
initiatives have been recently put in place to improve skills governance by better aligning education with 
business needs (see Section 3.3).  

 

Infrastructure  bottleneck,  also  linked  to  the  country's  insular  nature,  have  been  exacerbated  by  the 
ongoing economic expansion. In particular, severe traffic congestion constitutes an important barrier to 
investment as it increases transport costs and has a negative impact on productivity. While the car fleet 
has  increased  in  volume,  the  quality  of  road  infrastructure  is  perceived  as  particularly  low.  In  2017, 
Maltese  authorities  have  announced  a  project  to  upgrade  the  road  network  over  a  period  of  7  years, 
although this is expected to only partially address congestion (see Section 3.5). 

  The  investment  climate  would  benefit  from  an  improved  judicial  and  anti-corruption  framework.  The 
Maltese justice system continues to face challenges concerning its efficiency, in particular regarding the 
length of proceeding in administrative cases. Malta is also characterised by a fragmented anti-corruption 
landscape. In a recent Flash Eurobarometer Survey, more than half of the surveyed company managers 
identified  corruption  as  a  problem  when  doing  business.  Recent  reform  measures  aim  at  enhance  the 
judicial  system  efficiency  by  fostering  court  specialisation,  reducing  backlogs  and  improving  the 
insolvency framework (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 2017 Country report for Malta.  

36 

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 EnergyLegend: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 

3.5.1.  TRANSPORT  

remains  a 

challenge.  The 

Enhancing the sustainability of Malta’s growth 
recent 
model 
developments of the economy and the prospect of 
further growth are expected to exacerbate existing 
bottlenecks,  as  well  as  to  increase  the  weight  of 
negative  externalities  from  transport  and  other 
sectors (see also section 3.5.3, 3.5.4 and 3.5.5) 

Citizens  and  businesses 
in  Malta  endure 
significant  economic  costs  caused  by  traffic 
congestion.  Road  infrastructure  is  often  highly 
congested  and  considered  one  of  the  weak  points 
of  Malta’s  business  environment.  The  economic 
costs  of  traffic  congestion  (time  spent  in  traffic, 
additional fuel costs, accidents and economic costs 
of  congestion)  are  projected  to  rise  to  EUR  721 
million  by  2025  in  a  scenario  where  only  a 
minimum amount of policy measures are taken to 
address  the  issue  (Transport  Malta,  2016) .  The 
contribution  to  air  pollution  from  road  transport 
remains  high,  fuelled  by  increasing  congestion 
levels  and  an  expected  growing  demand  for 
transport. 

of 

on 

the 

improvement 

So  far,  measures  announced  by  the  authorities 
focus 
road 
infrastructure and reduce congestion costs only 
partially.  In  2016,  the  government  adopted  a 
National  Transport  Strategy  with  a  2050  horizon 
and an Operational Transport Master Plan to 2025 
2017a). 
European 
(see 
Implementation  of 
the  comprehensive  set  of 
measures  included  in  these  documents  began  in 
February 
authorities 
announced  a  EUR  700  million  project  to  upgrade 
the  road  infrastructure  over  a  period  of  seven 
years. However, according to the Transport Master 
Plan 
the  economic  costs  of  congestion  are 
expected to decrease by less than 20%. 

Commission, 

particular, 

2017. 

In 

Current transport policy lacks a clear target on 
reducing  greenhouse  gas  emissions 
from 
transport  until  2030.  Reducing  emissions  is 
particularly pressing in road transport, considering 
the aged and increasing car fleet. However, further 
elaboration  on  the  quantification  of  emission 
reductions  through  the  various  policy  measures 
under  the  Transport  Master  Plan  is  lacking.  One 
positive  development  is  the  low  CO2  emissions 
levels  from  new  cars  sold  on  the  Maltese  market 
in 
(below 

the  EU  average).  Furthermore, 

combination with renewable electricity targets, the 
Malta National Electromobility Action Plan Malta 
envisages  to  have  at  least  5,000  electric  vehicles 
registered by 2020. The use of public bus transport 
has  lagged  behind  private  car  use,  but  has  shown 
strong growth since 2013. 

Graph 3.5.1:  Selected road transport indicators - Malta 

Source: European Commission and European Environmental 
Agency (EEA) 

3.5.2.  ENERGY 

commissioning  of  gas-fired 

The  energy  mix  of  primary  energy  products  in 
Malta  displays  a  steady  diversification  over 
time.  The  increase  in  renewables  production  and 
the 
electricity 
generation  plants  in  2017  will  further  diversify 
Malta’s  energy  mix.  However, 
the  share  of 
petroleum and petrol products in the energy mix is 
still  above  the  EU  average.  In  May  2017,  Malta 
signed  a  political  declaration  together  with  13 
Member States and the European Commission for 
a Clean Energy for All European Islands Initiative 
to accelerate the clean energy transition, on all EU 
islands.  

Primary  energy  consumption  has  decreased 
over  the  last  years,  despite  buoyant  economic 
activity. Primary energy intensity in Malta is now 
below  the  EU  average.  The  main  drivers  for  the 
decrease  in  primary  energy  consumption  are  the 
interconnector  with  Italy,  operational  since  April 
the 
increased  efficiency 
2015,  and 

through 

37 

9010011012013014015016095979901030507091113151995 = 100Car passenger kilometre (pkm)Bus passenger kilometre (pkm)CO2 from road transportPassenger car stock 
 
 
3.5. Sectoral policies 

bottom group for eco-innovation performance (26th 
in the EU in 2016 from 18th in 2013). In addition, 
the country’s size and island status pose a number 
of unique challenges (54). If fully implemented, the 
‘Sustainable Living Complex’ (55) has the potential 
to  mobilise  private 
the 
construction  sector  and  help  generate  innovative 
materials  and  techniques  (e.g.  for  resource  and 
energy  efficiency,  water  management,  quality  of 
the environment).   

investment 

from 

Malta’s  water  resources  are  under  severe 
pressure.  Water  scarcity  is  a  major  problem  and 
may  be  exacerbated  by  climate  change.  The 
country’s groundwater resources are being heavily 
exploited, at a rate well above the natural recharge, 
and  sea  water  is  slowly  invading  the  island’s 
aquifers  (European  Commission,  2017i).  The 
severe  water  scarcity  has  induced  Malta  to  rely 
also  on  desalination  as  major  supply  of  drinking 
significantly 
water.  While  desalination  was 
reduced  over  the  last  years,  it  still  consumes  3 % 
of the country’s total electricity generation.  

significant 

investments 

in  waste 
Despite 
management infrastructure, waste performance 
remains  low,  especially  in  the  construction 
sector.  According  to  the  latest  data  available,  in 
2014 the recycling and composting rate was 12 %, 
far  below  the  EU  average  of  44 %  and  the  2020 
target (50 %), and the landfilling rate, at 80 %, was 
far  above 
the  EU  average  of  28 %.  Full 
implementation  of  the  existing  waste  legislation 
would  help  increase  the  annual  turnover  of  the 
waste  sector.  Construction  and  demolition  (C&D) 
waste  almost  doubled  between  2011  and  2015,  in 
line  with 
the  growing  construction  activity 
(National  Statistics  Office  Malta,  2017).  Despite 
high recovery rates for this type of waste, the main 
practice in Malta is recovering through backfilling 
in quarries, an ultimately unsustainable practice in 
view  of  the  quarries'  size  constraint.  Furthermore, 
stakeholders indicate that disposal of such waste at 

(54)  These  include  the  difficulty  of  reaping  the  benefits  of 
economies of scale, dependence on a very narrow range of 
exports,  high  transport  costs  in  its  economic  transactions 
with  mainland  Europe,  and  heavy  reliance  on  imported 
fossil fuels. 

(55)  This  is  an  industry-academia  collaborative  model  and 
constitutes  a  first-of-its-kind  facility  supporting  product 
development,  testing  and  monitoring  in  the  field  of 
building efficiency. 

gasification  of  the  Maltese  power  plants,  starting 
with the first gas deliveries in January 2017.  

energy 

consumption.  Final 

However,  Malta  has  had  a  large  increase  in 
final 
energy 
consumption  in  2015  increased  by  3 %,  one  of 
largest growth rates in the EU, and by 2% in 2016. 
Next to electricity imports, this was driven by the 
increase in energy consumption in transport, which 
represented 55 % of total final energy consumption 
in  2015.  Services  consumed  over  21 %  of  final 
energy consumption, well above the EU average of 
13.5 %.  

The  construction  sector  seems  to  lag  behind  in 
improving the energy performance of buildings. 
Malta introduced national targets for energy saving 
through its National Energy Efficiency Action Plan 
(NEEAP)  in  2014.  All  new  buildings  in  Malta 
should be nearly zero-energy buildings (nZEB) by 
2020 (53).  The  construction  sector  in  Malta  is 
characterised by small and traditional firms, which 
do  not  typically  engage  in  innovative  activities. 
The 
several 
also 
programmes  to  incentivise  energy  performance 
improvements in buildings, through grant schemes 
or  soft  loans  for  energy  saving  solutions.  These 
solutions 
included  energy-efficient  appliances, 
energy-saving lighting systems, thermal insulation, 
double 
building-
solar 
management  systems,  photovoltaic  panels,  solar 
water  heaters  and  wind  energy 
resources 
(European Commission, 2016 and 2017h). 

government 

introduced 

heating, 

glazing, 

Malta  is  on  track  to  reach  its  10 %  renewable 
energy  target  for  2020.  Malta  met  its  2013/2014 
indicative  trajectory  on  the  share  of  renewable 
in  gross  final  energy 
energy  sources  (RES) 
consumption  and  is  well  above  its  2015/2016 
indicative trajectory towards the 2020 RES targets. 

3.5.3.  ENVIRONMENT     

The  change  to  a  more  circular  economy 
remains  challenging,  also  in  view  of  the  recent 
robust  economic  growth.  According  to  the  EU 
eco-innovation  index,  Malta  has  remained  in  the 

(53)  This was made legally binding by the Government Gazette 
No.  19,492  of  3rd  November  2015.  The  nZEB  energy 
performance levels were defined as 55 – 115 kWh/m2yr for 
residential buildings and 220 kWh/m2yr for non-residential 
buildings. 

38 

 
                                                           
                                                           
3.5. Sectoral policies 

reducing  greenhouse  gas  emissions  under  the 
Effort  Sharing  Decision  (ESD),  for  example  as 
suggested  by  the  2016  proxy  estimates  for  the 
years  2015  and  2016.  The  main  increases  in 
greenhouse gas emissions in Malta were evidenced 
in refrigeration/air conditioning and transport. As a 
small  island  state  in  the  Mediterranean  region, 
Malta  is  extremely  vulnerable  to  the  impacts  of 
climate  change,  with  the  most  vulnerable  sectors 
being water resources, infrastructure and land use, 
natural  ecosystems,  agriculture  and  fisheries, 
health and tourism. 

Table 3.5.1: 

Largest sector of GHG emissions in 2015 (% of 
total GHG emissions) 

Source: European Commission and European Environmental 
Agency 

Graph 3.5.2:  GHG emission per capita  

(kg CO2-eq/inhabitant) 

Source: European Commission and European Environmental 
Agency 

The  robust  economic  growth  as  well  as  the 
increase  in  population  put  further  pressure  on 
climate  policies.  Malta  is  currently  developing  a 
Low  Carbon  Development  Strategy  and  after  a 
public  consultation  closed  in  June  2017,  it  is 
working  on  sector-specific  strategies.  Given 
Malta’s  climate  vulnerabilities,  the  Low  Carbon 
Development  Strategy  will  also  incorporate  the 
revised  National  Adaptation  Strategy.  This  is  an 
important step to integrate climate-related policies 

is 

taking  place (56).  Malta  still  has  not 
sea 
developed  sufficient  recycling  infrastructure  for 
C&D  waste.  The  quality  of  recycling  is  generally 
low  and  the  resulting  products  have  limited 
downstream use (European Commission, 2017h).  

The  construction  sector  generates  significant 
negative  externalities  that  are  not  adequately 
addressed. Construction development projects are 
authorised  on  a  stand–alone  basis,  without  a 
cumulative  assessment  of  impacts.  According  to 
stakeholders, 
the 
environmental authorities are understaffed, so they 
would have limited oversight on ongoing projects.  

regulation 

building 

and 

In 

Malta  aims  to  substantially  increase  green 
its  2012  National 
public  procurement. 
Environmental  Policy,  authorities  announced  a 
specific  target  (50 %  of  public  procurement  in 
accordance with green public procurement criteria 
for  green 
by  2015)  and  other  measures 
procurement.  Measures  implemented  include  an 
administrative  procedure  requiring  contracting 
authorities  to  use  green  procurement  checklists, 
training  sessions  and  specific  green  procurement 
targets  for  specific  product  categories (European 
Commission,  2017i).  These  are  valuable  steps 
towards strategic use of public procurement as tool 
and 
for 
competitiveness,  in  line with EU policy  priorities. 
However, specific targets for the 2012-2014 period 
were met only partially and authorities do not have 
data on actual implementation from 2015 on (57).   

sustainable 

economic 

growth 

3.5.4.  CLIMATE ACTION 

Current  climate  policy  efforts  may  not  be 
sufficient.  While  Malta  has  the  lowest  emissions 
per  capita  in  the  EU,  it  is  also  one  of  the  few 
Member States that currently appear to require the 
use of flexibility mechanisms to meet its target for 

(56)  See for instance KPMG and Malta Developers Association 
(2017), The Construction Industry and Property Market in 
Malta, p. 56. 

(57)  According 

to 

the  Maltese 
the  figures  provided  by 
authorities  the  10 %  target  of  public  procurement  set  for 
2012  was  met  in  the  60 %  of  cases,  the  20 %  target  for 
2013  was  fully  met,  the  30 %  target  for  2014  was  met  in 
the 70 % of cases; furthermore as of 2015 the responsibility 
for  managing  the  process  was  handed  to  individual 
ministries  so  that  the  Ministry  of  environment  that  had 
centralised  the  process  during  the  2012-2014  period  no 
longer monitors the deliverables in this area. 

39 

MTEU28Energy/power industry 40.030.9Transport28.421.0Industry 13.119.9Agriculture (including forestry & fishery)3.712.0Residential & Commercial8.112.8Waste 6.63.2Other0.20.245678910111204050607080910111213141516EU28MT 
                                                           
 
 
 
 
 
3.5. Sectoral policies 

Graph 3.5.3:  WEF Travel and Tourism Competitiveness Index 

– Selected indicators 

Southern Europe includes Spain, Italy, Portugal, Greece, 
Croatia, Malta, Turkey and Cyprus. 
Source: World Economic Forum. 

On the other hand, the development of tourism 
might  itself  exert  further  pressure  on  natural 
resources,  waste,  water,  air  quality  and  traffic 
congestion.  This  is  especially  true  when  it  comes 
to  large-scale  tourism  activities  in  vulnerable 
coastal areas and high peak seasons. Furthermore, 
despite  the  main  source  of  congestion  issues  (see 
Section  3.5.1)  being  mainly  domestic,  tourists  are 
expected  to  contribute  to  the  problem  during  the 
peak season, when visitors increase the population 
by 65 %. While continuing to favour the inflow of 
tourists  and  the  scaling  up  of  accommodation 
facilities,  authorities  are  focusing  efforts  on 
the  seasonality  curve  by  attracting 
flattening 
different  types  of  tourism  (e.g.  language  studies 
and  cultural  attractions),  ensuring  all-year-round 
connectivity,  and  favouring  the  supply  of  non-car 
transport options for tourists. The need to promote 
Malta  as  a  sustainable  tourism  destination  is  also 
reflected  in  the  Smart  Specialisation  Strategy, 
which identifies tourism product development as a 
priority. 

across sectors, especially in view of the increasing 
population.  In  addition,  the  issues  of  climate 
change  and  environmental  protection  have  been 
integrated  into  the  Malta  Resources  Authority 
(MRA)  and  Environment  and  Resource  Authority 
(ERA),  which  is  consulted  on  the  award  of  new 
planning permits.  

3.5.5.  TOURISM  

The tourism industry is one of the main pillars 
of Malta’s economy. The contribution of tourism 
to  the  Maltese  economy  has  been  estimated  at 
between  6  and  17 % (58).  The  number  of  inbound 
visitors  grew by  over  5 %  in 2015  and  over  10 % 
in 2016 (Malta Tourism Authority, 2016), although 
tourism  expenditure  per  capita  declined  in  2016. 
Provisional  figures  for  2017  point  to  an  upward 
trend in the number of visitors, as data for the first 
eleven  months  of  2017  show  that  total  inbound 
visitors have increased by 15.7 % compared to the 
same period in 2016. 

infrastructure  may 

in  natural 
If  not  addressed,  bottlenecks 
resources  and 
impact 
tourism development in Malta. The WEF Travel 
and  Tourism  Competitiveness  Index  identifies 
natural  resources  as  a  relatively  weak  point  in 
Malta’s  touristic  supply  (see  Graph  3.5.3)  (World 
Economic  Forum,  2017b).  The  sector  is  also 
heavily  dependent  on  a  stable  water  supply  and 
highly vulnerable to the impacts of climate change. 
Furthermore, congestion of road infrastructure and 
its  impact  on  air  quality,  as  well  as  difficulties  in 
waste  management,  have  the  potential  to  reduce 
the  attractiveness  of  the  country  as  a  tourist 
destination. Also, the possibility of illegal disposal 
of  C&D  waste  at  sea  could 
the 
conservation of coastal areas.  

threaten 

(58)  The  contribution  of  tourism  to  the  Maltese  economy 
accounts  for  roughly  5.7 %  of  total  gross  value  added 
(including only direct effects), 12 % including also indirect 
effects and 17 % including induced effects. Source: Cassar 
I. P., K. Vella, and S. Buttigieg (2017), Understanding the 
Economic  Contribution  of  Tourism  in  Malta: A Literature 
Review, Ministry for Finance Malta, WP 01/2017, February 
2017. 

40 

02468Prioritization of travel andtourismInternational opennessPrice competitivenessEnvironmental sustainabilityNatural resourcesCultural resources & businesstravelTravel and tourism policyand enabling conditionsNatural andculturalresourcesMaltaSouthern Europe average 
                                                           
 
 
ANNEX A: OVERVIEW TABLE 

Commitments 

Summary assessment(59) 

2017 country-specific recommendations (CSRs) 

CSR  1:  Expand  the  scope  of  the  ongoing 
spending reviews to the broader public sector and 
introduce performance-based public spending. 

Malta  has  made  some  progress  in  addressing 
CSR1. 

also  planning 

The  authorities  envisage  that  a  review  will  be 
undertaken  at  the  Management  Efficiency  Unit 
and the Malta College for the Arts, Sciences and 
Technology.  They 
to 
are 
institutionalise  the  spending  review  function 
under  a  directorate  within  the  Ministry  for 
Finance  which  is  tasked  with  public  sector 
performance and evaluation. This directorate will 
be  also  in  charge  of  the  monitoring  of  the 
recommendations  issued  in  the  past  years  in  the 
three areas concerned by the spending review and 
coordinate  in  the  future.  These  initiatives  seem 
promising 
towards 
in  public  spending, 
increased  effectiveness 
provided those are properly implemented. 

should  contribute 

and 

CSR  2:  Ensure  the  effective  national  supervision 
of  internationally  oriented  business  by  financial 
institutions  licensed  in  Malta  by  strengthening 
cooperation  with  the  host  supervisors  in  the 

Malta  has  made  some  progress  in  addressing 
CSR2.  

The  authorities  are  making  effort  in  securing 
more  resources  in  the  supervisory  departments, 

(59)  The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs): 

No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number  of  typical  situations,  to  be  interpreted  on  a  case-by-case  basis  taking  into  account  country-specific  conditions.  They 
include the following: 

no legal, administrative, or budgetary measures have been announced  
in the national reform programme, 
in any other official communication to the national Parliament/relevant parliamentary committees or the European Commission,  
publicly (e.g. in a press statement or on the government's website);  
no non-legislative acts have been presented by the governing or legislative 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 to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it has 
not proposed any clearly-specified measure(s) to address the CSR. 

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

legislative work is needed before the CSR is implemented;  

presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 

Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the measures have been 
implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision, but 
no implementing decisions are in place. 

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

have been implemented. 

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

41 

 
 
                                                           
 
 
 
 
 
A. Overview Table 

countries where they operate. 

whereby a high number of open vacancies proof 
that MFSA is understaffed. However, the process 
of reinforcing supervision of cross-border entities 
is slow and for the small supervisory body, such 
as in Malta, cross-border supervision remains an 
issue. In this respect, the Maltese authorities need 
to further ensure strong cross border supervisory 
cooperation,  in  order  to  assure  the  protection  of 
freedom  of  services  and  also  to  protect  the 
reputation  of 
the 
importance  of  the  large  cross-border  financial 
sector registered in Malta. 

jurisdiction,  given 

their 

Europe 2020 (national targets and progress) 

Employment rate target set in the NRP: 70 % 

69.6 % in 2016, up from 67.8 % in 2015. 

Early school leaving target: 10 % 

Tertiary education target: 33 % 

Despite  significant  progress  over  the  last  10 
years  (from  27.2 %  in  2008  to  19.6 %  in  2016), 
Malta  is  still  far  from  reaching  its  ambitious 
Europe 2020 national target of 10 %. 

Rising  steadily,  but  still  below  target.  Tertiary 
educational  attainment  rate  for  people  aged  30-
34  increased  by  6.4  percentage  points  over  the 
last  five  years,  but  at  29.8 %  in  2016  it  remains 
one of the lowest in the EU. 

At risk of poverty target in numbers of persons:  

85,000  at  risk  of  poverty  or  social  exclusion,  a 
decrease of 9,000 people since 2015. 

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

In absolute terms – 5,000 more people are at risk 
of  poverty  or  social  exclusion  in  2016  than  in 
2008. 

Non-ETS 2020 target: + 5% 

2020 estimate: + 16% 

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

Non-ETS 2016 target: + 4% 

According  to  the  latest  national  projections 
submitted  to  the  Commission,  and  taking  into 
account existing measures, it is expected that the 
target  will  not  be  achieved:  emissions  are 
expected  to  increase  16%  in  2020  as  compared 
with 2005 (shortfall of 11 percentage points)  

2016 estimate: + 20% 

Greenhouse  gas  emissions  from  sectors  not 
covered  by  the  Emissions  Trading  Scheme 
increased  by  20%  between  2005  and  2016, 

42 

 
 
 
 
A. Overview Table 

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

National energy efficiency target:  

Malta’s  2020  energy  efficiency  target  is  0.822 
Mtoe  expressed  in  primary  energy  consumption 
and  0.633  Mtoe  expressed 
in  final  energy 
consumption  

according to preliminary data. 

Malta’s  renewable  energy  share  has  increased 
achieving a share of 6 % in 2016, well above the 
indicative  trajectory  towards  the  2020  target. 
However,  significant  renewables  deployment  is 
needed in view of the steeper trajectory towards 
2020. Use of cooperation mechanisms with other 
Member  States  could  be  considered  to  facilitate 
the achievement of the renewable energy target. 

Malta’s  primary  energy  consumption  in  2016 
was  0.72  Mtoe  (reduction  of  4.2  %  from  2010) 
and  final  energy  consumption  was  0.58  Mtoe 
(increase  of  2.50  %  from  2010).  (preliminary 
data) 

R&D target: 2 % of GDP 

0.61 % of GDP in 2016 

Malta  has  decreased  its  R&D  intensity,  partly 
due to a slower growth of BERD since 2012 and 
increasing GDP. 

43 

 
ANNEX B: MACROECONOMIC IMBALANCE PROCEDURE 

SCOREBOARD 

Table B.1: 

The MIP scoreboard for Malta (AMR 2018) 

Flags: p: Provisional. (1) This table provides data as published under the Alert Mechanism Report 2018, which reports data as 
of 24 Oct 2017. Please note that figures reported in this table may therefore differ from more recent data elsewhere in this 
document.(2) Figures highlighted are those falling outside the threshold established in the European Commission's Alert 
Mechanism Report. 
Source:   European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661. 

44 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%-3.8 -1.1 1.4 4.4 5.3 6.7 Net international investment position% of GDP-35%6.3 19.6 27.0 43.3 52.2 47.6 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)-5.0 -7.6 -1.2 0.1 -2.7 -2.5 Export market share - % of world exports5 year % change-6%17.8 12.7 -0.2 -12.1 -2.0 8.7 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)11.0 8.7 9.8 3.4 0.1 -0.1 House price index (2015=100), deflated 1 year % change6%-3.4 0.7 -1.6 2.5 5.1 4.8pPrivate sector credit flow, consolidated% of GDP14%5.4 -0.7 2.7 3.9 2.8 11.1 Private sector debt, consolidated% of GDP133%159.8 153.3 143.9 135.9 125.8 128.4 General government gross debt% of GDP60%70.1 67.8 68.4 63.8 60.3 57.6 Unemployment rate3 year average10%6.7 6.5 6.4 6.2 5.9 5.3 Total financial sector liabilities, non-consolidated1 year % change16.5%11.0 6.1 1.6 6.4 1.3 1.7 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp2.7 3.7 4.6 4.5 4.5 4.1 Long-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp0.4 0.2 -0.2 -0.3 -0.7 -1.0 Youth unemployment rate - % of active population aged 15-243 year change in pp2 pp1.6 -0.4 -0.2 -1.6 -2.3 -2.0 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2017. Includes not only banks but all monetary financial institutions excluding central banks. (2) Latest data 
Q2 2017. (3) As per ECB definition of gross non-performing debt instruments (4) Quarterly values are not annualised (5) Latest 
data February 2017. 
* Measured in basis points. 
Source:  European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

45 

201220132014201520162017Total assets of the banking sector (% of GDP)(1)747.5659.0623.0511.5466.1442.5Share of assets of the five largest banks (% of total assets)74.476.581.581.380.2-Foreign ownership of banking system (% of total assets)(2)78.474.971.466.559.657.3Financial soundness indicators:(2)              - non-performing loans (% of total loans)(3)1.72.03.22.92.62.3              - capital adequacy ratio (%)51.946.425.121.220.220.3              - return on equity (%)(4)4.73.74.46.38.13.9Bank loans to the private sector (year-on-year % change)(1)3.5-7.410.00.75.89.1Lending for house purchase (year-on-year % change)(1)6.86.29.68.67.58.0Loan to deposit ratio(1)89.873.766.463.061.562.9Central Bank liquidity as % of liabilities(5)--0.90.3-0.2Private debt (% of GDP)153.4143.9136.0125.9128.6-Gross external debt (% of GDP)(2) - public8.38.67.06.56.65.7    - private719.7706.0685.5652.3611.6580.9Long-term interest rate spread versus Bund (basis points)*263.1179.3144.899.279.698.2Credit default swap spreads for sovereign securities (5-year)*346.2215.8208.5208.5208.7208.7 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

† The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States performance. 
The indicators "participants in active labour market policies per 100 persons wanting to work" and "compensation of employees 
per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible alternatives will be discussed in the 
relevant Committees. 
(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from severe 
material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin working 
immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2018.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap. 
Source: Eurostat 

46 

201220132014201520162017 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)21.120.520.319.819.7:Gender employment gap (pps)32.629.628.427.827.726.2Income inequality, measured as quintile share ratio (S80/S20)3.94.14.04.24.2:At-risk-of-poverty or social exclusion rate1 (AROPE)23.124.023.822.420.1:Young people neither in employment nor in education and training (% of population aged 15-24)10.69.910.510.48.5:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)63.164.866.467.869.670.8Unemployment rate2 (15-74 years)6.36.45.85.44.74.0Gross disposable income of households in real terms per capita3 (Index 2008=100) ::::::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction437.132.633.231.230.7:Children aged less than 3 years in formal childcare17.020.018.217.931.3:Self-reported unmet need for medical care1.20.91.10.81.0:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::52.049.056.0 
 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and social indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores Values for 2012 and 2015 refer respectively to 
mathematics and science..       
(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure). 
Source: Eurostat, OECD 

47 

Labour market indicators201220132014201520162017 5Activity rate (15-64)63.165.066.367.669.1:Employment in current job by durationFrom 0 to 11 months10.210.39.710.111.4:From 12 to 23 months8.49.710.39.711.0:From 24 to 59 months17.716.318.319.218.2:60 months or over62.462.160.660.059.3:Employment growth* (% change from previous year)2.53.75.13.93.75.1Employment rate of women(% of female population aged 20-64)46.649.852.053.655.557.4Employment rate of men (% of male population aged 20-64)79.279.480.481.483.283.6Employment rate of older workers* (% of population aged 55-64)34.736.337.840.344.144.0Part-time employment* (% of total employment, aged 15-64)13.214.215.514.514.013.3Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)6.87.57.77.47.55.7Transition rate from temporary to permanent employment(3-year average)26.531.612.714.9::Long-term unemployment rate1 (% of labour force)3.12.92.72.41.91.8Youth unemployment rate (% active population aged 15-24)14.113.011.711.811.010.3Gender gap in part-time employment20.519.821.821.020.620.5Gender pay gap2 (in undadjusted form)9.59.710.6:::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)7.17.67.47.27.5:Underachievement in education3:::29.1::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)24.926.026.527.829.9:Variation in performance explained by students' socio-economic status4:::14.5:: 
 
 
 
 
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

*  Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) 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. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(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) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard.Source:  Eurostat, OECD 

48 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare5.96.15.95.7::Disability0.70.70.70.6::Old age and survivors10.29.89.38.9::Family/children1.11.21.31.2::Unemployment0.60.60.50.5::Housing0.10.10.10.2::Social exclusion n.e.c.0.30.30.30.2::Total18.918.718.117.3::of which: means-tested benefits2.42.42.32.3::General government expenditure by function (% of GDP, COFOG)Social protection14.013.813.112.412.0:Health5.55.75.75.85.6:Education5.85.85.65.55.4:Out-of-pocket expenditure on healthcare (% of total health expenditure)::::::Children at risk of poverty or social exclusion (% of people aged 0-17)*31.032.031.328.224.0:At-risk-of-poverty  rate1 (% of total population)15.115.715.916.316.5:In-work at-risk-of-poverty rate (% of persons employed)5.25.95.75.45.8:Severe material deprivation rate2  (% of total population)9.29.510.28.14.4:Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan1.10.71.00.90.5:Tenant, rent at market price3.44.98.04.110.1:Proportion of people living in low work intensity households4 (% of people aged 0-59)9.09.09.89.27.3:Poverty thresholds, expressed in national currency at constant prices*61166259655468636823:Healthy life years (at the age of 65)Females12.312.713.714.0::Males12.512.813.313.4::Aggregate replacement ratio for pensions5 (at the age of 65)0.50.60.60.50.5:Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::54.462.966.167.9GINI coefficient before taxes and transfers*44.445.545.745.6::GINI coefficient after taxes and transfers*27.127.927.728.1:: 
 
 
 
 
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

(1) The methodologies, including the assumptions, for this indicator are shown in detail here: 
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 codified 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 don't know. (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 here: 
http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm (6) Aggregate OECD 
indicators of regulation in energy, transport and communications (ETCR). 
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). 

49 

Performance Indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in Industry0.000.000.000.000.000.000.00Labour productivity in Construction0.000.000.000.000.000.000.00Labour productivity in Market Services0.000.000.000.000.000.000.00Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in Industry0.000.000.000.000.000.000.00ULC in Construction0.000.000.000.000.000.000.00ULC in Market Services0.000.000.000.000.000.000.00Business Environment2010201120122013201420152016Time needed to enforce contracts(1) (days)#N/A505.0505.0505.0505.0505.0505.0Time needed to start a business(1) (days)#N/A38.538.538.533.528.026.0Outcome of applications by SMEs for bank loans(2)na0.69na0.680.580.400.17Research and innovation2010201120122013201420152016R&D intensity0.610.670.830.770.720.770.61General government expenditure on education as % of GDP5.605.705.805.805.605.50naPersons with tertiary education and/or employed in science and technology as % of total employment33353738373737Population having completed tertiary education(3)14151617181819Young people with upper secondary level education(4)73747677767878Trade balance of high technology products as % of GDP0.640.031.83-1.10-3.44-3.49naProduct and service markets and competition200320082013OECD product market regulation (PMR)(5), overallnana1.57OECD PMR5, retailnana1.09OECD PMR5, professional servicesnana1.66OECD PMR5, network industries(6)nana2.28 
 
 
 
 
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 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 % of total value added for the economy 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)  
Real unit energy costs for manufacturing industry excluding refining : real costs as % 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 GHG 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 2010 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 covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels 
* European Commission and European Environment AgencySource: European Commission and European Environment 
Agency (Share of GHG emissions covered by ETS); European Commission (Environmental taxes over labour taxes and GDP); 
Eurostat (all other indicators) 

50 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.140.140.120.110.090.08Carbon intensity kg / €0.470.470.400.380.27-Resource intensity (reciprocal of resource productivity)kg / €0.560.630.530.670.690.68Waste intensity kg / €-0.21-0.21--Energy balance of trade % GDP-2.8-12.2-9.2-15.0-9.2-9.0Weighting of energy in HICP%6.657.317.578.057.407.16Difference between energy price change and inflation %0.4-2.0-1.6-17.0-8.7-1.9Real unit of energy cost% of value added6.46.55.75.4--Ratio of environmental taxes to labour taxesratio0.280.260.240.260.27-Environmental taxes% GDP3.12.92.72.82.92.8Sectoral Industry energy intensity kgoe / € -----0.00Real unit energy cost for manufacturing industry excl. refining% of value added10.09.49.78.0--Share of energy-intensive industries in the economy% GDP------Electricity prices for medium-sized industrial users€ / kWh0.180.180.180.180.150.14Gas prices for medium-sized industrial users€ / kWh-----0.00Public 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%9.09.78.17.46.77.1Share of GHG emissions covered by ETS*%60.261.857.655.739.230.0Transport energy intensitykgoe / €-----0.00Transport carbon intensitykg / €-----0.00Security of energy supplyEnergy import dependency%101.3101.0104.197.797.3100.9Aggregated supplier concentration indexHHI0.00.00.00.00.0-Diversification of energy mixHHI0.980.98---- 
 
 
 
REFERENCES 

Bricongne,  J.-C.,  P.  Pontuch,  and  A.  Turrini  (forthcoming),  Assessing  House  Prices:  Insights  from 
HouseLev, a new dataset of prices in levels, European Commission Discussion Paper. 

Cassar I. P., K. Vella, and S. Buttigieg (2017), Understanding the Economic Contribution of Tourism in 
Malta: A Literature Review, Ministry for Finance Malta, WP 01/2017, February 2017. 

Cedefop  (2017),  Vocational  education  and  training  in  Malta:  short  description,  Luxembourg, 
Publications Office.  

EIB  (2017),  EIB  Group  Survey  on  Investment  and  Investment  Finance  Country  Overview:  Malta, 
European Investment Bank (EIB). 

European  Commission  (forthcoming),  Taxation  trends  in  the  European  Union,  Data  for  EU  Member 
States, Iceland and Norway, 2018 edition, European Commission, Brussels. 

European  Commission  (2018a),  Warrington,  B,  Hristov,  H;  RIO  Country  Report  2017:  Malta,  Joint 
Research Centre.  

European Commission (2018b), EU Justice Scoreboard 2018, European Commission, Brussels. 

European  Commission  (2017a),  Country  Report  Malta  2017,  SWD(2017)  83  final,  European 
Commission, Brussels. 

European Commission (2017b), Education and Training Monitor 2017 - Malta, European Commission, 
Brussels. 

European Commission (2017c), ESPN Thematic Report on Access to social protection of people working 
as self-employed or on non-standard contracts - Malta, European Commission, Brussels. 

European  Commission  (2017d),  2017  Small  Business  Act  Fact  Sheet  —  Malta,  European  Commission, 
Brussels. 

European  Commission  (2017e),  Communication  on  reform  recommendation 
professional services, COM(2016) 820 final, European Commission, Brussels. 

for  regulation 

in 

European Commission (2017f), Survey on the access to finance of enterprises (SAFE) - Analytical Report 
2017, Luxembourg, Publication Office. 

European  Commission  (2017g),  Flash  Eurobarometer  457:  Businesses’  attitudes  towards  corruption  in 
the EU, European Commission, Brussels. 

European  Commission  (2017h),  European  Construction  Sector  Observatory  –  Malta  country  profile, 
European Commission, Brussels. 

European Commission (2017i), The EU environmental Implementation review, Country Report - Malta, 
SWD(2017)51, European Commission, Brussels. 

European  Commission  (2016),  European  Construction  Sector  Observatory  –  Malta  country  profile, 
European Commission, Brussels. 

European Commission (2015), Business services  — Assessment of barriers and their economic  impact, 
European Commission, Brussels. 

51 

 
 
References 

FRA  (2017),  Second  European  Union  Minorities  and  Discrimination  Survey  -  Main  results,  FRA 
European Union Agency for fundamental rights, Luxembourg, Publications Office. 

Housing Europe (2015), The State of Housing in the EU 2015. 

IHME  (2016),  Global  Health  Data  Exchange,  Institute  for  Health  Metrics  and  Evaluation,  available  at 
http://ghdx.healthdata.org/gbd-results-tool. 

IHS (forthcoming), Aggressive Tax Planning indicators, Institute for Advanced Studies, Vienna. 

KPMG  and  Malta  Developers  Association  (2017),  The  Construction  Industry  and  Property  Market  in 
Malta, October 2017. 

Ministry  for  Tourism,  the  Environment  and  Culture  (2012),  National  environmental  Policy,  February 
2012. 

Ministry  for  Transport  and  Infrastructure  and  Transport  Malta  (2013),  The  Malta  National 
Electromobility Action Plan. 

Malta Tourism Authority (2016), Tourism in Malta- facts and figures 2016. 

National Statistics Office Malta (2017), Solid Waste Management: 2015, January 2017. 

OECD/European  Observatory  on  Health  Systems  and  Policies (2017), Malta:  Country  Health  Profile 
2017, OECD Publishing, Paris/European Observatory on Health Systems and Policies, Brussels. 

Office of the Prime Minister (2017), Malta’s National Energy Efficiency Action Plan, April 2017. 

Transport Malta (2016), National Transport Master Plan to 2025. 

Van  't  Riet,  M.,  and  A.  Lejour  (2017),  Optimal  Tax  Routing:  Network  Analysis  of  FDI  Diversion, 
(CentER Discussion Paper; Vol. 2017-022), Tilburg: CentER, Center for Economic Research. 

World Economic Forum (2017a), The Global Competitiveness Report 2017–2018. 

World Economic Forum (2017b), Travel and Tourism Competitiveness Report 2017. 

52