COMMISSION STAFF WORKING DOCUMENT Country Report Malta 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 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: 2019-02-27
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, 27.2.2019  SWD(2019) 1017 final  COMMISSION STAFF WORKING DOCUMENT Country Report Malta 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 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(2019) 150 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.    Competitiveness and investment 

Annex A: Overview table 

Annex B: Commission Debt Sustainability Analysis and fiscal risks 

Annex C: Standard tables 

3 

6 

14 

17 

17 

22 

27 

34 

43 

46 

47 

Annex D: Investment guidance on cohesion policy funding 2021-2027 for Malta 

53 

References 

LIST OF TABLES 

Table 1.1: 

Key economic and financial indicators — Malta 

Table 2.1: 

Annual assessment of the 2018 CSRs 

Table 3.2.1: 

Financial soundness indicators, core domestic banks (%) 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

LIST OF GRAPHS 

Graph 1.1: 

Demand components of GDP annual growth 

Graph 1.2: 

Activity, employment and unemployment rates 

Graph 1.3: 

Nominal compensation growth: actual and benchmarks 

1 

57 

13 

15 

22 

47 

48 

49 

50 

51 

52 

6 

7 

8 

 
 
 
 
Graph 1.4: 

Real effective exchange rate, different trading partners 

Graph 1.5: 

Decomposition of current account 

Graph 1.6: 

Breakdown of net international investment position by instrument 

Graph 1.7: 

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

Graph 1.8: 

Consolidated vs non-consolidated debt, NFC 

Graph 2.1:  Overall multiannual implementation of 2011-2018 CSRs to date 

Graph 3.1.1: 

Tax revenue by economic function in 2017, Malta and EU 

Graph 3.2.1:  Valuation gap in house prices 

Graph 3.2.2:  Residential investment and building permits 

Graph 3.3.1: 

Increase in female employment rates, 2013-2017, Malta and EU 

Graph 3.3.2:  Number of foreign workers 

Graph 3.3.3:  Students' socio-economic status and performance in science, by schools' socio-

economic status 

Graph 3.3.4:  Population at risk of poverty by rent price 

Graph 3.4.1:  GVA by industry breakdown 

Graph 3.4.2:  Gross fixed capital formation by asset 

Graph 3.4.3:  Municipal waste generated and treatment 

Graph 3.4.4: 

Integration of digital technologies in Malta 

LIST OF BOXES 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to fostering 

growth and competitiveness in Malta 

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

Box 3.4.1: Investment - challenges and reforms in Malta 

9 

9 

10 

12 

12 

14 

17 

25 

26 

29 

30 

30 

33 

34 

34 

36 

39 

16 
28 
42 

2 

 
 
 
 
 
EXECUTIVE SUMMARY 

is  to  ensure  that 

As Malta’s economy continues to grow strongly, 
the  main  challenge 
its 
development  is  sustainable  in  the  long  term.  In 
recent  years,  Malta  has  seen  high  GDP  growth, 
strong employment growth, a budget surplus and a 
buoyant services sector. Economic growth appears 
to have been driven by structural changes, such as 
the  shift  towards  the  services  sector,  which  are 
expected  to  continue  in  the  short  term.  However, 
ensuring the sustainability of Malta's development 
remains  a  challenge.  Risks  to  Malta’s  future 
growth  and  attractiveness  to  potential  investors 
include  infrastructure  bottlenecks,  constraints  on 
natural  resources,  low  skill  levels,  an  ageing 
population  and  vulnerabilities  in  the  governance 
framework (1). 

and 

public 

consumption. 

Economic  growth  continued  at  a  strong  pace. 
GDP  growth  in  2018  is  estimated  at  6.2 %, based 
on strong domestic demand and, in particular, both 
The 
private 
internationally  oriented  services  sector  continues 
to underpin Malta’s large current account surplus. 
Inflation  has  started  to  accelerate  and  is  expected 
to pick up as wage pressures start gaining pace. In 
the  short  term,  Malta’s  economic  growth  is 
projected  to  gradually  moderate  to  an  annual 
average rate of 5.2 % in 2019 and 4.6 % in 2020. 

The  budget  position  has  improved  significantly 
in  recent  years,  with  strong  economic  growth 
boosting  tax  revenues.  The  exceptionally  high 
surplus in 2017 stemmed from the marked increase 
in current revenue which resulted from the tax-rich 
composition  of  growth,  including  high  corporate 
profits,  and  higher-than-expected  proceeds  from 
the Individual Investor Programme (the citizenship 
scheme)  in  that  year.  The  general  government 
surplus is expected to decline from 3.5 % of GDP 
in  2017  to  1.2 %  of  GDP  in  2019.  Part  of  the 
decline 
is  driven  by 
continued  growth  in  spending.  Gross  government 

the  budget  surplus 

in 

(1)  This  report  assesses  Malta’s  economy  in  light  of  the 
European Commission’s Annual Growth Survey published 
on 21 November 2018. 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  —  delivering  high-quality  investment, 
efforts  on  productivity  growth, 
reforms 
focusing 
inclusiveness  and 
institutional  quality  and  ensuring 
macroeconomic stability and sound public finance. 

3 

debt  is  below  60 %  of  GDP  and  is  projected  to 
continue falling. 

sound,  but 
sector  remains 
The  banking 
laundering 
shortcomings 
anti-money 
in 
enforcement  also 
imply  reputational  risks. 
Overall, the banks remain profitable. Their capital 
base is sound, liquidity ample, and the credit risks 
have  been  further  reduced.  The  soundness  and 
resilience  of  Malta’s  banking  sector  were  also 
confirmed by the comprehensive results of a stress 
test  using  the  European  Banking  Authority’s 
recent 
methodology.  At 
investigations  involving  money  laundering  have 
revealed  shortcomings 
in  Malta’s  anti-money 
laundering enforcement.  

same 

time, 

the 

the 

the 

would 

long  run, 

strengthen 

Focussing  investments  on  skills  development, 
innovation, infrastructure and natural resource 
management 
the 
sustainability  of  Malta’s  economic  growth.  The 
recent shift towards the services sector has helped 
boost  productivity.  Investment  has  stabilised  at  a 
relatively  high  level,  supported  in  particular  by 
increased 
construction.  In 
economic  activity  may 
exacerbate  existing 
bottlenecks  and  put  further  pressure  on  natural 
resources 
labour 
shortages,  low  skill  levels  and  low  innovation 
reduce  firms’  growth  prospects.  Investment  is 
needed  to  support  environmental  sustainability, 
enhance  educational  outcomes  and  skills,  and 
improve  the  innovation  framework.  Annex  D  of 
this  report  identifies  key  priorities  for  support  by 
the  European  Regional  Development  Fund,  the 
European Social Fund Plus and the Cohesion Fund 
for the 2021-2027 period in Malta, building on the 
investment  needs  and  challenges 
analysis  of 
outlined in this report. 

infrastructure,  while 

and 

Malta has  made limited progress in addressing 
the 2018 country-specific recommendations. (2)  

There  has  been  limited  progress  in  the  following 
areas: 

  Regarding  the  governance  framework,  some 
steps  have  been  taken  to  strengthen  financial 

(2)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
country-specific  recommendation 
the 
overview table in the Annex. 

is  presented 

in 

 
 
                                                           
                                                           
and 

supervision 
laundering 
enforcement,  but  shortcomings  in  the  anti-
corruption framework persist. 

anti-money 

  Efforts  to  ensure  that  the  healthcare  and 
pension systems are sustainable remain limited. 

Regarding  progress  towards  the  national  targets 
under the Europe 2020 strategy, Malta has met its 
targets  on  employment  and  tertiary  education 
attainment and it appears to be on track to meet its 
renewable  energy  target.  Additional  efforts  are 
needed  to  achieve  the  targets  for  raising  R&D 
expenditure, 
leaving, 
school 
reducing  poverty, 
reducing  greenhouse  gas 
emissions and improving energy efficiency. 

reducing  early 

Malta performs relatively well on the indicators 
of 
the 
the  Social  Scoreboard  supporting 
European  Pillar  of  Social  Rights,  although 
challenges  remain.  The  overall  employment  rate 
is  above 
long-term 
the  EU  average  and 
unemployment  rates  are  low.  Nonetheless,  Malta 
continues 
to  face  challenges  regarding  equal 
opportunities.  The  gender  employment  gap 
remains large and the gender pay gap is widening. 
The  employment 
is 
particularly  low.  In  addition,  early  school  leaving 
is  still  very  high,  overall  skills  attainment  is  low 
and 
education  uneven, 
disadvantaging 
lower  socio-economic  groups. 
Social  and  labour  market  outcomes  are  poor  for 
people with disabilities. 

rate  of  older  workers 

to  quality 

access 

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

  The  sound  budgetary  situation  might  hide 
the risk of financing permanent expenditure 
with  potentially  temporary  revenue.  The 
budget  has  benefited  from  the  increase  of 
revenues.  At  the  same  time,  the  weight  of 
corporate  income  taxes  in  total  tax  revenues 
implies  that  the  budget  is  highly  sensitive  to 
economic shocks and to international initiatives 
in  the  area  of  corporate  taxation.  In  addition, 
public  expenditure  is  projected  to  increase 
faster  than  revenue  in  the  next  few  years,  due 
to higher public investment and higher current 
expenditure. This points to the possible risks of 

Executive summary 

financing  permanent  expenditure 
from potentially temporary revenue flows.  

increases 

  The 

to 

increase 

is  expected 

in  age-related 

spending 
represents  a  substantial  risk  to  the  long-
term  sustainability  of  public  finances.  Age-
related  public  spending  in  the  healthcare  and 
increase 
pension  systems 
significantly  compared  to  other  EU  countries, 
indicating a risk of rising debt in the long term. 
Several  measures  aim  at 
the 
adequacy of pensions, and ongoing efforts have 
helped  to  increase  labour  supply  and  prolong 
working 
to  decentralise 
services  from  hospitals  to  primary  care  and  to 
improve 
long-term  care 
services  are  ongoing.  Their  impact  on  fiscal 
sustainability has yet to materialise. 

the  provision  of 

lives.  Measures 

increasing 

  Malta’s  tax  rules  appear  to  be  used  in 
aggressive tax planning structures, but some 
steps are being taken to limit such practices. 
Some elements that may facilitate tax planning 
include  the  absence  of  withholding  taxes  on 
the 
interest, 
residence  and  citizenship  by 
investment 
schemes.  However,  Malta  has  taken  steps  to 
amend  aspects  of  its  tax  system  to  curb 
in  particular  by 
aggressive 
implementing  European  and 
internationally 
agreed initiatives. 

royalties  and  dividends  or 

tax  planning, 

  Capacity for supervising the financial sector 
is  improving,  but  risks  and  challenges  are 
increasing.  A 
large  number  of  financial 
institutions,  both  foreign  banks  and  insurance 
companies mainly operating across borders, are 
registered  in  Malta.  Efforts  are  ongoing  to 
ensure  proper  supervision,  but  additional 
challenges  for  the  financial  supervisor  have 
arisen.  These  are  due  to  stricter  international 
requirements  to  increase  financial  supervision, 
and the new tasks of granting new licences for 
crypto-currencies.  A 
supervisory 
framework  is  warranted  to  maintain  Malta’s 
reputation and attractiveness as an international 
financial centre. 

stronger 

  Ensuring  higher  standards  of  anti-money 
actual 
supervision 
laundering 
enforcement remains a challenge. Malta has a 
growing  reliance  on  service  sectors  that  are 

and 

4 

 
 
practices.  Moreover, 
involving  money 

considered  particularly  vulnerable  to  money 
laundering 
recent 
investigations 
laundering 
have  revealed  serious  shortcomings  in  Malta’s 
anti-money 
enforcement 
laundering 
framework.  Sanctions,  however,  are  rarely 
imposed.  While  Malta  is  currently  making 
the  challenges 
the  size  of 
improvements, 
requires  particularly  high  standards  of  anti-
money 
laundering  supervision  and  better 
enforcement. 

in 

  The  housing  market  remains  buoyant  and 
deserves continuous monitoring. The housing 
market  dynamism,  reflected 
increasing 
construction  activity,  rising  house  prices  and 
lending, is likely to continue in the near future. 
While  overall  risks  to  financial  stability  from 
real  estate  remain  contained,  if  recent  trends 
continue  they  may  lead  to  potential  macro-
financial  imbalances.  Action  is  being  taken  to 
regulate the rental market.  

  Labour  market  performance  is  solid,  but 
some  groups  are  disadvantaged  and  labour 
shortages  persist.  Employment  growth  has 
been  strong,  with  increasing  labour  market 
participation  and  declining  unemployment. 
Recent reforms have improved the functioning 
of  the  labour  market  and  increased  labour 
supply.  However,  inactivity  is  comparatively 
high,  the  gender  gap  is  still  large  and  the 
employment rate of people with disabilities and 
older  workers  is  low.  Labour  shortages  across 
sectors  continued  to  increase,  contributing  to 
increasing the reliance on foreign labour.  

  Poor educational outcomes may limit growth 
prospects. In spite of high public investment in 
education,  educational  outcomes  remain  poor, 
with major disparities linked to socioeconomic 
type  of 
background,  disability  status  and 
school.  Early  school  leaving  is  among  the 
highest in the EU and participation of the low-
skilled  in  adult  learning  remains  low.  The 
systematic  identification  of  skill  requirements 
to  support  the  transition  to  a  more  sustainable 
economic development model is so far lacking. 

  Poverty  and  social  exclusion  decreased,  but 
the 
foreigners  creates 
integration  challenges.  The  risk  of  poverty 

inflow  of 

large 

Executive summary 

and social exclusion has fallen but remains at a 
high level for children, people with disabilities 
and non-EU migrants. Demographic trends are 
putting  pressure  on  the  provision  of  services, 
including  education,  housing,  health  and  long-
term care. 

firms  remains 

  The  research  and  innovation  potential  of 
Maltese 
limited.  Malta’s 
innovation performance is gradually improving 
but  remains  relatively  modest.  R&D  is  largely 
dependent  on  foreign  direct  investment,  while 
domestic  innovation  is  lacking.  Access  to 
finance  is  more  difficult  for  innovative  firms 
without collateral. The effectiveness of existing 
measures  to support home-grown research and 
innovation remains limited.  

sustainability 

  The  mounting  pressure  on  infrastructure 
creates 
challenges.  The 
increasing  population,  the  growing  demand  in 
the  housing  market  and  the  growth  of  tourism 
intensify  pressure  on  land  and  scarce  water 
resources.  Heavy  reliance  on  waste  disposal 
exacerbates  the  challenge.  Traffic  congestion 
remains  an 
it  has  significant 
economic, social and environmental costs. The 
impact of planned policy actions on modal shift 
from  private  cars  remains  limited  as  public 
investment  in  land  transport  is  mostly  focused 
on  improving  road  quality.  There  is  untapped 
potential  to  increase  energy  efficiency  and  to 
strengthen climate  action. Targeted investment 
may  contribute  to  the  shift  towards  a  more 
sustainable and resource-efficient economy. 

issue,  as 

justice 

indicators 
in 

  Shortcomings  in  the  governance  framework 
could  weigh  on  the  investment  climate. 
identify  corruption  and 
Survey 
inefficiencies 
system  as 
the 
problematic  factors  in  Malta.  Recent  reforms 
have  yet  to  fully  ensure  the  independence  of 
the  judiciary.  The  anti-corruption  institutional 
framework has shortcomings, and there exists a 
risk  of  conflict  of  interest  at  various  levels  of 
government. The Economic Crimes Unit of the 
police is currently understaffed. A strengthened 
governance framework is a prerequisite to fully 
reaping the benefits of investment. 

5 

 
 
1. ECONOMIC SITUATION AND OUTLOOK 

Economic growth 

Malta’s  economy  continues  to  grow  at  a 
sustained  pace,  amid  long-term  sustainability 
challenges. In recent  years the economy  has been 
characterised  by  high  GDP  and  employment 
growth,  a  fiscal  surplus  and  a  buoyant  services 
sector.  Real  GDP  growth  in  2018  is  estimated  at 
6.2 %, moderating from the 6.7 % growth recorded 
in  2017.  While  net  exports  were  the  main  growth 
driver  in  2016-17,  domestic  demand  is  set  to 
become  the  most  important  growth  contributor  in 
2018  (see  Graph  1.1).  Private  consumption,  in 
particular, has grown robustly on the back of high 
employment growth and higher disposable income. 
Public consumption reflected higher compensation 
of  employees  in  the  public  sector.  Investment  has 
started  to  recover,  following  the  sizeable  drop 
recorded in 2017. Private investment growth in the 
first  half  of  2018  was  driven  by  residential 
construction  and  investment  in  machinery  and 
equipment  (see  also  Section  3.4).  As  the  growth 
momentum continues, the main challenges concern 
the 
of  Malta’s 
development.  

sustainability 

long-term 

Graph 1.1:  Demand components of GDP annual growth 

around 11 % of the value  added in 2017 (see also 
Section  3.4.2).  Moreover,  the  gaming  industry 
contributes  to  the  economic  performance  of  other 
major sectors, including professional services, ICT 
(information  and  communication 
technology), 
financial  activities  and  real  estate.  Looking  at  the 
general  performance  of  the  services  sector,  in  the 
first  half  of  2018  substantial  gains  were  recorded 
in  most  areas.  Gross  value  added  from  financial 
and  insurance  activities  grew  by  more  than  10 % 
over  the  same  period  of  2017.  Business  services, 
real  estate  activities  and  recreation  activities 
(which  include  gaming)  also  showed  sustained 
growth rates. The strong external dimension of the 
services sector reflects Malta’s specialisation as an 
In  particular, 
international 
financial  and  insurance  operators,  as  well  as 
remote 
almost 
companies, 
exclusively  foreign  customers  (see  also  Section 
3.2).  

services 

gaming 

centre. 

serve 

Short-term growth is projected to moderate but 
to  remain  strong,  supported  by  domestic 
demand.  Growth  is  expected  to  gradually  ease  in 
the short-term, to an annual average rate  of  5.2 % 
in  2019  and  4.6 %  in  2020.  Domestic  demand  is 
set  to  be  the  main  driver  of  growth,  supported  by 
strong  investment  growth.  Starting  from  2019, 
investment  growth  is  to  be  boosted  by  large-scale 
infrastructure  projects  in  the  health  sector  and 
investments in the tourism and real estate sectors. 
The  public  investment  profile  is  expected  to 
investment  projects  co-
benefit  from  various 
financed  by  EU 
funds.  Private 
consumption  is  projected  to  remain  dynamic,  on 
the back of increasing labour  market participation 
and disposable income. Export growth is expected 
to slow down from the high growth rates registered 
in  recent  years, 
the  projected 
moderation  in  global  demand,  while  imports  are 
expected to rise, driven by investment growth.  

line  with 

structural 

in 

Source: European Commission 

Inflation 

Economic  growth  is  fuelled  by  the  services 
sector.  The  Maltese  economy  has  developed  a 
vibrant,  internationally  oriented  services  sector. 
The  tourism industry  is one of the  main pillars of 
the  economy,  with  increasing  numbers  in  both 
inbound  visitors  and  tourist  expenditure.  The 
gaming 
its 
contribution  to  economic  activity,  and  created 

sector  has 

increased 

steadily 

6 

Inflation,  previously  subdued,  has  started  to 
gradually accelerate. Average annual inflation in 
the  period  2014-2017  was  slightly  above  1 %. 
Headline  inflation  began  to  accelerate  in  the 
second  quarter  of  2018  and  reached  1.7 %  by  the 
end of the year, in line with the euro area average. 
In  part,  the  acceleration  reflects  the  statistical 
the  weight  of 
impact  of 

increase 

the 

in 

-10-50510151011121314151617181920Net exportsInvestmentPriv. consumptionGov. consumptionInventoriesReal GDP (y-o-y %)forecastpps.  
 
 
1. Economic situation and outlook 

Graph 1.2:  Activity, employment and unemployment 

rates 

inflation  and 

accommodation  services  in  the  price  index  basket 
for 2018. Due to the combination of relatively high 
services 
inflation 
regulated  electricity  prices), 
(resulting 
average  core  inflation  was  slightly  higher  than 
headline  inflation  in  the  first  three  quarters  of 
2018, despite the international oil price increase.  

low  energy 

from 

Growth outlook and risks 

to  global 

Short-term  risks  to  the  outlook  are  mainly 
linked 
trade  demand.  Further 
escalations in global trade tensions, intensification 
of  geopolitical  uncertainties  and 
increasing 
protectionism  could  limit  economic  growth  given 
Malta’s small and open economy.  

infrastructure  constraints 

Existing  investment  bottlenecks  may  intensify 
and hamper growth in the long term. Given that 
the strong growth momentum appears to have been 
driven  by  structural  changes,  economic  growth  in 
the near term is expected to continue at a relatively 
sustained  pace.  In  the  long  run,  the  increased 
economic  activity  may 
exacerbate  existing 
bottlenecks  and  put  further  pressure  on  natural 
resources  and 
(see 
Section  3.4).  Persistent  low  skill  levels  and 
population ageing constitute additional challenges. 
Existing investment gaps in terms of human capital 
and  innovation  ecosystem  (see  Section  3.3  and 
3.4),  if  not  addressed,  would  weigh  on  the 
sustainability  of  Malta’s  development.  Reducing 
the remaining fiscal risks and the reputational risks 
linked  to  the  vulnerabilities  of  the  governance 
framework (see Section 3.2. and 3.4), may further 
enhance the economy’s resilience. 

Labour market and social developments 

On  the  back  of  strong  and  sustained  economic 
growth, the labour market continues to perform 
well. The unemployment rate dropped to 4.0 % in 
2017  and  employment  growth  remained  robust 
(see Graph 1.2). The employment rate (20-64) has 
risen above the EU average and reached 74.4 % in 
Q2-2018.  The  activity  rate  continues  its  gradual 
rise and labour migration inflows to fill vacancies 
remain  substantial.  Youth  unemployment  remains 
much below the EU average.  

Source: European Commission 

Nevertheless,  labour  and  skill  shortages  can 
hamper  growth and  its  inclusiveness.  The  share 
labour  shortages  has 
of  employers  reporting 
continued  to  increase  across  sectors.  Although 
closing,  the  gender  employment  gap  (24.1 pps  in 
2017),  is  still  one  of  the  largest  in  the  EU,  as 
shown  in  the  indicators  of  the  Social  Scoreboard 
supporting  the  European  Pillar  of  Social  Rights. 
The participation of people with disabilities in the 
labour  market  also  remains 
low.  The  high 
proportion of population with low skills and school 
dropout  rates  affecting  children  hamper  efforts  to 
reach sustainable and inclusive growth.  

The  tightening  labour  market  is  expected  to 
result  in  increased  wage  pressures.  In  2017, 
wage  growth  was  contained  by  rising  labour 
supply  resulting  from  inflows  of  foreign  workers 
and  higher  participation  of  women  in  the  labour 
market.  As  a  result,  nominal  compensation  per 
employee  increased  moderately  by  1.7 %,  while 
real  (GDP-deflated)  wages  declined  by  1.1 %. 
Nominal  compensation  per  employee  is  expected 
to  increase  faster,  by  2.3 %  in  2018  and  3.2 %  in 
2019. Combined with modest productivity growth, 
this is projected to lead to rising unit labour costs 
(1.9 % in 2018 and 2019). Overall, nominal  wage 
growth  in  recent  years  has  been  broadly  in  line 
with  macroeconomic  developments.  Given  the 
observed  changes  in  labour  productivity,  prices 

7 

0123456785560657075800102030405060708091011121314151617Unemployment rate 15-74 (rhs)Activity rate 20-64Employment rate 20-64% population% active population 
 
1. Economic situation and outlook 

and  the  unemployment  rate,  nominal  wages  have 
grown  slower  than  expected  but  are  still  higher 
than  the  rate  which  would  be  consistent  with  a 
stable cost competitiveness (see Graph 1.3) (3). 

is  also  relatively  evenly  distributed,  reflecting  the 
even  distribution  of  housing  assets  across  the 
population.  

Regional and local dimension  

In  terms  of  regional  gaps,  disparities  exist 
between  the  island  of  Malta  and  the  island  of 
Gozo. The small island of Gozo, which is currently 
dependent on the sea transport link with the island 
of  Malta,  is  less  accessible,  has  scarce  access  to 
services  and  has  fewer  job  opportunities  than 
mainland  Malta.  GDP  per  capita  in  Gozo  is  54 % 
of the  EU average compared to 96 % in mainland 
Malta.  The  island  of  Malta  offers  better  labour 
market  opportunities 
inter-island 
migration  and  a  high  level  of  work  commuting: 
one  in  five  employed  people  residing  in  Gozo 
works  in  Malta.  Disparities  between  Malta  and 
Gozo are also significant in terms of the proportion 
tourism 
living 
of  young  people 
seasonality,  and  the  prosperity  of  businesses  and 
productivity (which stands at 70 % of EU average 
in  Gozo  against  92 % 
in  mainland  Malta). 
Depopulation  due  to  the  weaknesses  listed  could 
exacerbate this trend.  

that  drive 

there, 

the 

Competitiveness 

Price  growth  and  exchange  rate  movements 
have  been  dampening  Malta’s  competitiveness 
in the external markets. Between 2008 and 2016, 
Malta’s price competitiveness improved as the real 
effective  exchange  rate  depreciated  by  almost 
10 % compared to its top 42 trading partners, while 
it remained mostly unchanged within the euro area 
(see Graph 1.4). The trend reversed as of 2017, as 
a  result  of  the  euro  appreciation  against  major 
currencies. In 2018, the depreciation of the British 
pound,  together  with  pressures  in  the  domestic 
labour  market  and  in  overall  prices,  has  reduced 
Malta’s external cost and price competitiveness. 

Export  performance 
in  goods  has  been 
declining,  reflecting  strong  specialisation  in 
services. Malta’s export  market share for services 
(0.26 % of the world total in 2017) is around three 
times  higher  than  its  export  market  share  for 
goods.  However,  from  2012  to  2017,  its  goods 
export market share decreased by 16.6 %.  

Graph 1.3:  Nominal compensation growth: actual and 

benchmarks 

Source: European Commission services calculations 

Overall poverty and social exclusion is receding, 
but it is increasing for some groups. Poverty and 
social  exclusion  risks  have  declined  (19.2 %, 
favourably  with  2008. 
2017)  and  compare 
However, children in single-parent, large, and low- 
to  medium-skilled  families  are  at  greater  risk  of 
poverty.  The  large  inflow  of  irregular  migrants 
may create integration challenges, reflected in their 
high 
risk  of  poverty  and  social  exclusion  
particularly in a context of increased housing costs. 

in  both 

income  and  wealth 

is 
Inequality 
moderate,  but  efforts  on  universal  access  to 
education  need  to  continue.  While  the  share  of 
income  held  by  the  richest  20 %  of  households 
remains  fairly  stable,  there  is  evidence  of  an 
increase in the richest quintile in 2017. Net wealth 

actual  wage 

the  contrary,  are  a 

(3)  The  European  Commission  regularly  assesses  whether 
wage  developments  support  macroeconomic  rebalancing 
source  of  potential 
or,  on 
macroeconomic  imbalances.  The  assessment  relies  on 
comparing 
two 
hypothetical  benchmarks  consistent  with  Member  States’ 
internal  or  external  economic  equilibrium:  (i)  the  wage 
growth  which  would  be  predicted  on  the basis  of  changes 
in  labour  productivity,  prices  and  the  unemployment  rate; 
(ii)  the  wage  growth  which  would  be  consistent  with  a 
constant  real  effective  exchange  rate  based  on  unit  labour 
costs.  

developments  with 

8 

-202468101299010305070911131517%Prediction based on inflation, productivity andunemploymentNominal compensation growth consistent withconstant UCL-based REERActual nominal compensation growth 
 
                                                           
1. Economic situation and outlook 

Graph 1.4: 

Real effective exchange rate, different trading 
partners 

oriented  services  sector  is  reflected  in  a  gradually 
increasing  trade  surplus  in  services.  The  goods 
trade balance started to gradually improve in 2016 
to  further  accelerate  in  2017  and  stabilize  in  the 
first  half  of  2018,  following  a  peak  in  the  goods 
trade deficit in 2015. Total exports in 2017 stood at 
around  135 %  of  GDP,  while  imports  stood  at 
around 116 %, making Malta one of the most open 
economies in the EU.  

Graph 1.5:  Decomposition of current account 

Deflator: Consumer Price Index 
Source: European Commission  

a 

continues 

Eurobarometer 

competitiveness 

Overall 
to  be 
supported by favourable framework conditions, 
although certain barriers to investment persist. 
Malta  ranked  36th  out  of  140  countries  in  the 
2018 Global Competitiveness Report, one position 
higher  than  the  previous  year.  Its  performance  is 
remarkable  in  indicators  such  as  macroeconomics 
(1st),  trademark  applications  (2nd),  active  labour 
policies (19th) and ICT adoption (24th). According 
to 
(European 
Commission,  2018a),  Malta  performs  well 
compared with the EU average on existing barriers 
to  investment.  However,  the  length  of  legal 
proceedings  was  identified  as  an  obstacle  to 
investment  by  around  one  third  of  the  companies 
interviewed.  Also,  more  than  60 %  of  companies 
reported  the  availability  of  adequate  skills  in  the 
labour market as an obstacle to investment. In the 
long  run,  low  skill  levels  and  reliance  on  foreign 
labour  could  further  curb  the  competitiveness  of 
the Maltese economy. 

survey 

External position 

Malta’s  exceptionally  open  economy  shows  a 
sizeable surplus in the current account balance. 
Malta’s  external  performance  in  recent  years  has 
been  characterised  by  a  sizeable  current  account 
surplus, which rose to 10.4 % of GDP in 2017 and 
remained broadly stable in the first half of 2018. In 
particular,  the  solid  performance  of  the  export-

9 

Note: Data on primary income and secondary income are 
not available for the period 2008-2014. 
Source: European Commission 

The current account surplus reflects the strong 
external performance in the services sector. The 
large  current  account  surplus  reflects  a  large 
surplus  in  the  balance  of  services,  which  has 
grown  substantially  since  2014  to  reach  34 %  of 
GDP  in  2017  (see  Graph  1.5),  slightly  narrowing 
in  the  first  half  of  2018.  Exports  of  services  have 
been  boosted  predominantly  by  remote  gaming 
activities and tourism. The external balance of the 
financial  sector  declined  slightly  but  remained 
high,  while  that  of  the  transport  sector  increased 
significantly.  The  present  level  of  the  current 
account surplus exceeds the current account  norm 
estimated by the European Commission (Coutinho 
et  al.,  2018).  According 
the  underlying 
calculations,  about  half  of  the  excess  current 
account  surplus  can  be  attributed  to  dynamics  in 
credit and global factors. The large  residual could 
large 
be 

the  presence  of 

explained  by 

to 

92949698100102104106108081012141618Q3EAEU37 partners42 partnersIndex (2008=100)-40-30-20-100102030400708091011121314151617Capital accountSecondary income balancePrimary income balanceTrade balance - servicesTrade balance - goodsTrade balanceCurrent account balance (CA)% GDP 
 
 
 
1. Economic situation and outlook 

June 2018. Non-core domestic banks (with limited 
links  to  the  domestic  market)  expanded  their 
balance  sheet  by  18.8 %,  to  22.5 %  of  GDP.  By 
contrast, internationally oriented banks (those with 
no links to the domestic economy) saw their assets 
contracting  by  28  pps  in  the  same  period,  to 
177.1 % of GDP. This decline, which has started in 
2015,  was  interrupted  in  the  last  quarter  of  2017 
and resumed at the beginning of 2018. The drop in 
the  first  half  of  2018  was  driven  mainly  by  a 
reduction  in  the  assets  of  the  three  branches  of 
foreign  banks,  while  the  downsizing  of  the  other 
banks was limited.  

Overall loan growth to domestic clients is in line 
with  economic  growth. The  increase  in  domestic 
banks’ assets was driven by faster loan growth, on 
the back of increased lending to households. Banks 
have  continued  to  engage  in  mortgage  contracts 
and  now  almost  60 %  of  resident  loans  are 
property-related.  However,  related  risks  seem 
limited  as,  by  international  comparison,  banks 
apply a relatively stringent credit risk policy, with 
a 30 % haircut on the market value of the property. 
Furthermore,  only  50 %  of  the  mortgage  market 
has been funded by banks’ lending, while the other 
half comes from the households’ resident and non-
residents’  savings.  While  lending  to  non-financial 
corporates  remains  weak,  it  started  increasing  in 
2018.  Meanwhile,  the  exposure  to  governmental 
entities was further reduced in 2018 (4).  

On  the  liabilities  side,  domestic  banks  are 
highly liquid. Domestic banks  fully rely on retail 
deposits,  most  of  which  are  from  domestic 
residents. The growth of deposits has continued to 
moderate  in  2018,  following  years  of  steady  rise. 
In  June,  residents’  deposits  grew  by  3.2 %,  down 
from 5.0 % at the end of 2017. Overnight deposits 
remained residents’ preferred financial instrument. 
Non-residents’  deposits  have  been  declining, 
representing  around  5 %  of  total  deposits  held  in 
the domestic banking sector in June 2018 (against 
15 % in 2017). For the sector as a whole, the loan-
to-deposit  ratio  remained  roughly  stable  at  about 
65 %  in  Q2-2018.  For  domestic  banks,  deposits 
cover the  total loan portfolio, and the exposure  to 

(4)  Loans  to  the  general  government  increased  by  5.7  pps  in 
June 2018 since end-2017, and represent 5.1 % of the total 
domestic  banks'  loan  portfolio.  In  a  similar  vein,  banks 
reduced  their  exposure  to  the  Maltese  sovereign,  holding 
about EUR 1.5bn of short-term bills, representing 7.4 % of 
their total balance sheet.  

internationally  oriented  businesses 
growing importance of cross-border activities.  

and 

the 

In  terms  of  external  financial  assets  and 
liabilities,  Malta  is  a  creditor  country.  Malta’s 
net  international  investment  position  is  strongly 
positive. Despite a slight decline in the first half of 
2018 from  66.2 % to  63.9 %,  the  net  international 
investment  position  remains  among  the  highest  in 
the  EU  as  a  share  of  GDP.  In 
terms  of 
geographical  distribution,  by  mid-2018  EU 
Member  States  were 
of 
respectively  65 %  and  64 %  of  Malta’s  external 
financial assets and liabilities. The high volume of 
foreign  direct  investment  in  the  Maltese  economy 
(see Graph 1.6) is counterbalanced by net portfolio 
assets,  in  particular  equity  instruments.  Banking 
and insurance activities contributed to 98 % of the 
total stock of foreign direct investment in Malta in 
2017.  

counterpart 

the 

Graph 1.6: 

Breakdown of net international investment 
position by instrument 

Source: European Commission 

 Financial sector   

Financial sector 

While  the  total  banking  sector  narrowed,  the 
part  of  the  sector  directly  linked  to  the  local 
economy  further  expanded.  The  assets  of  the 
total banking sector in Malta fell to 401 % of GDP 
by  June  2018,  from  around  430 %  at  the  end  of 
2017.  The  assets  of  core  domestic  banks,  which 
have  strong  links  with  Malta’s  economy  and  are 
thus  economically  most  relevant,  increased  by 
1.5 %  and,  in  terms  of  GDP  reached  201.5 %  in 

10 

01020304050607080-1.500-1.000-50005001.0001.5000708091011121314151617% GDP% GDPReserve assetsNet portfolio investment, equity and investment fund sharesNet portfolio investment, debt securitiesOther investment (net)Net direct investmentNet international investment position, NIIP (rhs) 
 
                                                           
1. Economic situation and outlook 

debt 

sustained 

economic  growth.  However, 
the 
benchmarks (5) 
European  Commission 
suggest that both household debt and non-financial 
corporations  debt remain  high  (see  Graph  1.7).  In 
particular,  non-financial  corporations  consolidated 
debt  reached  7.8  billion  euros  in  2017  (around 
70 %  of  GDP),  with  loans  constituting  more  than 
liabilities. 
90 %  of  consolidated  non-equity 
Meanwhile,  household  debt  as  a  share  of  GDP 
stood at 50 % in 2017, slightly lower than previous 
year. (6) 

increasingly  financing  their 
Businesses  are 
activities  outside  banking  circuits,  partially  via 
intercompany  loans.  From  2007  to  2017,  bank 
loans  declined  from  47 %  to  23 %  of  total  non-
financial  corporations  debt.  In  addition,  Malta  is 
one of the EU countries with the highest difference 
between  consolidated  and  non-consolidated  non-
financial  corporations  debt  (see  Graph  1.8).  This 
large  difference  is  linked  to  the  presence  of 
multinational  companies  and  related  intra-group 
cross-border  lending  activities.  Debt  securities 
represent  a  marginal  but  growing  source  of 
finance,  as  the  value  of  bonds  issued  doubled 
between  2011  and  2017.  As  the  Maltese  capital 
market  remains  underdeveloped,  companies  often 
use  intercompany  financing,  and  in  particular 
intra-group  lending,  as  an  alternative  source. 
Between  2007  and  2017, 
loans 
increased from 19 % to 38 % of corporate funding 
(CBM, 2018a). 

intra-group 

(5)  Fundamentals-based  benchmarks 

are  derived 

from 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
Prudential  thresholds  represent  the  debt  threshold  beyond 
which the probability of a banking crisis is relatively high, 
minimising the probability of missed crisis and that of false 
alerts.  Methodologies 
in  European 
Commission,  2017a.  Updates  to  the  methodology  have 
been  subsequently  proposed  in  European  Commission, 
2018b. 

are  described 

(6)  The analysis of Malta’s private sector debt is constraint by 
data limitations (indicators such as household debt-to-gross 
disposable income or NFC debt-to-gross operating surplus 
cannot be calculated). 

European Central Bank (ECB) funding, at 0.2 % of 
their  total  funding  needs,  is  marginal  and  has 
further decreased.  

in 

line  with 

The  banking  sector has  performed well despite 
new  accounting  rules 
that  require  extra 
provisioning.  Overall,  the  banks  preserved  their 
profitability,  their  capital  base  is  sound,  liquidity 
ample, and the credit risk has been further reduced. 
Domestic banks have been able to maintain levels 
of  profitability 
their  euro  area 
counterparts  during  2018  on  an  annual  basis, 
supported by their ability to widen interest margins 
slightly. In 2018 interest income increased and net 
interest  income  remained  the  main  source  of 
income.  The  comprehensive  results  from  a  stress 
the  European  Banking  Authority 
test  using 
methodology confirm the soundness and resilience 
of  the  Maltese  banks  subject  to  the  test,  and 
highlight the resilience of Malta’s banking sector. 

Other  financial  institutions  registered  mixed 
developments.  The  domestic  insurance  sector 
further  expanded,  reaching  96 %  of  GDP  in  June 
2018  from  88.3 %  of  GDP  in  2017.  By  contrast, 
investment  funds  shrank 
the 
in  2018,  after 
expansion  experienced 
in  2017.  This  sector 
decreased from 89.5 % of GDP in 2017 to 73.9 % 
of GDP in September 2018. 

sector.  An 
is  crucial 

effective 
to  safeguard 

The supervisory capacity is not fully in line with 
the  size  and  international  dimension  of  the 
supervisory 
financial 
framework 
financial 
stability  and  protect  Malta’s  attractiveness  as  an 
international  financial  centre.  There  are  a  large 
number of foreign banks and insurance companies 
investigations 
registered 
involving  money laundering  have  exposed serious 
shortcomings  in  Malta’s  anti-money  laundering 
enforcement 
the  European 
Commission  requires  the  anti-money  laundering 
supervisor  to  step  up  supervision  of  banks.  In 
addition,  to  secure  access  to  the  global  financial 
network,  ongoing  compliance 
international 
regulations remains essential. 

in  Malta.  Recent 

framework.  Also, 

to 

Private sector debt 

Private sector debt, albeit declining, is still high, 
in  particular  for  the  corporate  sector.  Private 
sector  consolidated  debt  as  a  share  of  GDP  has 
been declining from its 2009 peak, on the back of 

11 

 
                                                           
1. Economic situation and outlook 

Graph 1.7: 

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

and to stabilise at 0.9% of GDP in 2018-2019. The 
exceptionally  high  surplus  in  2017  was  the  result 
of  a  (i)  the  high  growth  rate  of  current  revenue 
resulting from the tax-rich composition of growth, 
and  (ii)  higher-than-expected  proceeds  from  the 
Individual  Investor  Programme (7),  at  2.2 %  of 
GDP in that year.  

Public  debt  has  fallen  sharply  and  is  well 
contained  in  the  short-to-medium  term.  After 
peaking at 70.1 % of GDP in 2011, public debt fell 
to  50.9 %  of  GDP  in  2017,  below  the  60 %-of-
GDP threshold and the euro  area average  (88.9 % 
of GDP). It is forecast to drop further to 42.1 % in 
2020.  However, 
are 
significant  in  Malta.  At  the  end  of  2017,  existing 
public government  guarantees provided by central 
government  for  the  debt  of  non-government  units 
stood at 9.6 % of GDP.  

contingent 

liabilities 

NFC stands for non-financial corporations and HH for 
households. NFC data is referent to consolidated debt. 
Source: European Commission 

Graph 1.8:  Consolidated vs non-consolidated debt, NFC 

Source: European Commission 

Public finances 

The  budget  balance  is  expected  to  moderate  in 
the  next  years,  from  the  high  surplus  recorded 
in  2017.  The  fiscal  position  improved  in  recent 
times and turned into surplus in 2016. The general 
government surplus is expected to decline to 1.2 % 
of GDP in 2019 compared with a surplus of 3.5 % 
of GDP in 2017. In structural terms, the surplus is 
expected  to  decrease  sizeably  from  3.1%  in  2017 

Despite  the  improvement  in  public  finances, 
risks  to  long-term  sustainability  remain.  The 
fiscal  position  has  benefited  from  the  stronger 
revenues. Corporate income taxes make up a larger 
proportion  of  tax  revenues  than  in  the  rest  of  the 
EU,  implying  greater  sensitivity  to  economic 
shocks.  In  addition,  in  the  medium-  to  long-term 
horizon, international initiatives in the fight against 
tax  avoidance  could  have  an  impact  on  tax 
revenues and the fiscal position of the  country. In 
addition,  public  expenditure 
to 
increase  at  a  higher  rate  than  revenue  in  the 
coming  years.  The  increase  in  expenditure  is 
related to both public investment, which is closely 
related 
the  EU  fund  cycle,  and  current 
expenditure.  This  seems  to  point  to  possible  risks 
associated  with  financing  permanent  expenditure 
temporary  revenue 
increases  from  potentially 
flows. In addition, sustainability challenges remain 
due 
in  age-related 
budgetary costs, in particular in the healthcare and 
pension systems (see Section 3.1). 

the  projected 

is  projected 

increase 

to 

to 

(7)  The Individual Investor Programme was established by LN 
47/2014.  This  scheme  grants  naturalisation  to  foreign 
individuals  and  their  dependants  following  substantial 
investment  and  fulfilment  of  certain  other  criteria.  In 
national  accounts, 
is  recorded  as  both  negative 
government expenditure and exports of services. 

it 

12 

02040608010012008091011121314151617% of GDPNFC debtNFC fundamental benchmarkNFC prudential benchmarkHH debtHH fundamental benchmarkHH prudential benchmark02040608010012014016018008091011121314151617% GDPConsolidatedNon-consolidated 
 
 
                                                           
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. 
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation. 
Source: Eurostat and ECB as of 31-1-2019, where available; European Commission for forecast figures (Winter forecast 2019 for 
real GDP and HICP, Autumn forecast 2018 otherwise) 

13 

2004-072008-122013-1520162017201820192020Real GDP (y-o-y)2,51,77,95,76,66,25,24,6Potential growth (y-o-y)2,52,45,46,96,86,15,45,2Private consumption (y-o-y)2,10,83,12,73,6...Public consumption (y-o-y)1,03,83,3-2,82,8...Gross fixed capital formation (y-o-y)6,0-2,918,8-0,1-7,7...Exports of goods and services (y-o-y)7,46,76,54,45,3...Imports of goods and services (y-o-y) 7,66,25,81,4-0,1...Contribution to GDP growth:Domestic demand (y-o-y)2,80,65,80,80,3...Inventories (y-o-y)0,00,30,30,3-1,9...Net exports (y-o-y)-0,30,81,64,78,2...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0,50,62,12,93,53,12,32,1Capital accumulation (y-o-y)1,40,91,32,31,71,61,71,7Total factor productivity (y-o-y)0,60,92,01,71,71,41,41,3Output gap0,2-1,30,91,61,50,90,4-0,4Unemployment rate6,96,55,74,74,03,33,43,4GDP deflator (y-o-y)2,32,82,31,52,42,22,22,1Harmonised index of consumer prices (HICP, y-o-y)2,12,91,00,91,31,71,81,9Nominal compensation per employee (y-o-y)3,13,23,12,81,82,33,23,1Labour productivity (real, person employed, y-o-y)1,1-0,33,51,51,2...Unit labour costs (ULC, whole economy, y-o-y)1,93,5-0,31,40,61,91,92,1Real unit labour costs (y-o-y)-0,40,7-2,6-0,1-1,8-0,3-0,3-0,1Real effective exchange rate (ULC, y-o-y)1,90,9-1,50,41,42,1-0,80,1Real effective exchange rate (HICP, y-o-y)1,0-0,7-0,91,51,32,1-1,4-0,3Savings rate of households (net saving as percentage of net disposable income)........Private credit flow, consolidated (% of GDP)9,87,73,111,12,8...Private sector debt, consolidated (% of GDP)138,0159,4133,3121,5118,6...of which household debt, consolidated (% of GDP)46,858,755,951,149,7...of which non-financial corporate debt, consolidated (% of GDP)91,1100,677,470,468,8...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)1,71,62,72,42,0...Corporations, net lending (+) or net borrowing (-) (% of GDP)........Corporations, gross operating surplus (% of GDP)........Households, net lending (+) or net borrowing (-) (% of GDP)........Deflated house price index (y-o-y)13,5-0,71,54,84,1...Residential investment (% of GDP)6,93,92,63,54,7...Current account balance (% of GDP), balance of payments-4,7-2,24,63,410,412,311,210,6Trade balance (% of GDP), balance of payments-1,61,48,411,619,5...Terms of trade of goods and services (y-o-y)0,10,00,40,20,60,00,20,1Capital account balance (% of GDP)2,31,31,70,40,6...Net international investment position (% of GDP)30,711,036,036,266,2...NIIP excluding non-defaultable instruments (% of GDP) (1)87,2172,6211,7208,0245,4...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)454,5713,5631,6456,3419,6...Export performance vs. advanced countries (% change over 5 years).36,93,26,319,2...Export market share, goods and services (y-o-y)..1,27,8-0,4...Net FDI flows (% of GDP)-155,4-79,2-88,1-80,2-80,9...General government balance (% of GDP)-2,9-3,1-1,70,93,51,31,20,7Structural budget balance (% of GDP)..-2,40,33,10,80,90,9General government gross debt (% of GDP)67,267,163,656,350,947,944,842,1Tax-to-GDP ratio (%) (3)33,033,433,232,633,433,633,733,8Tax rate for a single person earning the average wage (%)17,917,519,4.....Tax rate for a single person earning 50% of the average wage (%)8,38,610,0.....forecast 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

82 % 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Malta  have 
recorded at least ‘some progress'.  18 % of them 
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 certain 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-

2018 CSRs to date 

* The overall assessment of the country-specific 
recommendations related to fiscal policy exclude 
compliance with the Stability and Growth Pact. 
** The multiannual CSR assessment looks at the 
implementation until the 2019 Country report since CSRs 
were first adopted. 
Source: European Commission 

Public  finances  have  improved.  The  budget 
deficit  averaged  3.2 %  of  GDP  in  2004-2012. 
Since  2013,  a  continuing  improvement  in  the 
budgetary  situation  has  taken  place,  leading  to  a 
budget  surplus  of  3.5 %  of  GDP  in  2017.  The 
medium-term  objective  was  achieved  3  years 
ahead  of  schedule  and  the  government  debt  has 
fallen  below  the  60 %-of-GDP  threshold.  The 
improvement in the fiscal position was the result of 
both  budgetary  measures  implemented  in  recent 
years, 
revenue  growth  supported  by 
favourable  macroeconomic  conditions  and  by  the 
strengthening of the fiscal framework. By contrast, 
limited  progress  has  been  achieved  in  improving 
the sustainability of public finances.  

robust 

Despite  substantial  progress  in  diversifying  the 
energy  mix,  dependency  on  oil  products 
remains  high.  The  completion  of  the  electricity 
interconnector to Italy and the ongoing gasification 

of Malta’s power plants represents important steps 
forward. Nevertheless, progress remains limited on 
energy  efficiency,  production  from  renewable 
reduction  of  greenhouse  gas 
sources  and 
emissions.  The  achievement  of  the  EU  2020 
energy  efficiency  target  appears  at  risk.  The 
promotion of solar energy and use of biofuels has 
allowed  an  increase  in  the  shares  of  renewable 
energy  in  the  energy  mix,  but  further  investment 
across  the  different  sectors  is  lacking.  Moreover, 
the  country  lacks  a  clear  strategy  to  address  its 
rising greenhouse emissions.  

the 

the 

Efforts  were  made  to  target  certain  aspects  of 
the  business  environment,  but  their  impact 
appears  still  limited  or  difficult  to  assess.  The 
implementation  of  judicial  reforms  in  the  area  of 
civil,  commercial  and  administrative  justice  is 
ongoing.  It  aims  to  improve  the  quality  and 
justice  system.  However, 
efficiency  of 
shortcomings in the independence of the  judiciary 
persist.  The  2017  reform  of 
insolvency 
framework is expected to help reduce the costs and 
duration of relevant procedures, but it appears too 
early to assess its impact. Overall, policy measures 
put in place to improve access to finance for small 
and medium-sized enterprises and financed via EU 
funds appear adequate  to addressing  firms’ needs. 
The financing schemes that will be managed by the 
Malta Development Bank are expected to provide 
a  structural  response  to  the  financing  gaps  of 
riskier  projects.  On  the  other  hand,  market-based 
finance  remains  underexploited  by  small  and 
medium-sized enterprises.  

in  employment 

supply.  Women 

Some  progress  was  achieved  in  improving 
human  capital  development  and  increasing 
labour  market  participation.  The  'Make  Work 
Pay'  and  pension  reforms  helped  increase  the 
labour 
is 
increasing  although  a  large  gender  employment 
gap  persists,  working  lives  extending  and  reforms 
to attract older workers are beginning to bear fruit. 
A number of education and skills reforms were put 
in  place  to  address  human  capital  challenges,  but 
their impact has not materialised yet. Early school 
leaving has declined considerably but remains high 
and  educational  outcomes  are  heavily  influenced 
by socio economic background, type of school and 
disability status. Participation by the low-skilled in 
adult learning is low. Efforts to ensure people have 
the  necessary  skills  to  support  the  transition 

14 

3%15%40%21%21%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
2. Progress with country-specific recommendations 

action  has  been  taken  to  enhance  the  supervisory 
capacity  and  the  performance  of  the  financial 
regulator. However, no significant steps have been 
taken  to  strengthen  enforcement  of  the  anti-
corruption framework. Progress in this area would 
also help to address issues from the 2018 Council 
Recommendation  for  the  euro  area  on  improving 
the  business  environment  and  the  quality  of 
institutions.  The  Maltese  authorities  have  made 
limited  progress  in  ensuring  the  sustainability  of 
the  healthcare  and  the  pension  systems,  including 
by  increasing  the  statutory  retirement  age  and  by 
restricting early retirement. It is not yet clear how 
the measures taken will affect the long-term fiscal 
sustainability outlook (see Annex A). 

Table 2.1: 

Annual assessment of the 2018 CSRs 

Source: European Commission 

towards  a  greener  and  more  circular  economy  are 
still limited.  

the 

in  strengthening 

limited (8)  progress 
2018 

in 
Malta  has  made 
addressing 
country-specific 
recommendations (see Table 2.1). There has been 
limited  progress 
the  overall 
governance  framework  by  enhancing  the  national 
supervision  of  internationally  oriented  financial 
businesses  licensed  in  Malta,  by  ensuring  the 
effective 
anti-money 
laundering framework and by continuing to step up 
the  fight  against  corruption.  In  particular,  some 

enforcement 

the 

of 

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

15 

MaltaOverall assessment of progress with 2018 CSRs:  limited progressCSR 1: Strengthen the overall governance framework by enhancing the national supervision of internationally oriented financial businesses licensed in Malta, by ensuring the effective enforcement of the Anti-Money Laundering framework and by continuing to step up the fight against corruption.CSR 2: Ensure the sustainability of the healthcare and the pension systems, including by increasing the statutory retirement age and by restricting early retirement.Limited progress on ensuring the sustainability of the healthcare and the pension systems.Limited progress on strengthening the overall governance framework. 
                                                           
 
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to 
fostering growth and competitiveness in Malta 

Malta receives up to EUR 828 million up until 2020 via the European Structural and Investment (ESI) 
Funds,  representing  1.1 %  of  GDP  annually  over  2014-2020.  The  total  amount  of  funding  from  the 
European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund is 
EUR  727  million.  By  31.12.2018,  EUR  689  million  (97.3 %  of  the  total)  has  been  allocated  to  concrete 
projects.  In  this  context,  over  2,900  firms  have  received  support  for  new  productive  investment,  11,300 
people  benefited  from  training  and  support  measures  and  almost  240  jobs  are  expected  to  be  created. 
EUR 34  million  will  be  delivered  via  financial  instruments  (more  than  a  three-fold  increase  compared  to 
2007-2013). Malta also contributes EUR 15 million to the SME initiative. Out of the EUR 97 million that 
Malta receives from the European Agricultural Fund for Rural Development (EAFRD), EUR 57 million is 
allocated to agricultural and environmental investments. The European Maritime and Fishery Fund (EMFF) 
provides EUR 23 million contribution. 

ESI  Funds  helps  to  address  structural  policy  challenges  and 
implement  country-specific 
recommendations  (CSRs).  ESI  Funds  contribute  to  boosting  investment  in  research  and  innovation  and 
increasing  the  employment  rate.  Investments  have  been  promoted  to  increase  energy  efficiency  and  to 
improve  the  water  supply  management  system.  A  large  number  of  measures  taken  in  response  to  Malta’s 
challenges and related CSRs are cofinanced by the ESF, with a particular focus on education and training, 
reducing early school leaving and improving the healthcare system. 

Various reforms have been undertaken as preconditions for ESI Funds support (1). These include the 
timely  transposition  of  the  EU  public  procurement  and  environment  directives  into  national  legislation, 
structural reforms in research, development and innovation; transport infrastructure; education; employment 
and  social  inclusion;  water  supply.  Many  projects  have  been  launched  to  stimulate  private  investments  in 
key strategic areas, in line with the ‘smart specialisation’ strategy. These reforms prepared the ground for 
better  implementation  of  all  public  investment  projects.  An  important  project  for  local  transport  (the 
Kappara  junction)  and  two  on  cultural  heritage  (the  restauration  of  the  Manoel  Theatre  and  MUZA,  the 
Museum of Arts) have recently been inaugurated. 

The  Commission  can  provide  tailor-made  technical  support  upon  a  Member  State’s  request  via  the 
Structural Reform Support Programme to help Member States implement growth-sustaining reforms 
to address challenges identified in the European Semester process or other national reforms. Malta, for 
example,  is  receiving  support  to develop  capacity  to  carry  out  spending  reviews.  The  Commission  is  also 
supporting  the  authorities  to  implement  human  resource  changes  in  the  public  administration,  develop  a 
national  energy  and  climate  plan,  and  introduce  the  use  of  electronic  payments  in  the  economy.  In  2018, 
work  has  started  on  improving  the  framework  for  the  identification  of  students  at  risk  of  early  school 
leaving, providing expertise to review existing processes and introducing recommendations to improve the 
public procurement system. Support measures are also under way to introduce digitalisation in the Maltese 
maritime sector. 

European Fund for Strategic Investment (EFSI) financing in Malta amounts to EUR 11 million, which 
is set to trigger EUR 34 million in additional investments, with a particular focus on facilitating access 
to finance for small and medium-sized enterprises. In close cooperation with EFSI, additional support is 
provided by the European Investment Bank and the European Investment Fund (EIF). Examples include a 
project backed by the EFSI up to 5 EUR million, implemented by an intermediary bank. This project should 
trigger about EUR 17 million in investments and should allow 12 SMEs to benefit from improved access to 
finance. As an example of EIB financing, support was provided to STMicroelectronics to invest in research, 
development and innovation activities regarding the next generation of semiconductor devices. 

Additional funding is provided under Horizon 2020, the Connecting Europe Facility and other funds 
directly  managed  by  the  EU.  Under  the  calls  launched  within  Connecting  Europe  Facility  Transport, 
Maltese applicants submitted 14 eligible proposals; four projects were selected, with beneficiaries receiving 
EUR 45.1 million and investing EUR 56.9 million. Total investments from Horizon 2020 amount to EUR 20 
million, with more than 800 applications submitted.  

(1)  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. 

16 

 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  TAXATION 

Policy  measures  and 
favourable  economic 
conditions  are  supporting  a  fiscal  balance.  As 
described in Section 1, in 2016 Malta moved from 
a deficit to a surplus position, both in nominal and 
in  structural  terms.  In  addition,  the  debt  ratio  fell 
below the 60 %–of–GDP threshold in 2015. While 
the  nominal  surplus  is  set  to  decline  to  0.7 %  in 
2020,  the  fiscal  position  is  expected  to  remain 
sound 
improvement 
compared with 2015 is the result of both budgetary 
measures implemented in recent years and positive 
macroeconomic conditions boosting tax revenues. 

term.  This 

the  short 

in 

tax-to-GDP 

Tax  revenues  remain  low  and  are  sensitive  to 
economic  and  political  developments.  In  2017, 
ratio  of 
Malta  had  an  overall 
31.9 % (9),  well  below  the  EU  average  of  39 % 
(see European Commission, 2019a). However, the 
share  of  corporate  income (10)  tax  revenues  in 
Malta’s  total  tax  revenue  is  one  of  the  highest  in 
the EU (20.3 % against an EU average of 7 %) and 
increasing.  Consumption  tax  revenues  are  only 
slightly  above  the  EU  average  (11.6 %  of  GDP 
against  an  EU  average  of  11.1 %).  The  country’s 
taxes  on 
(11.2 %  GDP)  and  social 
contributions (5.3 % of GDP) are one of the lowest 
in  the  EU  (19.4 %  of  GDP  and  12.2 %  of  GDP, 
respectively) (see Graph  3.1.1). Given that capital 
and  business  income  taxes  are  volatile  over  the 
businesses  cycle,  the  high  reliance  on  these  taxes 
makes 
to 
economic  shocks  and/or  developments  in  the 
corporate 
the  EU  and 
international tax reforms more broadly.  

the  fiscal  position  more  sensitive 

framework 

labour 

tax 

for 

Several  factors  are  expected  to  slowdown 
revenue  growth  in  the  medium  term.  Tax 
revenue  growth  is  expected  to  slowdown  from 
11.9 %  in  2017  to  7.0 %  in  2020,  following  the 
moderation  in  economic  growth.  Also,  measures 
supporting  first-time  and  second-time  buyers  of 
residential  property  and  decreasing  direct  taxation 
(in particular the tax rebate for pensioners and low 
income  earners,  the  tax  credit  for  education,  and 

(9)  Tax-to-GDP  ratio  differs  from  Table  1.1  as  voluntary 

actual social contributions are not included. 
(10)  Does not include revenues from capital stocks. 

commerce  will 

fiscal incentives for private pensions) are expected 
to reduce tax revenues. In addition, the directive on 
electronic 
reduce  VAT 
revenues (11)  by  0.2 %  of  GDP.  Lastly,  revenues 
related  to  the  Individual  Investor  Programme  are 
expected  to  fall  from  their  2017  peak  to  1.5 %  of 
GDP  in  2018,  and  to  stabilise  at  around  0.9 %  of 
GDP in 2019.  

Graph 3.1.1:  Tax revenue by economic function in 2017, 

Malta and EU 

Source: European Commission 

High capital flows, coupled with the absence of 
withholding  taxes  on  royalty,  dividend  and 
interest payments, may be an indication that tax 
rules  are  used  in  aggressive  tax  planning 
structures.  Economic  activity  taking  place  in 
Malta  only  partially  explains  the  country’s  high 
inward  and  outward  foreign  direct  investment 
stock (IHS, 2018). Also, ‘Special Purpose Entities’ 

services, 

(11)  The  measure  refers  to  the  loss  of  commission  from  the 
Mini  One  Stop  Shop 
(MOSS),  as  per  Council 
Implementation Directive (EU) No 1042/2013. The MOSS 
came into force on 1 January 2015 and replaced the former 
VAT  on  e-services.  It  allows  taxable  persons  supplying 
telecommunication 
radio 
broadcasting  services  and  electronically  supplied  services 
to non-taxable persons in Member States in which they do 
not have  an  establishment  to account  for  the  VAT  due  on 
those  supplies  via  a  web-portal  in  the  Member  State  in 
which  they  are  identified.  VAT  collected  is  eventually 
forwarded  to  the  Member  State  where  purchases  are 
affected while a percentage of it is retained by the Member 
State. As from 2019, all VAT collected will be transferred 
and no more proceeds will be retained from this scheme. 

television 

and 

17 

0510152025303540MTEUTaxes onconsumptionTaxes on labourTaxes on capital% GDP 
 
                                                           
 
                                                           
3.1. Public finances and taxation 

Individual 

Investor  Programme  and 

continue  to hold a large majority of  foreign direct 
investment  and  there  is  a  high  level  of  dividends 
and  royalty  payments  as  a  percentage  of  GDP 
(European  Commission,  2018c).  The  absence  of 
withholding  taxes  on  outbound  dividends,  interest 
and  royalty  payments  made  by  Malta-based 
companies  may  lead  to  payments  escaping  tax 
altogether,  if  they  are  not  subject  to  taxes  in  the 
recipient  country.  Existing  provisions  in  bilateral 
tax  treaties  between  Malta  and  other  countries  in 
combination  with  some  features  of  Malta’s  tax 
system, whereby a company being resident but not 
domiciled  in  Malta  is  taxed  on  a  source  and 
remittance basis (12) may be used for that purpose. 
According  to  the  information  available,  Malta 
operates  two  residence  and  citizenship  schemes: 
the 
the 
Residence  and  Visa  Programme.  Although  these 
programs do not automatically  grant residence for 
tax purposes, if requirements are met income may 
be  exempt  under  the  'non-dom'  regime  (if  income 
is  not  remitted  to  Malta)  without  substantial 
The 
physical 
documentation  and  status 
these 
schemes  may  facilitate  aggressive  tax  planning 
practices  and  they  have  been  listed  by  the  OECD 
as having a potentially high risk for being misused 
to circumvent the automatic exchange of financial 
the 
account 
concealment  of  the  real  jurisdictions  of  residence, 
effectively  avoiding  taxation.  Finally,  while  the 
Notional  Interest  Deduction  introduced  in  2018 
(European  Commission,  2018c)  is  expected  to 
significantly  decrease  Malta’s  previously  high 
debt-bias (3.8 % (13) in 2017, the highest in the EU 
together  with  France),  the  scheme’s  anti-abuse 
rules, combined  with its  high return rate  and non-
incremental  nature,  warrant  close  monitoring.  All 
the  above  elements  suggest  that  companies  and 
individuals  might  engage  in  tax  avoidance  by 
using Malta’s rules. 

issued  under 

requirements. 

information 

facilitating 

presence 

by 

Malta is acting to curb aggressive tax planning 
through  the  implementation  of  European  and 
internationally agreed initiatives. In line with the 

(12)  This  refers  in  particular  to  the  so-called  ‘Single  Malt’ 
structure: a tax arrangement that consists of having a firm 
registered in a given country but managed from Malta. If a 
company uses the ‘Single Malt’, its profits would, based on 
the tie-breaker rule in a number of double tax conventions, 
be taxed in Malta (where the effective corporate tax rate on 
foreign income can be between 0 and 5 %). 

(13)  Malta’s full imputation system may have partially offset its 

2017 corporate debt bias. 

the 

standard 

rest  of  the  EU,  Malta  is  transposing  into  national 
two  EU  Directives  on  Anti-Tax 
law 
Avoidance.  Malta 
the  Multilateral 
ratified 
Convention  to  Implement  Tax  Treaty  Related 
Measures  to  Prevent  the  Base  Erosion  and  Profit 
Shifting 
in  December  2018  but  has  put 
reservations  on  numerous  articles,  although  these 
articles.  The 
are  not  minimum 
reservations significantly limit the effectiveness of 
implementation  of  the  multilateral  convention  in 
Malta.  A  Competent  Authority  Agreement (14) 
between  Malta  and  Ireland  to  make  sure  that  the 
bilateral  tax  treaty  between  Ireland  and  Malta  is 
not  used  for  aggressive  tax  planning  practices 
through  the  so-called  ‘Single  Malt’  structure  has 
been  published.  Completing 
the  merging  of 
revenue departments (15) can help increase revenue 
collection and reduce tax avoidance. It will be key 
to assess to what degree these anti-abuse rules will 
limit  the  scope  for  aggressive 
tax  planning. 
Finally, like other EU Member States already did, 
Malta is in the process of modifying its patent box 
regime  according 
international 
standards.  However,  the  current  patent  box  is 
subject  to  grandfathering  clause  that  lasts  until 
June 2021. 

to  EU  and 

Malta’s  VAT  compliance  gaps  continue  to 
decrease.  In  2015,  a  significant  drop  in  the  VAT 
gap (16)  in  Malta  resulted  from  the  statistical 
reclassification  of  inputs  (from  non-deductible  to 
deductible)  to  the  financial  sector.  This  decreased 
the  estimated  theoretical  VAT  total  tax  liability 
from the intermediate consumption of the financial 
sector  from  EUR 209  million  to  EUR 12  million, 
leading  to  a  reduction  in  Malta’s  2015  VAT 
gap (17)  from  22.9 %  to  3.4 %.  In  2016,  the 
to 
country’s  VAT  gap  narrowed 
2.7 % (CASE and IAS, 2018), significantly below 
the EU average (of 12.3 %). 

further 

The  property  tax  system  shows  room  for 
efficiency  improvement.  In  2017,  property  taxes 

(14)  The  agreement  aims  to  ensure  that  companies  cannot  use 
the  bilateral  tax  treaty  between  Ireland  and  Malta  for  the 
‘Single Malt’ structure.  

(15)  Inland Revenue, VAT and Customs Departments, with the 

participation of the Tax Compliance Unit. 

(16)  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. 
(17)  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. 

18 

 
                                                           
                                                           
3.1. Public finances and taxation 

While  strong  overall,  fiscal  transparency  could 
be further improved. As highlighted by the IMF, 
currently  there  is  no  fiscal  report  that  provides  a 
consolidated view of the performance of the public 
corporation  sector  and  tax  expenditures  are  not 
comprehensively  reported.  No  full  details  are 
provided  on  the  performance  of  different  budget 
entities or on the revenue and expenditure of extra-
budgetary  units (19)  and  of  public  investment 
projects.  The  discussion  of  risks  to  the  fiscal 
forecast  presented  in  various  reports  currently 
focusses 
the 
macroeconomic environment. 

stemming 

from 

risks 

on 

The  implementation  of  expenditure  reviews  is 
ongoing.  Since  2014 
the  authorities  have 
performed  a  number  of  expenditure  reviews 
covering amongst others social security, health and 
education  (including  the  Malta  College  for  Arts 
Science  and  Technology).  The  published  reports 
included  recommendations,  some  of  which  have 
already  been  implemented  and  some  are  in  the 
process  of  being  implemented.  An  additional 
review  of  the  Management  and  Efficiency  Unit 
within  the  Office  of  the  Prime  Minister  was 
concluded  in  early  2018.  In  2018,  a  Directorate 
was  set  up  within  the  Budgetary  Affairs  Division 
in  the  Ministry  for  Finance  that  was  tasked  with 
planning and coordinating reviews in collaboration 
with the respective  ministry,  department,  entity or 
cost  centre,  as 
required.  Draft  operational 
guidelines  have  been  formulated  and  a  training 
programme  has  been  set  up.  Around  50  officials 
from various ministries, including the Ministry for 
Finance,  will  receive  the  training  by  the  first 
quarter of 2019. 

3.1.3.  DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

In  the  short  to  medium  term,  Malta  faces  low 
fiscal  sustainability  risks.  As  shown  by  the  debt 
sustainability  analysis  as  well  as  the  short-  and 
medium-term  fiscal  sustainability  indicators  S0 
and  S1 (20),  Malta  does  not  face  significant  fiscal 

(19)  The  extra-budgetary  units  have  steadily  increased  in 
importance in recent years due partly to the proceeds of the  
Individual 
the  National 
Development and Social Fund. 

Investor  Programme 

to 

(20)  The  S0  indicator  aims  to  provide  early  detection  of  fiscal 
stress stemming from risks up to 1 year ahead, making use 
of the signalling power of its components. The S1 indicator 

on 

tax 

immovable 

on immovable property represented 3.5 % of total 
tax revenues in Malta compared with 6.6 % in the 
EU.  This  gap  is  exclusively  because  Malta, 
together  with  Croatia,  are  the  only  EU  Member 
States  which  do  not  have  a  recurrent  tax  on 
immovable  property,  though  Malta  does  have  a 
transaction 
property. 
Concerning  the  latter,  Malta  raised  property  tax 
revenues totalling 1.1 % of GDP in 2017 compared 
to  the  EU  average  of  2.6 %.  A  well-designed 
recurrent property tax would not be as detrimental 
to  growth  as  other  taxes  (European  Commission, 
2018d)  and  is  highly  predictable.  It  could  also,  in 
association  with  removing  exemptions  to  the 
transactions tax, offer potential for limiting ‘boom 
and  bust’  cycles  in  housing  prices,  by  dampening 
excessive  price  increases  in  the  potential  build-up 
phase (see also Section 3.2). 

3.1.2.  FISCAL FRAMEWORK  

to 

fiscal 

frequent  and 

framework  due 

The fiscal framework is robust and many fiscal 
transparency  practices  are 
sound.  Public 
finances  have  benefited  from  the  strengthening  of 
the 
the  Fiscal 
Responsibility  Act  in  2014.  A  key  element  has 
been  the  creation  of  Malta’s  Fiscal  Advisory 
Council,  which  has  been  endowed  with  a  broad 
mandate,  and  its  contribution  to  the  public  debate 
on  fiscal  developments.  Fiscal  reports  now  cover 
all  general  government  entities  and  are  published 
timely  manner.  Budget 
in  a 
documentation 
a  medium-term 
perspective  to  fiscal  planning  and  clear  fiscal 
policy objectives are embedded in legislation. The 
government discloses and assesses macroeconomic 
risks  to  the  fiscal  outlook  and  reports  on  risks  to 
the government’s debt portfolio e.g. in the Stability 
Programme  and 
the  Draft  Budgetary  Plans 
submitted  to  the  European  Commission.  The 
National  Audit  Office,  the  Central  Bank  and  the 
Treasury  Department  also  report  on  these  risks. 
These positive elements are also recognised by the 
International 
Fiscal 
Transparency  Evaluation  report  for  Malta  (IMF, 
2018) (18). 

Monetary 

provides 

Fund’s 

(18)  The report found that Malta meets the standard of good or 
advanced-level  practice  on  21  out  of  35  principles  in  the 
IMF’s  Fiscal  Transparency  Code,  and  basic  practice  on  a 
further 12 principles. 

19 

 
                                                           
                                                           
risks  in  the  near  future  (European  Commission, 
2019b and Annex B). The low level of the general 
government debt, at 51 % of GDP in 2017, and the 
surpluses  in  the  headline  balance  recorded  since 
2016 help explain these results.  

The  long-term  sustainability  of  public  finances 
remains a challenge,  mainly due  to ageing. The 
country  is  expected  to  face  one  of  the  sharpest 
increases in the EU in age-related costs until 2070 
by  6.9  pps  of  GDP  (European  Commission, 
2018e).  This  is  driven  by  public  expenditure  on 
pensions  (2.9  pps  of  GDP)  and  on  healthcare  and 
long-term care expenditure (4.1 pps of GDP). As a 
result,  the  sustainability  gap  indicator  S2 (21)  (3.3 
pps of GDP) indicates medium fiscal sustainability 
risks for Malta in the long term. 

Pension system 

While policy action in the area of pension tries 
to  improve  adequacy  and  sustainability,  the 
impact on the latter is  so far limited. In 2018 a 
Pension  Strategy  Group  was  established.  A  report 
is  expected  by  December  2020,  outlining 
recommendations for improving the adequacy and 
sustainability  of  the  pension  system.  In  addition, 
efforts  are  continuing 
to  diversify  retirement 
income  and  reduce  dependency  on  state  pensions. 
The  2019  budget  strengthens  the  fiscal  incentives 
for  private  pension 
savings  and  voluntary 
occupational  retirement  pensions.  Other  measures 
complement on-going efforts to increase the labour 
supply  and  extend  working  lives,  with  a  positive 
impact  on  employment  rates  for  older  workers.  A 
first  Commission  assessment  of  these  initiatives 
points 
the 
little  or  no 
to  very 
the  pension  system,  while 
sustainability  of 
possibly increasing non-pension income. Also, the 
impact  of  the  recent  migration  flows  on  social 
protection  financing  and  expenditure  are  difficult 
long  run,  requiring  close 
to  predict 
monitoring.  

impact  on 

the 

in 

measures  the  required  fiscal  adjustment  needed  between 
2021 and 2025 to bring the public debt ratio down to 60% 
of GDP by 2033. 

(21)  The  S2  indicator  shows  the  adjustment  to  the  current 
structural  primary  balance  required  to  fulfil  the  infinite 
horizon inter-temporal budget constraint, including paying 
for  any  additional  expenditure  arising  from  an  ageing 
population. 

3.1. Public finances and taxation 

Healthcare and long-term care system 

Demographic and non-demographic factors are 
expected to increase health expenditure. Due to 
is 
population  ageing,  healthcare  expenditure 
projected  to  increase  by  2.7  pps  of  GDP  between 
2016-2070,  significantly  above  the  projected  EU 
growth  of  0.9  pps  of  GDP.  When  taking  into 
account the impact of non-demographic drivers on 
future spending, healthcare expenditure is expected 
to  increase  by  4.3  pps.  of  GDP  by  2070  (EU:  1.6 
pps.) (European Commission, 2018e). 

is 

increasing, 

expectancy 

Life 
reflecting 
investments in care availability and quality. The 
Maltese  population  enjoys  one  of  the  highest  life 
expectancies  in  the  EU,  at  82.6  years  in  2016.  In 
the  past  5  years,  life  expectancy  has  risen  by  1.7 
years,  twice  the  average  increase  in  the  EU.  This 
increase  is  explained  by  significant  reductions  in 
the  mortality  rate  from  diseases  of  the  circulatory 
system  (which  are  now  in  line  with  the  EU 
average) and in amenable mortality (which is now 
below  the  EU  average).  This  reflects  sizeable 
improvements  in  the  quality  and  availability  of 
care.  In  2017,  more  than  three  quarters  of  the 
population  reported  being  in  good  health,  above 
the EU average (68 %). However, despite efforts to 
promote healthy lifestyles and reduce the incidence 
of  chronic  diseases,  Malta  still  has  one  of  the 
highest  obesity  rates  in  the  EU  for  adults  and 
children.  

Health care services are widely accessible. Only 
0.4 %  of  the  population  reported  unmet  needs  for 
medical care in 2017 (EU: 2.9 %), with negligible 
variations based on socio-economic status. A high 
level of voluntary use of care services provided by 
private  sector  physicians  explains  the  relatively 
high  share  of  out-of-pocket  spending  in  Malta 
(27 %  vs.  EU:  15 %)  (OECD,  2017).  While  this 
high level of private health expenditure presents a 
marked  contrast  to  the  low  level  of  unmet  needs 
for  care,  it  does  not  appear  to  pose  a  significant 
barrier  for  access  to  care  in  Malta.  Out-of-pocket 
expenditure  seems  to  be  driven  principally  by 
societal 
on 
pharmaceuticals not covered by the public system, 
for  which  measures 
low-income 
households are in place. 

preferences 

to  protect 

outlays 

and 

Waiting  times  have  improved  but  remain  a 
long-standing  challenge  for  some  specialties. 

20 

 
                                                                                   
3.1. Public finances and taxation 

services  were  introduced  in  2017-2018,  which 
could help ensure the fiscal sustainability of long-
term  care  provision.  Support  for  informal  carers 
includes a combination of cash benefits, care leave 
and  respite  services  provided  through  community 
services  and  the  ‘Community  Care  Unit’ (22). 
However, respite services are limited and difficult 
to  secure  for  those  who  care  for  elderly  people, 
which  restricts  labour  market  participation  of 
informal carers. In addition, support is limited for 
people with mental impairments. 

(22)  This  consists  of  nurses,  physiotherapists,  occupational 
therapists, social workers and carers who provide services 
to clients that are house-bound. 

to 

Although  a  combination  of  investments  aimed  at 
boosting  hospitals’  activity  and  outsourcing 
procedures 
the  private  sector  has  been 
undertaken, waiting times for certain specialties in 
outpatient visits at the Mater Dei Hospital are long 
and on the increase (NAO, 2017). Average waiting 
times for a first outpatient appointment were more 
than  250  days  in  2016,  with  more  recent  data 
showing  that as of March 2018 waiting times had 
increased to 278 days (ESPN, 2018). While current 
plans  to  expand  the  capacity  of  public  hospital 
outpatient care can help in tackling  waiting times, 
other  measures  to  reduce  unnecessary  referrals  to 
specialists  and  redirect 
inappropriate  use  of 
emergency  care  to  outpatient  care  can  include:  a) 
strengthening  the  scope  of  service  provision  and 
prescription  authority  for  general  practitioners;  b) 
better coordination of hospital and outpatient care, 
and  c)  more  binding  measures 
redirect 
inappropriate  use  of  emergency  care  to  outpatient 
care. Action through this mix of policy levers can 
effectively  help  to  shorten  waiting  times  for 
outpatient 
the 
efficiency  and  long-term  sustainability  of  the 
health system.  

specialist  care  and 

improve 

to 

Investments in primary care infrastructure  are 
progressing. The decentralisation of services from 
hospitals to the primary care level continues, with 
a  new  concept  for  primary  care  centres  and 
investments to gradually expand the use of eHealth 
being  made.  Rehabilitative  and  geriatric  care 
capacity will increase by means of a public-private 
partnership between the government and a private 
hospital 
the 
refurbishment,  development  and  management  of 
three  public  hospitals  in  Malta  and  Gozo.  In  light 
of this shift of responsibility for capital investment, 
it will be important to scrutinise how the rollout of 
this  initiative  will  affect  the  accessibility  and 
quality  of  care,  as  well  as  long-term  fiscal 
sustainability.  

operator,  which 

envisages 

Expenditure  on  long-term  care  is  concentrated 
on  institutional  care.  Public  spending  on  long-
term  care  in  2016  represented  0.9 %  of  GDP, 
below the EU average (1.6 %); it is primarily spent 
on  institutional  care.  Public  expenditure  on  home 
care  services  accounted  for  only  12%  of  total 
public  spending  on  long-term  care  in  2016,  (EU 
average  of  28 %)  (European  Commission,  2018f). 
Reflecting  increasing  demand  for  long-term  care, 
new  types  of  community-based  and  home  care 

21 

 
                                                           
3.2.  FINANCIAL SECTOR 

3.2.1.  FINANCIAL STABILITY  

Core  domestic  banks  further  improved  their 
capital  position  and  leverage  ratio.  Throughout 
the  first  half  of  2018,  core  domestic  banks,  i.e. 
banks mainly offering services to clients in Malta, 
strengthened  their  capital  base  through  retained 
earnings  and  capital  injections.  This  resulted  in 
their total own funds expanding by  5.7 % by June 
2018 and the total capital ratio reaching 17 %. This 
was mirrored in higher Tier 1 capital (+4.2 %) and 
the  Tier  1  capital  ratio  improved  by  0.1  pp.  to 
the  minimum  regulatory 
15.2 %,  well  above 
requirements.  The  enhanced  capital  position  was 
also  accompanied  by  a  healthier  leverage  ratio, 
which  increased  to  7.1 %,  significantly  above  the 
3 % minimum requirement.  

Domestic banks profits remain in line with euro 
area peers. In 2017 and the first half of 2018, core 
domestic  banks  posted  lower  profits  due  to  one 
bank  stepping  up  provisions.  When  adjusting  for 
one-off  events  in  2016-2017 (23),  profits  would 
have 
the 
increased  by  12 %.  As  a  result, 
profitability  of  core  domestic  banks  remained 
above  peers  in  the  euro  area.  Following  the 
extensive  engagement  in  financial  intermediation 
activities (24),  in  2017  net  interest  income  (NII) 
increased by 4.1 % (with its share in gross income 
exceeding 70 %) and it increased further by 3.5 % 
in  the  first  half  of  2018.  Meanwhile,  the  NII 
related  to  non-intermediation  activities  contracted 
substantially  (by  18.8 %  in  2017  and  by  1.6 %  in 
Q1-2018).  The  operational  cost-to-income  ratio 
increased  substantially  until  June  2018,  reaching 
69.6 % (up by 12.6 pps. from 2017), reflecting the 
provisions  by  one  bank.  Excluding  this  operation, 
the  ratio  would  have  remained  almost  stable  (at 
56 %)  and  core  domestic  banks  would  have 
remained  more efficient than  or in line  with other 
small banks in the euro area.  

in  robust 

The  dynamism  of  the  construction  sector  is 
reflected 
loan  growth.  Credit  to 
residents  accelerated  in  the  first  half  of  2018, 
driven  by  both  households  and  non-financial 
to 
corporations.  Growth 

in  mortgage 

loans 

(23)  These  include  the  sale  of  the  Visa  Inc.  business  line  in 
2016 
for 
brokerage  remediation  and  collective  agreement  benefits 
by one bank in 2016 and to a lesser extent in 2017. 

increased  provisioning 

together  with 

the 

(24)  The average interest rate on deposits fell faster than that on 
loans, resulting in a marginal widening of the margin. 

households slowed but remained strong (at 8.2 %) 
in  the  first  half  of  2018.  Mortgages  granted  at 
variable rates could pose challenges for borrowers 
once  interest  rates  increase.  However,  the  credit 
worthiness  of  households 
strong 
supported  by  their  robust  net  financial  wealth 
which  exceeded  three  times  the  size  of  their 
debt (25). Growth in bank loans to the non-financial 
corporations showed signs of recovery and picked 
up in June 2018 (+5.6 %).  

remained 

Table 3.2.1: 

Financial soundness indicators, core domestic 
banks (%) 

* For comparability purposes June 2018 figures are based on 
the fourth-quarter moving sum of the flow figures. 
Source: Central Bank of Malta 

Access  to  finance  remains  an  issue  for  certain 
SMEs.  Access  to  finance  has  become  a  lesser 
concern  over  time,  but  may  still  be  difficult  for 
innovative  firms  without  collaterals  and  could 
represent  a  barrier  to  investment  in  the  long  term 
(EIB, 2017; CBM, 2017). In a context of reducing 
reliance  on  bank  lending  by  multinational  firms 
(see Section 1), bank finance remains the preferred 
channel for 74 % of SMEs. 

Small  improvements  are  taking  place  in  terms 
of access to the capital market. The composition 
of  corporate  indebtedness  has  changed  over  time, 
with  non-financial  corporations  slowly  moving 
away from bank credit to intra-group lending. The 
Malta  Stock  Exchange,  in  line  with  the  National 
Capital  Markets  Strategic  Plan,  is  promoting  the 
(still  limited)  role  of  corporate  bond  issuance  and 
expanding its usage even to SMEs. One project is 
the  SME  Prospects,  which  allows  SMEs  to  raise 
capital by issuing bonds or equity without the need 
for  strict  collateral  requirements  or  a  minimum 
initial public offering size. For a lasting success, it 
is  key  that  final  customers  are  aware  of  related 
risks.  The 
non-financial 
corporations  having  issued  bonds  at  the  Malta 
Stock Exchange increased from 18 in 2013 to 42 in 

number 

the 

of 

(25)  In  June  2018,  households’  net  financial  wealth  was 
155.4 %  of  GDP,  against  household  debt  of  48.7 %  of 
GDP.  Households’  financial  wealth  is  predominantly  in 
cash or quasi-cash assets.  

22 

201020112012201320142015201620172018H1Non-performing loans7,07,17,89,07,67,25,44,14,2Non-performing loans NFC----16,516,512,810,510,8Non-performing loans HH----4,94,64,23,43,7Coverage ratio34,335,537,639,140,443,545,945,243,5Loan to deposit ratio (customer)72,874,172,167,864,058,256,058,961,1Tier 1 ratio11,411,812,112,911,512,213,615,215,3Total capital ratio14,815,516,116,514,415,016,217,317,0ROA - Profit after tax*0,90,80,90,90,70,70,80,70,6ROE - Profit after tax (excl. branches)*13,411,812,111,99,89,810,19,27,6 
 
                                                           
 
 
 
                                                           
3.2. Financial sector 

supervision;  and  c)  new  challenges  related  to 
additional  licences  to  be  granted  in  the  crypto-
currency  area.  Staff  capacity,  skills  and  the 
available  technology,  which  needs  considerable 
investment,  could  constrain  the  ability  of  the 
authority to ensure proper supervision. Some steps 
have  been  taken  (see  Section  3.2.2).  In  particular, 
recruitment  has  accelerated,  partly  from  foreign 
countries. The workforce is expected to grow over 
the  coming  3  years  to  cover  current  resource 
shortfalls and cater  for future growth (resulting in 
150  vacancies).  To  attract  staff,  remuneration 
packages  have  to  compete  with  those  offered  by 
other  sectors 
financial 
services  and  professional  and  support  services 
sectors).  The  authority  is  also  offering  continuous 
in 
and 
international  programmes,  to  keep  up  with  the 
evolution of financial markets and new directives.  

(i.e.  gaming,  private 

its  staff,  also 

intensive 

training 

to 

3.2.2.  COMBATING MONEY LAUNDERING 

show 

serious 

enforcement 

shortcomings 

investigations 

framework. 
to 

involving  money 
Recent 
in 
laundering 
On 
Malta’s 
5 November  2018,  further 
the  authority’s 
proposal (of 30 June 2018) to the European Central 
Bank  (ECB),  the  ECB  decided  to  withdraw  the 
banking licence of Pilatus Bank. In October 2018, 
the  authority  directed  another  small  international 
bank 
type  of  business 
operations. The authority charged an auditing firm 
with  taking  control  of  the  bank’s  assets  and 
business.  These  measures  were  taken  after  a  joint 
inspection  by  the  authority  and  the  Financial 
Intelligence  Analysis  Unit,  Malta’s  anti-money 
found  a  number  of 
supervisor, 
laundering 
shortcomings in the bank’s procedures.  

to  refrain  from  any 

laundering  supervisor 

The  European  Commission  requires  the  anti-
to  step  up 
money 
supervision of banks. On 11 July 2018, following 
a  Commission  request,  the  European  Banking 
Authority  (EBA)  concluded  that  the  Financial 
Intelligence Analysis Unit had breached Union law 
and  issued  a  Recommendation.  It  considered  that 
Malta  failed  to  correctly  supervise  Pilatus  Bank 
and ensure compliance with anti-money laundering 
rules. On 8 November 2018, building on the EBA 
Recommendation  and  acknowledging  measures 
adopted by Malta in the meantime to address some 
of  the  shortcomings  identified,  the  European 

September 2018,  with outstanding debt  increasing 
by  around  134 %.  However,  Prospect  issuance 
represents  just  about  2.5 %  of  total  outstanding 
(non-bank) corporate bonds. 

representing  provisions 

Despite  new  supervisory  rules,  non-performing 
loans  have  slightly  increased  due  to  household 
and  non-resident  exposure.  Non-performing 
loans (NPL) for domestic banks increased slightly 
to  4.2 %  in  June  2018,  with  the  current  coverage 
ratio, 
total  non-
performing  loans,  at  43.5 %  in  Q2  2018.  The 
marginal  increase  in  non-performing  loans  was 
driven by the household sector. Resident corporate 
non-performing loans remained stable  while  those 
of  resident  household  non-performing  loans  rose 
due  to  higher  consumer  credit  non-performing 
loans  ratio,  in  part  attributable  to  the  introduction 
of International Financial Reporting Standard 9.  

in 

and 

the  direct  supervision  of 

insurance  sector  are  subject 

The  insurance  sector  is  exposed  to  risks  of 
passive supervision, where cooperation between 
domestic  and  external  supervisors  is  essential. 
In  contrast  to  the  banking  sector,  subsidiaries  in 
to  home 
the 
supervision, i.e. insurance companies registered in 
Malta  and  writing  business  in  other  countries  are 
under 
the  Maltese 
regulator. A large number of insurance companies 
are only registered in Malta  but operating abroad, 
mainly in the EU. This number further increased in 
2017 
insurance  groups  have  moved 
headquarters  to  Malta.  At  the  end  of  2017,  of  the 
63 insurance companies domiciled in Malta, only 8 
underwrote  risks  in  the  country.  In  turn,  95 %  of 
non-life  insurance  business  and  93 %  of  life 
business  registered  in  Malta  were  underwritten 
abroad. However, the supervisory capacity has not 
been sufficiently strengthened yet. The complexity 
of  insurance  business  models  and  products  with 
increased  appetite  for  establishing  and  expanding 
specialised  insurance  vehicles  calls  for  stringent 
supervision, as the concrete implementation of the 
new  supervisory  activity  under  the  Solvency  II 
regimes needs to be further examined. 

Supervisory capacity is improving but risks and 
challenges  increase  as  well.  The  Malta  Financial 
Supervisory  Authority  (hereafter  “the  authority”) 
is under strain from several directions: a) the high 
number  of  financial  institutions,  including  foreign 
insurance  companies;  b)  new  challenges  linked  to 
international efforts to step up the effectiveness of 

23 

 
3.2. Financial sector 

21  infringements  were  found  (19  out  of  23  in 
2016).  In  2017  only  two  fines  and  one  written 
warning  were  issued  (in  2016:  one  fine  and  three 
written warnings).  

Rising  compliance  costs  and  reputational  risks 
could  pose  a  challenge  to  retaining  business 
relations with correspondent banks. Maintaining 
a  strong  relationship  for  international  transactions 
with correspondent banks is becoming increasingly 
difficult,  especially  for  smaller  jurisdictions,  as 
global banks are  weighing their rising compliance 
costs  against  potential  profits  from  this  activity. 
Some  of  Malta’s  banks  are  also  finding 
it 
increasingly  challenging 
to  clear  US  dollar 
transactions.  While  banks  in  Malta  are  reporting 
that alternative arrangements have been found and 
that  they  have  developed  new  relationships  with 
global  institutions,  the  retention  of  correspondent 
relationships remains crucial. 

The size of the gaming sector, efforts to attract 
crypto-currency  operators  and  the  Individual 
Investor Programme pose additional challenges 
to the anti-money laundering framework. Malta 
hosts  one  of  the  highest  concentrations  of  online 
gaming licence-holders in the EU (see also Section 
3.4.2). Moreover, Malta aims to establish itself as a 
leader in the use of distributed ledger technologies 
such  as  blockchain,  where  crypto-currency 
exchange is one of the most important applications 
(see  also  Section  3.4.2).  If  this  initiative  proves 
successful, it will result in a corresponding number 
of  licence  applications  to  be  handled  by  the 
those  sectors  are 
authority.  In  addition,  as 
considered  particularly  vulnerable 
to  money 
laundering  practices,  their  growing  importance 
regulatory 
requires  high 
framework.  

standards 

the 

in 

an 

adopted 

Commission 
opinion (European 
Commission,  2018g).  The  opinion  requires  the 
Financial  Intelligence  Analysis  Unit 
take 
additional  measures  to  fully  comply  with  its 
obligation 
fourth  Anti-Money 
to  effectively  supervise 
Laundering  Directive 
financial 
including  an  effective 
institutions, 
sanctioning regime.  

under 

the 

to 

to 

its  capacity 

Malta  is  currently  undertaking  improvements 
in 
supervise  anti-money 
laundering  compliance.  After  conducting  a 
National  Risk  Assessment  to  identify  the  main 
vulnerabilities  and  institutional  weaknesses,  in 
April  2018  the  authorities  adopted  an  integrated 
strategy to fight money laundering and combat the 
financing  of  terrorism.  This  strategy  is  to  be 
implemented  over  the  next  3  years.  Measures 
recently implemented include: a) the setting up of 
a National Coordinating Committee on Combating 
Money  Laundering  and  Funding  of  Terrorism, 
composed of representatives from government and 
relevant  national  authorities;  b)  the  increase  of 
resources within the Police Economic Crime Unit; 
and  c)  the  start  of  a  process  to  revise  the 
implementing  procedures  on  politically  exposed 
persons. 
a  memorandum  of 
understanding between the authority and Financial 
Intelligence Analysis Unit to better coordinate and 
integrate  their  efforts  has  been  established (26). 
This includes a joint team and the coordination of 
all phases of supervision on anti-money laundering 
initiatives 
and  financing  of 
include  investment  in  cutting-edge  knowledge 
management 
intelligence, 
regulatory  and  supervisory  technology  tools  and 
training  programmes.  The  Financial  Intelligence 
Analysis  Unit  has  received  additional  human  and 
financial  resources  and  has  been  revising  its 
procedures to ensure effective supervision.  

terrorism.  Other 

addition, 

business 

tools, 

In 

on-site 

inspections 

find 
While  most 
infringements, sanctions are seldom imposed. In 
2017,  the  total  number  of  on-site  inspections  of 
financial  sector  entities  involving  relevant  issues 
in  2016). 
to  2016  (22  vs  23 
was  similar 
Preliminary data for the first quarter of 2018 point 
to a decline. Of the 22 on-site inspections carried, 

(26)  The  Memorandum  of  Understanding  between  the  MFSA 
and  FIAU  entered  into  force  on  20  August  2018.  It 
reinforces  the  basis  for  supervisory  cooperation,  mutual 
assistance,  exchange  of 
information,  due  diligence 
cooperation and sanctions in the field of AML/CFT. 

3.2.3.  HOUSING MARKET  

House  prices  continued  to  increase  but  real 
estate-related  risks  to  financial  sector  stability 
In  2017,  house  prices 
remain  contained. 
continued  to  grow  above  5 %  for  the  third 
consecutive  year  (5.6 %  in  the  first  half  of  2018), 
although slowing gradually and with some regional 
differentiation  (PwC,  2018).  However,  data  are 
collected by unit of accommodation irrespective of 
size and anecdotal evidence indicates that the size 
of dwellings is on the decrease. This could imply a 

24 

 
                                                           
larger  increase  in  the  cost  of  property  per  square 
metre.  Several  factors,  such  as  strong  economic 
activity  and  labour  market  conditions,  investment 
in  real  estate  by  non-residents  and  low  interest 
rates,  are  driving  the  growth  in  house  prices 
(European Commission, 2018c), in a context were 
recurrent tax on immovable property is not in place 
(see Section 3.1). According  to the  Commission’s 
house price valuation benchmarks, there are mixed 
signals  regarding  possible  overvaluation.  The 
overall valuation gap was slightly positive in 2017 
and the ratio of prices relative to income remained 
close  to  the  historical  average  (see  Graph  3.2.1). 
Thus, while overall risks to financial stability from 
real  estate  remain  contained  at  present,  an 
extension  of  recent  trends  may  result  in  potential 
macro-financial imbalances. 

Graph 3.2.1:  Valuation gap in house prices 

3.2. Financial sector 

2019  budget  measures,  which  extended 
the 
reduction of transaction taxes for first- and second-
time property buyers.  

The  demand 
for  rental  units  went  up 
significantly  and  calls  for  closer  regulatory 
scrutiny.  The  rental  market  has  been  growing, 
driven  mainly  by  the  increase  in  foreigners, 
separated people and young people who rent. As a 
result,  in  certain  areas,  the  bulk  of  properties  are 
sold  as  rental  investments.  According  to  the 
European  Statistics  on 
Income  and  Living 
Conditions  survey,  during  2017  about  82 %  of 
families in Malta were homeowners, above the EU 
average of 70 %, 4.6 % lived in rented government 
housing and 13.5 % rented from the private sector. 
The share of households renting at market prices is 
increasing,  but  it  remains  below  the  EU  average 
(20.5 %).  Still,  the  affordability  of  rents  for  less 
advantaged  people  is  a  growing  concern  (see 
Section  3.3.3).  In  October  2018,  the  government 
launched  a  white  paper  to  regulate  the  rental 
market. 
contracts, 
compulsory  registration  of  rental  contracts  and  a 
to 
period  of  notice  when 
terminate  a  lease,  with  the  Housing  Authority 
tasked  with  overseeing  the  rental  market  and 
enforcing  rental  regulation.  The  2019  budget  also 
rent 
proposed  measures 
housing (27).  It  remains  to  be  seen  whether  these 
measures  will  be  sufficient  to  address  Malta’s 
rental market challenges. 

to  support  private 

the  owner  wants 

It  proposes 

longer-term 

(27)  The  new  scheme  aims  to  reduce  the  rental  burdens  by 
granting  an  aid  of  between  €3,000  and  €5,000  per  year 
according to the circumstances of the household. 

Source: European Commission services calculations 

The housing market dynamism is also reflected 
in  increasing  construction  activity.  The  rise  in 
house  prices  has  encouraged  housing  investment. 
In  2017,  residential  construction  increased  by 
47 %,  (the  highest  acceleration 
the  EU), 
reaching  4.8 %  of  GDP.  The  number  of  building 
permits  continued  to  increase  in  the  first  half  of 
2018  and  accelerated  strongly 
in  Q2-2018 
(+75.7 %  y-o-y).  This  acceleration  suggests  that 
supply faces difficulties to keep pace with demand. 
the  housing  market  dynamism, 
As  a  result, 
reflected  also  in  robust  loans  growth,  is  likely  to 
continue  in  the  near  future.  This  is  also  thanks  to 

in 

25 

-50-40-30-20-100102030400102030405060708091011121314151617% deviation of current priceModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap 
 
                                                           
3.2. Financial sector 

Graph 3.2.2:  Residential investment and building permits 

Source: European commission 

26 

012345678050100150200250300010305070911131517*% GDP2010=100Building PermitsResidential Investment (RHS) 
 
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR MARKET 

Malta’s  labour  market  continues  to  perform 
well, in line with strong economic growth. Over 
the decade, Malta has had the largest employment 
rate  increase  (by  13.8 pps  to  73 %)  in  the  EU, 
exceeding  their  2020  target  and  the  EU  average 
(72.1 %).  The  activity  rate  (75.8 %)  rose  but 
remains  below  the  EU  average  (78 %).  The 
unemployment  rate  (4 %)  is  well  below  the  EU 
average, 
including  for  young  people  (15-24, 
10.6 %) and for long-term unemployment (1.6 %).  

structural 

Reforms  contributed  to  these  positive  labour 
market  outcomes.  The 
reforms 
undertaken  by  Malta  over  the  decade  have  been 
ambitious.  The  ‘Make  Work  Pay’  and  pension 
reforms  notably  improved  the  functioning  of  the 
labour market and increased the labour supply. At 
the  same  time,  the  impact  of  education  and  skills 
reforms to address human capital challenges using 
national and EU funds has yet to fully materialise. 
The  reforms  are  supported  by  strong  tripartite 
social  dialogue  within  the  Malta  Council  for 
Economic and Social Development.  

While  buoyant  economic  activity  provides  an 
opportunity  for  society,  not  all  groups  have 
benefitted  equally.  Outcomes  vary  widely  across 
groups:  the  gender  employment  gap  is  still  the 
largest in the EU and the pay gap is widening, and 
the  labour  market  performance  of  people  with 
disabilities and older workers is among the lowest 
in the EU.  Inactivity is  high  and the demographic 
dependency is projected to increase more strongly 
than  in  other  EU  Member  States.  Policies  to 
address  the  persisting  challenges  of  early  school 
leaving  and  low  adult  participation  in  education 
require  a  boost  if  they  are  to  make  a  dent  in  the 
high number of low-skilled working-age people.  

shortages 

and 
Labour 
occupations  continued  to  increase.  In  2017, 
38.4 %  of  employers  in  the  industry,  construction 

sectors 

across 

and services sector (28) stated that labour shortages 
limited  their  production.  This  share  is  one  of  the 
highest  in  the  EU  and  has  increased  substantially 
since  2013.  New  job  openings  continued  to 
increase  overall,  especially  in  services  and  sales 
and  in  elementary  occupations  (18 %)  (Jobsplus, 
2019).  Skills  shortages  exist  as  employers  report 
skilled  people 
finding  high 
difficulties 
particularly  in  healthcare,  finance  and  ICT,  while 
vacancies  are  also  hard  to  fill  in  clerical  support, 
service  and  sales  and  for  machine  operators  and 
assemblers. 

in 

in 

the 

last  decade  but 

in  female 
Malta  had  the  highest  increase 
employment 
the 
employment gap is the largest in the EU. Female 
employment among 20-64 years-old has increased 
by  21.2 pps  since  2008,  nearly  six  times  the  EU 
growth level (3.6 pps). Despite these advances, the 
employment  rate  of  women  (60.6 %)  in  2017  still 
lagged  behind  the  EU  average  (66.4 %)  and  the 
gender  employment  gap  is  the  largest  in  the  EU,. 
The  employment  rate  of  women  exceeds  the  EU 
average  up  to  age  34  and  declines  sharply 
thereafter (see Graph 3.3.1). It has been increasing 
in  standard  contracts  (full  time  and  open  ended) 
since  2014,  while  men  part-time  employment  has 
been slowly increasing. 

The  gender  pay  gap,  as  a  percentage  of  men’s 
average gross hourly earnings, is widening. The 
gender  pay  gap  in  Malta  of  11 %  in  2016  was 
below  the  EU  level  (16.2 %).  However,  while  the 
EU  average  has  decreased  slightly  (0.6 pps)  since 
2011,  it  has  widened  in  Malta  by  3 pps.  The  gap 
for  the  25-34  age  group  is  lower  (9 %)  but 
widening (by 2.9 pps since 2014). 

(28)  Average over the three sectors,  weighted by their share in 

employment.  

27 

 
 
 
 
                                                           
3.3. Labour market, education and social policies 

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

The European Pillar of Social Rights is designed as a compass for a renewed process of upward convergence 
towards better working  and living conditions in the European Union. It sets out 20 essential principles and 
rights in the areas of equal opportunities and access to the labour market; fair working conditions; and social 
protection and inclusion (1).  

Malta  performs  relatively  well  on  the  indicators  of  the  Social  Scoreboard  supporting  the  European 
Pillar  of  Social  Rights,  although  certain  challenges  remain  .  The  employment  rate  is  above  both  the 
national target and the EU average and unemployment is very low.  Nevertheless, Malta still has the largest 
gender  employment  gap  despite  great  advances  in  female  employment.  The  free  childcare  scheme  has 
substantially  increased  formal  childcare  participation,  increasing  female  employment.  However,  the 
employment rate for older women remains low, reflecting limited support for informal carers. Employment of 
people with disabilites is still woefully 
low,  compounded  by  limited  social 
protection coverage. 

thereby 

general 

equality 

indicators 

While 
on 
performance  are  good  or  show 
improvements, 
of 
opportunity  appears  particularly 
in  various 
challenged.  Outcomes 
Pillar 
of 
dimensions 
are 
the 
for  more 
polarised 
increasingly 
disadvantaged groups. Women in work 
are increasing, but so too is the gender 
pay  gap.  Unequal  access  to  quality 
education, 
disadvantaging 
socio-economic  groups  and 
lower 
children with disabilities, is fuelling the 
high  share  of  early  school  leavers  and 
low overall skills attainment. This may 
also explain the relatively high average 
rate  of  young  people  not  in  education, 
employment  or  training  despite  low 
unemployment.  Non-EU  migrants 
experience  much  higher  and  widening 
poverty  rates  despite  having  higher 
education levels and employment rates. 
There  is  a  high  incidence  of  out-of-
pocket 
causing 
inequality in waiting times and the gap 
socio-
in 
economic  status  is  wide  and  growing. 
Although the impact of social transfers 
on poverty reduction is around the EU 
average,  some  groups  lack  access  to 
for  example 
contributory  schemes, 
working migrants. 

self-reported  health  by 

healthcare 

costs 

Digital skills are better than average. 
The  Malta  Communications  Authority 
(MCA) aims to achieve widespread e-literacy and digital inclusion, by shifting the focus from digital access 
to  internet  use.  eSkills  Malta  Foundation  also  plays  a  key  role  in  improving  digital  skills,  including  by 
organising  careers  sessions  for  secondary  school  students,  and training  teachers  and  careers  advisors.  They 
are involved in various EU initiatives including the SCALE Project.  

(1)  The European Pillar of Social Rights was proclaimed on 17 November 2017 by the European Parliament, the Council 
and  the  European  Commission.  https://ec.europa.eu/commission/priorities/deeper-and-fairer-economic-and-monetary-
union/european-pillar-social-rights/european-pillar-social-rights-20-principles_en 

28 

Early leavers from education and training (% of population aged 18-24)Weak but improvingGender employment gapWeak but improvingIncome quintile ratio (S80/S20)Better than averageAt risk of poverty or social exclusion (in %)Better than averageYouth NEET (% of total population aged 15-24)On averageEmployment rate (% population aged 20-64)On averageUnemployment rate (% population aged 15-74)Better than averageLong-term unemployment  (% population aged 15-74)Better than averageGDHI per capita growth N/ANet earnings of a full-time single worker earning AWOn averageImpact of social transfers (other than pensions) on poverty reductionOn averageChildren aged less than 3 years in formal childcareBetter than averageSelf-reported unmet need for medical care Better than averageIndividuals' level of digital skillsBetter than averageMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituation").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,pleaseconsultthedraft Joint Employment Report 2019, COM (2018)761 final.NEET:neitherinemploymentnorineducationandtraining;GDHI:grossdisposablehousehold income.                      Social protection and inclusionDynamic labour markets and fair working conditionsEqual opportunities and access to the labour marketSOCIAL SCOREBOARD FOR MALTA 
 
Women’s activity rate (25-54) lags significantly 
behind  the  men’s  rate.  There  was  a  24.2 pps 
gender  gap  between  men  (96.2 %)  and  women  in 
2017.  Activity  rates  are  highest  for  high-skilled 
women.  However,  since  2008  low-skilled  women 
have driven the significant increase in the activity 
rate  while  it  slightly  declined  for  high-skilled 
women. 

Graph 3.3.1:  Increase in female employment rates, 2013-

2017, Malta and EU 

Source: European Commission  

The  take-up  of  formal  childcare  has  increased 
substantially,  facilitating  the  employment  of 
younger  women.  The  provision  of  free  childcare 
contributed  to  the  steep  increase  in  children’s 
participation  to  31.3 %  in  2016,  from  17.9 %  in 
2015.  It  also  contributed  to  the  high  activity  and 
employment  rates  of  young  women.  By  contrast, 
women  aged  35-44  have  comparatively  high 
inactivity  rates  (28.7 %  vs  EU  18.7 %)  and  cite 
‘personal  and  family  responsibilities’ (29)  as  the 
main  cause.  This  points  to  the  lack  of  adequate 
support for older women as informal carers. 

The  low  employment  rate  of  older  workers  is 
driven  by  the  very  low  employment  rate  of 
older  women  in  Malta.  While  the  employment 
rate  for  men  aged  55-64  is  well  above  the  EU 
average,  for  women  it  was  29.9 %  in  2017, 
is 
compared  with  50.8 % 
in 
levels. 
exacerbated  by  women’s 

the  EU.  This 
low  skills 

(29)  Own  workings  based  on  self-reported  reasons  in  the  EU 

Labour Force Survey. 

Nonetheless,  women aged 50-54 in Malta saw the 
largest  employment  rate  increase  (6.8 pps)  in  the 
EU  in  2017.  This  highlights  that  reforms  to 
pensions are starting to take effect but that overall 
more  support  is  needed  in  upskilling  and  for 
informal carers.  

included, 

The employment rate of people with disabilities 
remains  low.  While  increasing,  the  employment 
rate for people with disabilities (29 %) remains one 
of  the  lowest  in  the  EU.  Since  2015,  efforts  to 
improve  the  rate  have  been  directed  mainly  at 
for  example,  pre-
employers  and 
employment 
training  (ANED,  2018).  A  new 
measure  announced  in  the  2018  national  reform 
programme  aims  to  provide  incentives  to  labour 
market activity by ensuring that disability pensions 
continue  to  be  paid  when  people  with  disabilities 
start  working.  The  2018  report  of 
the  UN 
Convention  on 
the  Rights  of  Persons  with 
Disabilities  (UNCRPD,  2018)  also  recommends 
extending  the  quota  system  to  employers  with 
fewer than 20 employees. 

The favourable labour market situation may be 
hampering  efforts  to  reduce  early  school 
leaving.  Compared  to  the  EU,  the  employment 
rates  of  young  people  (15-24)  in  Malta  are  high 
(46.1 %),  while  unemployment  (10.6 %)  and  the 
rate of young people not in education, employment 
or  training  (NEET)  at  8.6 %  are  low.  The  high 
employment  rates  of  low-skilled  young  people 
may  act  as  a  disincentive  to  studying  longer,  and 
combined  with  low  participation  in  training  over 
their  careers,  can  weaken  the  country’s  human 
capital. 

Skills  shortages  still  challenge  Malta’s  future 
growth. Under-qualification (30) in Malta is higher 
than  average 
(26 %  vs  EU  22.8 %),  after 
increasing  by  3  pps  since  2008,  while  it  fell  in 
most  countries.  This  reflects  a  lack  of  applicants 
with  the  required  skills  mentioned  by  employers 
(56.2 %)  in  the  National  Employee  Skills  Survey. 
Since  economic  growth  is  increasingly  linked  to 
innovation,  higher  quality  and  added  value 
investment  in  upgrading  skills,  qualifications  and 

(30)  Under  qualification  is  the  share  of  low-qualified  and 
medium-qualified people (those with an education level up 
to  upper  secondary)  who  occupy  jobs  requiring  high 
qualifications  (tertiary  education),  according  to  the  ILO 
(2007) 
and 
qualifications (ISCED). 

classification  of  occupations 

(ISCO) 

29 

1020304050607080%EU 13EU 17MT 13MT 17 
 
 
                                                           
                                                           
3.3. Labour market, education and social policies 

education  and  specific  actions  to  integrate  young 
people,  lower  socio-economic  groups,  the  low-
skilled,  people  with  disabilities  and  migrants 
remain crucial. 

Reliance on foreign labour to address shortages 
has continued. The share of foreign workers rose 
rapidly  from  5.6 %  in  2008  to  19.2 %  in  2017, 
growing  by  3 pps  in  the  latter  year  alone  (see 
Graph 3.3.2). More than two thirds (69 %) are EU 
citizens.  They  work  in  professional,  scientific, 
technical,  administration  and  support  services 
trade, 
the  wholesale 
(22.2 %), 
the  arts, 
transportation  and  storage  (18.3 %), 
entertainment 
and 
and 
accommodation  and  food  services  (15.7 %).  On 
average EU nationals have a higher level of skills 
than the native population.  

recreation 

(18 %) 

retail 

and 

Graph 3.3.2:  Number of foreign workers 

High  levels  of  early  school  leaving  may  be 
limiting economic growth prospects. In 2017, the 
early  school  leaving  rate  among  18-24  year-olds 
(17.7 %)  was  one  of  the  highest  in  the  EU 
(10.6 %).  Despite  their  low  education  levels,  the 
employment rate among early school leavers is the 
highest  in  the  EU  (71.5 %),  highlighting  that 
employment  opportunities  are  among  the  factors 
drawing  students  away  from  school.  However, 
participation in early childhood education is almost 
universal for 4-year-olds (98 % vs 95.3 % EU) and 
the  proportion  of  children  below  3  in  formal 
significantly.  National 
childcare  has 
standards  are  being  updated  in  line  with  the 
Quality Framework for Early Childhood Education 
and Care. Ensuring inclusive childcare with access 
for  all,  especially  those  from  disadvantaged  or 
migrant  backgrounds  or  with 
lower  socio-
economic  status  requires  dedicated  investment.  In 
addition, 
diverse 
backgrounds  narrows  attainment  gaps  and  drives 
up overall education performance. 

integrating 

people 

risen 

from 

Graph 3.3.3:  Students' socio-economic status and 

performance in science, by schools' socio-
economic status 

Source: Malta PES, Jobplus data. 

3.3.2.  EDUCATION AND SKILLS 

High  public  investment  in  education  is  not 
reflected  in  educational  outcomes.  Government 
expenditure on education in 2016, as a proportion 
of  GDP  (5.4 %)  and  of  total  public  expenditure 
(14.1 %),  is  well  above  the  EU  averages  (4.7 % 
and 10.2 %). However, the performance of Maltese 
students in international assessments remains poor, 
with  major  disparities  linked  to  socioeconomic 
background  and  type  of  school  (see  Graph  3.3.3) 
as well as disability.  

A socio-economically disadvantaged school is in the 
second and third top quarter of the distribution of school-
level PISA index of economic, social and cultural status 
within each country/economy. 
Source: European Commission, OECD data 

Malta  aims  to  develop  more  student-centred 
education  in  order  to  achieve  a  more  inclusive 
and high-performing education system. The new 
collective  sectoral  agreement 
for  2018-2022 
includes a new  Learning Outcomes Framework to 
be  implemented  in  September  2019.  It  implies 

30 

051015202530350405060708091011121314151617Non EUEU'000350400450500550600650FIPLDKEUMTBGHUNLAttending socio-economically advantaged schoolsAttending socio-economically average schoolsAttending socio-economically disadvantaged  schools 
 
 
3.3. Labour market, education and social policies 

and 
innovation  ecosystem.  Vocational  and 
applied  subjects  were  introduced  in  secondary 
schools,  adding  over  four  subjects  in  the  2019-
2020 school year  with  support from  the  European 
Social Fund (ESF). The number of apprenticeships 
increased  by  100  students,  in  the  2017  academic 
year.  Furthermore,  the  Malta  College  of  Arts, 
in  703 
Science  and  Technology  engaged 
partnerships with local industries.  

Enhanced  career  guidance  and  additional 
compulsory  courses  aim  to  support  further 
education. Secondary  schools now  have qualified 
guidance  practitioners  and  career  advisers;  they 
can  organise  one-week  work  experiences  in  a 
company  for  15  year-old  students  and  career 
guidance sessions for 16 year-old students. A new 
tax credit to pursue a vocational study programme 
is  available  through  the  ‘Get  Qualified’  scheme. 
Moreover, since 2017 post-graduate students aged 
less  than  40  are  exempt  from  paying  income  tax 
for 2 years.  

Participation in adult learning is increasing but 
is still low for the low-skilled. The share of 25-64 
year-olds  participating  in  education  and  training 
was  10.6 %  in  2017,  nearing  the  EU  average 
(10.9 %).  However,  it  remains  weak  for  the  low-
skilled (3.7 % vs EU 4.2 %), which represent 49 % 
of the population. Participation in adult learning by 
employed people is slightly above the EU average 
(12.4 %  vs  11.6 %)  and  increasing,  but  it  is  still 
low for inactive people (5.3 % vs EU 8.6 %).   

The  contribution  of  small  and  medium-sized 
enterprises  to  upskilling  employees  remains 
low. In 2015, training provided by businesses was 
below  the  EU  average  (61.6 %  vs  72.6 %).  This 
was  due  mainly  to  low  participation  by  small  and 
medium-sized  enterprises.  Reasons 
for  not 
providing  training  included  workload  and  staff 
turnover,  as  38 %  of  private  sector  employees 
leave  within  a  year.  Following  the  success  of  an 
ESF  funded  project,  Malta  launched  the  Investing 
in Skills scheme in 2017.   

New  actions  aim  to  improve  skills  assessment, 
validation and recognition for adult learners. In 
line  with  the  EU  Recommendation  on  Upskilling 
Pathways, a validation  system is  now in place  for 
the  following  sectors:  automotive,  building  and 
construction,  hair  and  beauty,  health  and  social 
care,  hospital,  tourism,  and  printing  and  digital 

is 

in 

to 

to  be 

targeted 

implemented 

documenting  the  learning  progress  of  every  pupil 
and 
the  student’s  stage  of 
development.  The  reform  of  the  lower  secondary 
the 
school  system, 
2019/2020  school  year,  will  allow  students  to 
choose  between  general,  vocational  or  applied 
subjects,  beyond  the  core  curriculum,  thus  better 
addressing different education needs. The aim is to 
tackle 
the 
differences  in  school  outcomes  between  students 
attending  different  schools  and  from  different 
socio-economic  backgrounds.  Implementing  these 
teaching  and 
measures  relies  on  developing 
learning  programmes 
that  effectively  upgrade 
teachers’ competences and enable them to meet the 
new teaching needs. 

low  school  retention  and  reduce 

the 

improvements, 

Despite  recent 
tertiary 
educational attainment rate for 30-34 year-olds 
is still one of the lowest  in the EU. In 2017, the 
rate  improved  by  1.5 pp.  to  33.5 %  vs  an  EU 
average  of  39.9 %.  The  rate  is  higher  for  women 
(35 %)  and  foreign-born  people  (39.7 %).  Several 
measures have been introduced to widen access to 
all, bolstering the number of enrolments by 9.5 % 
since 2013. In 2017, the employment rate of recent 
tertiary  graduates  was  the  highest  in  the  EU 
(95.3 %  vs  84.9 %).  The  share  of  science, 
technology and mathematics graduates was, on the 
other hand, one of the lowest in the EU (19.5 % vs 
26 % in 2016). To better address skill needs, Malta 
is  part  of  the  pilot  European  graduate  survey.  By 
the  end  of  2019  it  will  provide  a  comparative 
assessment  of  graduate  outcomes  and  valuable 
input  on  the  quality  of  the  higher  education 
system.  

remains 

low,  despite 

in  vocational  education  and 
Participation 
training 
the  high 
employability it generates. The employment rate 
of vocational education and training graduates was 
94 % in 2017, compared with 77 % in the EU. The 
proportion of upper secondary students (ISCED 3) 
in  vocational  education  and  training  increased 
slightly  from  12.7 %  in  2015  to  15.4 %  in  2016, 
but  remained  far  below  the  EU  average  (49.3 %). 
The overall take-up of VET subjects in secondary 
schools  increased  from  327  students  in  2014  to 
2 759 in 2018. 

took  measures 

Malta 
the 
attractiveness  of  vocational  education  and 
training and strengthen its role in the economic 

increase 

to 

31 

 
3.3. Labour market, education and social policies 

3.3.3.  SOCIAL POLICY 

Headline 
indicators  on  poverty  and  social 
exclusion  show  that  Malta  is  benefiting  from  a 
flourishing economic climate. In 2017, the share 
of  the  population  at  risk  of  poverty  and  social 
exclusion (AROPE) declined from 20.1 % in 2008 
to  19.2 %.  However,  the  decline  was  not  uniform 
for  all  groups.    Also,  as  work  income  is  rising 
faster than other incomes, the population at risk of 
relative poverty (AROP) is on an increasing trend, 
reaching 16.8 % in 2017. Flash estimates indicate 
that the trend has continued. 

Single  parents  and  large  families  in  particular 
are  still  struggling.  For  large  families  with  two 
adults  and  more  than  two  dependent  children,  the 
risk  of  poverty  and  social  exclusion  is  38.8 %, 
7.5 pps higher than a decade ago and 9.4 pps above 
EU  average.  By  contrast,  the  poverty  rate  for 
single parents fell significantly over the decade by 
19.3 pps to 50.2 %, although  it remains above the 
EU average by 6.1 pps. 

The  risk  of  poverty  for  children  remains  a 
challenge. The risk of poverty for children  whose 
parents are working declined from 17.8 % in 2013 
to 15.3 % in 2017, possibly reflecting the increased 
participation  of  mothers  in  the  labour  market. 
However,  children  whose  parents  are  low-  or 
medium  skilled  face  much  higher  poverty  and 
social  exclusion  risks  than  in  2008.  This  is 
particularly  important,  as  over  three  quarters  of 
Maltese aged 25-64 possess low or medium skills. 
Moreover,  it  has  negative  consequences  for  their 
children’s education outcomes.  

Poverty  and  social  exclusion  risks  are  high  for 
people  with  disabilities.  The  AROPE  rate  gap 
between  people  with  and  without  disabilities  in 
Malta  at  14.9 pps  is  well  above  the  EU  average 
(9.2 pps).  Social  transfers  moderate  the  risk  of 
poverty more than in other Member States, but less 
so  for  those  with  more  severe  impairments.  In 
2017  the  disability  pension  for  those  who  cannot 
work  was  increased.  However,  despite  pension 
reforms  the  Severe  Disability  Allowance  exclude 
groups  with  severe  psychosocial,  sensorial  and 
intellectual 
the  existing 
impairments.  Further, 
household  surveys  miss  a  substantial  number  of 
people who are disabled (ANED, 2018).  

media. Sectors are selected on the basis of market 
research  and  consultation  with  stakeholders. 
Individuals with a minimum of 3 years’ experience 
can apply for validation.  

II 

the 

Initiative  and 
target 

Public  employment  services  increased  their 
focus  on  career  guidance  for  jobseekers.  The 
the  NEET 
Work  Programme 
Activation  Scheme 
long-term 
unemployed  and  inactive  people  and  personal 
employment advisers profile and create individual 
action  plans.  The  new  Occupational  Handbook 
outlines  occupational  requirements  for  career 
advisers,  educational  institutions  and  individuals. 
However,  measures  to  upgrade  skill  levels  and 
employability  lack  evaluation,  and  attaining  the 
2020  target  for  adult  learning  of  15 %  remains  a 
challenge.  

Index  have  widened 

Several initiatives have contributed to mapping 
and  anticipating  skills  needs,  but  they  remain 
fragmented.  The  National  Employee  Survey  and 
the  Employability 
the 
evidence  base  on  skills  mismatch.  In  2017,  the 
Maltese  government  collaborated  with  the  Slovak 
Academy of Sciences to develop a mid-term skills 
and occupational forecasting model for Malta. The 
the  Development  of 
European  Centre 
identified 
(Cedefop) 
Vocational 
opportunities  for  people  at  all  qualification  levels 
up  to  2030  (Cedefop,  2017).  The  National  Skills 
Council  is  drafting  a  national  skills  strategy, 
identifying  individual  transversal  skills  to  be 
integrated into education and training.  

for 
Training 

in 

and 

Science 

provision 

A  systematic  identification  of  skills  to  support 
the  transition  to  a  more  sustainable  economic 
development  model  is  lacking.  Although  some 
measures  back  technical  and  highly  qualified 
training 
environmental, 
engineering or ICT studies (e.g. Malta’s College of 
training 
Arts 
programmes),  they  are  modest  in  scope  and 
budget.  The  majority  of  schemes  (e.g.  PhD 
support,  Get  Qualified  scheme)  are  generic  and 
targeting  specific 
they  would  benefit 
disciplines  or  sectors.  In  addition,  systematic 
coordination  between  the  different  governmental 
bodies  on  this  issue  would  benefit  from  further 
strengthening. 

Technology 

from 

and 

32 

 
3.3. Labour market, education and social policies 

Graph 3.3.4:  Population at risk of poverty by rent price 

Source: European Commission 

Investment  

early 

starting  with 

Increased investment in inclusive education and 
training, 
childhood 
education,  is  important  to  improve  Malta’s 
long-term  growth.  Employment  rates  for  people 
with disabilities, women and older workers are low 
due to insufficient skills attainment. It is important 
to  improve  education  outcomes  for  disadvantaged 
groups  starting  from  early  childhood  (0<3  years), 
to  improve  alignment  with  labour  market  needs 
and  to  increase  participation  in  adult  learning. 
Improving  access  to  employment  for  inactive 
people,  integrated  measures  in  housing  and  social 
services  for  non-EU  migrants,  modernising  social 
protection  and  enhancing  infrastructure  for  equal 
and timely access to quality  and affordable health 
and  long-term  care  services  also  require  further 
investment.  

A  relatively  large  share  of  the  population  is 
foreign-born  and  facing  high  risks  of  poverty. 
In  2017,  the  foreign-born  population  was  15.1 % 
and  almost  equally  split  between  non-EU  born 
(7.8 %)  and  those  born  in  other  EU  countries 
(7.3 %).  However,  the  non-EU  born  face  a  much 
higher  risk  of  poverty  (28.9 %)  than  the  native-
born (15.2 %) despite their high employment rates 
(73.7 %)  and  their  higher  share  of  people  with 
tertiary education (32.7 % v 20.4 % for the native-
born).  The  government  recently  took  measures  to 
help  the  social  and  labour  market  integration  of 
foreigners.  However,  the  recent  surge  in  house 
prices  suggests  that  access  to  affordable  housing 
and  energy  poverty  are  becoming  growing 
concerns.  

The  social  security  system  has  gaps  in  its 
provision.  Casual  workers  are  not  covered  by 
unemployment  benefits  or  old-age/survivors’ 
2018h). 
(European  Commission, 
pensions 
Seasonal  workers  do  not  have  access 
to 
unemployment benefits and people working under 
an agreement to perform a job do not have formal 
to  old-age/survivors’  pensions.  Some 
access 
groups  among  the  self-employed  and  foreigners 
from 
(despite 
contributing) 
unemployment  benefit 
the 
adequacy  of  minimum  income  benefits  in  Malta 
exceeds  the  EU  average  (European  Commission, 
2018i;  2018j),  social  support  by  the  government 
does not fully mitigate the risk of poverty or social 
exclusion for people depending on social benefits. 

are 
schemes.  While 

excluded 

rents 

increased 

The  hike  in  house  rents  is  affecting  a  growing 
number of low-income households. The share of 
people  renting  at  market  prices  has  increased, 
especially among low-income households (10.4 % 
in 2017 against 3.7 % in 2015). At the same time, 
market 
creating 
unprecedented difficulties for a growing number of 
households  to  access  affordable  housing.  The 
increase  in  foreigners  and  the  number  of  Maltese 
low 
single  households, 
replenishment  of 
the 
liberalisation of market rents, have exacerbated the 
problem.  The  risk  of  poverty  among  tenants 
increased from 23.4 % in 2013 to 35.9 % in 2017.  

together  with 
social  housing 

the 
and 

sharply, 

33 

051015202530354020082015201620172008201520162017At-risk of povertyNot at-risk of poverty%Rent at market priceRent at reduced price or free 
 
3.4. COMPETITIVENESS AND INVESTMENT 

considerable  increase  in  2015,  due  to  exceptional 
investment  projects  in  the  aviation  and  energy 
sectors,  investment  has  stabilised  at  a  relatively 
high level (see also Section 1). In 2017, investment 
accounted  for  21.1 %  of  Maltese  GDP,  0.9  pp 
higher than the EU average and 3.8 pp higher than 
in 2014 (see Graph 3.4.2). Construction investment 
(both  dwellings  and  non-residential  construction) 
remained  particularly  dynamic, 
followed  by 
machinery  and  equipment.  The  first  half  of  2018 
showed  a  similar  pattern.  According  to  surveys, 
only  8 %  of  firms  experienced  an  investment  gap 
in 2017 (CBM, 2018b). 

Graph 3.4.2:  Gross fixed capital formation by asset 

3.4.1.  PRODUCTIVITY GROWTH AND DRIVERS 

The  Maltese  economy  recently  experienced  a 
pronounced  shift  towards  the  services  sector, 
coupled with productivity gains. From 2009 until 
2017,  gross  added  value  increased  at  a  pace  that 
was  almost  four  times  faster  than  in  the  EU  and 
accelerated  from  2014  (see  Graph  3.4.1).  During 
this  process,  the  contributions  of  different  sectors 
to  national  production  have  changed 
in  a 
remarkable  way.  Industry  and  construction  shares 
fell  significantly,  while 
the  service  sector’s 
contribution  increased  from  76.5  to  85 %  (while 
the  EU  average 
factor 
productivity remained broadly stable in 2009-2014 
and increased substantially starting from 2014. The 
structural shift towards higher value added services 
(such  as  professional  services  and  remote  gaming 
activities)  contributes  to  explaining  this  change. 
Additional  factors 
that  supported  productivity 
gains  include  a  large-scale  investment  in  the 
energy  sector  and  the  inflow  of  highly  skilled 
foreign  workers.  Real 
labour  productivity 
increased between 2014 and 2017 both in terms of 
hours worked and people employed (31). 

is  73.4 %).  Total 

Graph 3.4.1:  GVA by industry breakdown 

Source: National Statistical Office 

Small  and  medium-sized  enterprises  account 
for  the  great  majority  of  firms.  Small  and 
medium-sized  enterprises  (SMEs)  are  particularly 
relevant  in  Malta,  as  they  generate  81 %  of  value 
added  and  of  employment,  significantly  higher 
shares  than  the  respective  EU  averages  of  56.8 % 
and 66.4 %. The majority of SMEs are represented 
in  wholesale  and  retail  trade,  and  in  professional, 
scientific  and 
(European 
Commission, 2018k).  

technical  activities 

Policy  measures  have  been  put  in  place  to 
address  financing  difficulties  of  small  and 
medium-sized enterprises. A number of financial 
instruments,  grant  schemes  and  tax  incentives 
launched in the last decade by the government and 
co-financed by the EU aim at providing finance for 

Source: European Commission 

Investment  remained  relatively  high  in  2017 
and  in  the  first  half  of  2018.  Following  a 

(31)  Following  the  Council  Recommendation  2016/C  349/01, 
Malta is in the process of appointing the Malta Council for 
Economic  and  Social  Development  (MCESD)  as  National 
Productivity Board. 

34 

012345678910091011121314151617Public administrationServicesConstructionIndustry (except construction)Agriculture, forestry and fishingbln EUR0510152025302011201220132014201520162017DwellingsOther buildings and structuresTransport equipmentIntellectual property productsCultivated biological resourcesOther machinery and equipment% GDP 
 
 
                                                           
 
3.4. Competitiveness and investment 

innovative  sectors  (Eurostat),  it  hosts  over  200 
foreign  direct  investment  operations  in  niche 
sectors  based  on  low  volume/high  value  added 
operations  (European  Commission,  2019d)  and  it 
has  experienced  rapid  development  of  the  digital 
content and software development industry.  

performance.  R&D 

Low  investment  in  intangibles  assets  such  as 
the  modest  research  and 
R&D  explains 
innovation 
intensity 
remained  flat  in  recent  years  (0.55 %  of  GDP  in 
2017 against 2.07 % for the EU) and the country is 
likely  to  miss  its  target  of  2 %  R&D  intensity  by 
2020.  The  recent  slight  increase  in  public  R&D 
intensity  is  partly  explained  by  the  significant 
inflow of structural funds. The low level of public 
R&D  investment  in  the  public  science  base  limits 
the  full  usage  of  the  country’s  scientific  and 
technological potential. Although the University of 
Malta  (the  only  public  research  performer  in  the 
country)  has  improved  its  scientific  performance 
(Malta  ranks  11th  in  the  EU  in  terms  of  top 
scientific 
relative 
specialisation in medical sciences, it currently does 
not  receive  dedicated  institutional  funding  for 
conducting R&D.  

publications)  with 

a 

Firms’  limited  capacity  to  engage  in  R&D 
hinders  innovation  creation  and  technological 
spill-overs.  Business  enterprise  R&D  expenditure 
intensity has declined since 2012 (0.34 % of GDP 
in  2017  against  1.36 %  for  the  EU).  Research-
intensive sectors are heavily dependent on foreign 
investment (e.g. pharmaceuticals, medical devices, 
electronic  components),  which  means  that  core 
R&D 
the 
at 
multinationals’ 
outside  Malta. 
headquarters 
Surveys confirm that firms mainly engage in non-
R&D-based  innovation  with  a  focus  on  design, 
process,  organisational  and  market  innovation 
(European  Commission,  2018l;  EIB,  2018).  The 
limited  R&D  potential  of  domestic  firms  partly 
explains  the  lack  of  robust  academia-business 
linkages and knowledge transfer activities.  

undertaken 

activities 

are 

is  expected 

small  and  medium-sized  enterprises  (SMEs)  and 
start-ups. In addition, SMEs are adapting slowly to 
market-based finance (see Section 3.2). The Malta 
to  address 
Development  Bank 
persistent financing gaps for SMEs and to improve 
the  take-up  of  the  various  EU  financial  and 
guarantee  instruments.  The  Bank  is  currently 
defining  priorities  and  tools  for  concrete  action. 
The  most  advanced  initiatives  concern  credit  for 
family  business  transfers,  for  which  the  bank 
already  signed  an  agreement,  and  two  SMEs 
guarantees currently under negotiations.  

Addressing  investment  gaps  in  infrastructure, 
innovation  and  skills  would  support  the  future 
growth  and  the  long-term  sustainability  of  the 
Maltese  economy.  Pressure  on  Malta’s  natural 
resources  and  infrastructure  has  been  mounting 
with  economic  growth.  Targeted  investment  to 
address environmental concerns and infrastructure 
bottlenecks  would  help  secure  sustainable  long-
term growth. Facilitating innovation, strengthening 
links  between  research  systems  and  businesses, 
and helping  firms climb  up the added value  chain 
would help boost productivity. In addition, labour 
and skill shortages are perceived in several sectors, 
with  lack  of  staff  with  the  right  skills  being 
mentioned  as  a  barrier  to  investment  by  a  large 
majority  of  firms.  Investment  aimed  at  upskilling 
the  workforce  may  help  tackle  the  challenge  (see 
Section 3.3). 

firms’ 

growth. 

contribute 

vulnerabilities 

to 
Governance 
constraining 
Structural 
weaknesses  have been identified in relation to the 
governance  framework.  Survey  indicators  show 
that corruption and insufficient transparency of the 
political,  legal  and  regulatory  environment  are 
perceived  as  a  problematic  factor  for  doing 
business  in  Malta  (European  Commission,  2017b; 
Ernst & Young, 2018). A strengthened governance 
framework,  including  effective  judicial  and  anti-
corruption  enforcement, 
to 
obtaining the full benefits of investment. 

is  a  prerequisite 

Research and innovation 

Malta’s  innovation  performance  is  moderate 
improving.  Malta  remains  a 
but  gradually 
innovation 
moderate 
performance  has  increased  since  2010  (European 
Commission, 2018l). The country ranks seventh in 
the EU in terms of fast-growing firms in the most 

innovator,  although 

its 

The effectiveness of measures to support home-
grown research and innovation remains limited. 
Despite the existence of sectoral strategies (e.g. on 
blockchain  technologies,  see  also  Section  3.4.2), 
the country has not yet set up a coherent and long-
term  competitiveness  strategy  for  moving  the 
domestic  economy  up 
the  value  chain.  The 
Research  and  Innovation  Strategy  2014-2020  has 

35 

 
3.4. Competitiveness and investment 

Malta's  heavy  reliance  on  waste  disposal  puts 
pressure  on  its  limited  land.  The  recycling  rate 
for municipal waste is only 6 %, far below the EU 
average  of  30 %  and  the  2020  target  (50 %). 
Composting  in  Malta  is  practically  non-existent 
(see Graph 3.4.3). Consequently, the landfill rate at 
86 %  is  more  than  three  times  the  EU  average. 
Factors explaining the situation include the lack of 
infrastructure or collection systems for recyclables 
and bio-waste and the lack of economic incentives 
to  prevent  waste 
recycling. 
and 
Construction and demolition  waste, too, is largely 
landfilled despite the surge in the amount of waste 
since  2011 
(European  Construction  Sector 
Observatory 2018; data  from  Maltese authorities). 
Investments in waste management, including waste 
prevention,  separate  collection,  recycling  and  bio-
waste treatment, would contribute to moving away 
from heavy reliance on waste disposal. 

improve 

Graph 3.4.3:  Municipal waste generated and treatment 

Source: European Commission 

The  potential role of innovative technologies in 
addressing  sustainability  concerns  remains 
underexplored.  There  are  currently  no  R&D 
to  develop 
funding  or 
support  measures 
technologies 
new/improved 
addressing 
climate 
change.  Existing 
environment 
measures 
technology 
supporting  R&D  and 
development  by  firms  (e.g.  grants,  tax  incentives) 
remain  general  in  scope  and  do  not  specifically 
these  priority  areas.  Several  on-going 
target 
initiatives  aim  at  developing  new  or  improved 
technologies in the transport sector. However, their 

and 

little  visibility  and  its  implementation  is  scattered 
between  various  governmental  bodies  (32)  with 
limited coordination. It is unclear whether existing 
measures  supporting  business  R&D  investments, 
such  as  the  two  R&D  tax  incentives  schemes (33) 
and  the  2014-2020  Research  and  Development 
scheme, are effective, given their low uptake. 

Environmental sustainability 

Enhancing  the  environmental  sustainability  of 
Malta’s  growth  model  requires 
targeted 
investment. The dynamism of the housing market, 
the  growth  of  tourism,  the  increasing  inflows  of 
foreign workers and investors put pressure on local 
land and water resources. As regards artificial land 
coverage, Malta ranks by far above the EU average 
(4.1 %)  with  23.6  %  of 
land. 
Overdevelopment  has  been  a  consistent  cause  of 
landscapes  and 
loss  of  biodiversity,  natural 
inherent  challenges 
agricultural 
linked to its limited space and natural resources are 
intensified by its high population density. Targeted 
investment  would  help  tackle  the  challenge  by 
promoting  the  shift  towards  a  resource  efficient 
economy.  

land.  Malta’s 

artificial 

Green  and  sustainable  public  procurement  is 
underexploited.  Green  public  procurement  is  a 
tool  for  encouraging  new  markets  for  innovative 
products  in  a  low-carbon,  circular  economy.  Yet, 
past  targets  were  only  partially  met  (European 
Commission,  2018c).  No  significant  progress  was 
made in this respect in 2018. 

Water  scarcity  is  a  pressing  concern.  Many 
economic  activities,  including  the  tourism  sector, 
industry  and  agriculture,  are  dependent  on  a 
reliable  water  supply.  However,  the  current  water 
scarcity,  due  to  geographical  factors,  is  likely  to 
increase 
in  view  of  climate  change  and 
demographic  pressures.  Diffuse  water  pollution 
from agriculture aggravates the problem. In Malta, 
in particular, investment targeted at improving the 
efficiency  of  water  management  and  water  use  is 
key to ensuring sustainable economic development 
in the medium term. 

(32)  These 

include 

the  Malta  Council  for  Science  and 
Technology,  Malta  Enterprise,  and  the  Support  Division 
Unit  in  charge  of  ERDF  funding,  under  the  Office  of  the 
Prime Minister.  

(33)  ‘Aid  for  Research  and  Development  Projects’  and  ‘Tax 

credits for R&D and Innovation scheme’.  

36 

0100200300400500600MTEUDifference wastegenerated/treatmentLandfill / disposalTotal incinerationComposting anddigestionMaterial recyclingKG per capita 
                                                           
 
3.4. Competitiveness and investment 

scope and scale remain modest given the needs of 
the  country.  Funding  for  R&D  projects  is  also 
modest,  with  less  than  EUR  1.5  million  allocated 
to  projects  addressing  energy  efficiency  and 
aquaculture/agriculture.  In 
tourism  sector 
(which  is  a  priority  in  the  smart  specialisation 
strategy),  it  remains  unclear  whether  the  two  on-
going  projects  (Mediterranean  Centre  and  re-
generation  of  lower  Valletta)  adequately  address 
the issue of sustainability.  

the 

transport  is  increasing  slightly.  However,  the 
system  is  close  to  full  capacity  and  consumer 
satisfaction  low  (European  Commission,  2018m). 
In addition to the Master Plan measures, the 2019 
budget  allocates  EUR 100 million  for  up-grading 
roads  for  which  a  dedicated  agency,  Malta 
Infrastructure, was set up in 2018. However, roads- 
widening works remain car-centred and may result 
in increased car usage.  

tax 

energy 

is  scope  to 

revenues  within 

There 
increase  environmental 
taxation. Malta has one of the lowest share in the 
EU  of 
the 
environmental  taxes,  at  55 %,  yet  a  high  share  of 
taxes on transport at 41 % in 2014 (EEA, 2016). In 
2016 there was still a 16 % gap between petrol and 
diesel  tax  rates,  making  Malta  increasingly  an 
outlier with respect to favouring diesel technology 
via excise duties. 

Transport and traffic congestion  

Road  congestion  remains  a  major  challenge. 
Due to road inefficiency and high car penetration, 
congestion  remains  one  of  the  weakest  aspects  of 
Malta’s business environment. The estimated costs 
of congestion (time spent in traffic, additional fuel 
costs,  and  accidents)  are  high  and  measures  to 
reduce 
them  have  only  partly  been  adopted 
(European  Commission,  2018c).  Air  pollution 
from 
transport  has  considerable  social  and 
environmental  impacts (34).  Yet,  the  number  of 
licenced vehicles continues to increase and electric 
and hybrid vehicles make up less than 0.5 % of the 
total  fleet.  The  Maltese  vehicle  registration  tax 
system has built-in features that lowers the tax rate 
for  electric  vehicles  with  low  CO2  emissions, 
while  the  annual  circulation  tax  is  based  on 
emissions and the vehicle’s age. 

Public  investment  is  improving  road  quality, 
but  modal  shift 
is  not  yet  visible.  The 
implementation of the 2016 Transport Master Plan 
for  the  period  to  2025  is  in  its  early  stage  and  its 
impact  on  modal  shift  –  which  would  also  have 
important  benefits  for  congestion  and  greenhouse 
gas  emissions  –  is  limited.  Free  school  transport 
was  introduced  in  2018  and  the  use  of  public 

Climate change resilience 

to 

Malta  lacks  an  integrated  approach  to  climate 
policy  with  a  cross-sectoral  focus.  As  a  small 
island  state,  Malta  is  particularly  exposed  to  the 
impacts  of  climate  change.  The  most  vulnerable 
sectors include  water resources,  infrastructure  and 
land  use  (for  example  through  floods),  natural 
ecosystems,  agriculture  and  fisheries,  health  and 
tourism.  While  Malta  has  the  lowest  greenhouse 
gas emissions per capita in the EU, the 2020 target 
under the Effort Sharing Decision is expected to be 
missed  by  a  margin  of  11  pps,  according  to  the 
latest  national  projections  submitted 
the 
Commission,  which  takes  all  existing  measures 
into  account.  In  2030,  this  gap  with  the  effort 
sharing target is expected to  rise  to 46 pps. As its 
Low-Carbon  Development  Strategy  has  not  been 
completed  (to  be  finalised  in  the  beginning  of 
2020),  Malta  does  not  yet  have  an  action  plan  to 
reach its 2020 targets. In the longer term, transport 
modal  shifts  are  essential,  as  almost  50 %  of  the 
increase  in  emissions  come  from  the  transport 
sector. The agriculture sector can also contribute to 
climate  mitigation  by  building  renewable  energy 
capacity,  for  example  installing  solar  panels  and 
producing  bioenergy  from  livestock  waste.  The 
newly adopted National Agricultural Policy for the 
Maltese Islands 2018 – 2028 addresses the areas of 
sustainable agriculture products, circular economy, 
mitigation 
soil 
management, whereas there is no measure directly 
seeking greenhouse gas emission reductions.  

adaptation 

through 

and 

Malta is in the process of setting its targets and 
objectives  for  2030.  In  its  National  Energy  and 
Climate Plan to be adopted by 31 December 2019 
in  line  with  the  Regulation  on  the  governance  of 
the  Energy  Union  and  climate  action  (35),  Malta 

(34)  The European Environment Agency estimated that in 2015 
240  premature  deaths  were  attributable  to  air  pollution 
(EEA, 2018, p. 64). 

(35)  Regulation  (EU)  2018/1999  of  the  European  Parliament 
and  of  the  Council  of  11  December  2018  on  the 
Governance of the Energy Union and Climate Action.  

37 

 
                                                           
                                                           
3.4. Competitiveness and investment 

3.4.2.  MARKET FUNCTIONING 

in 

sectors 

Regulation 
appears 
certain 
restrictive. In 2016, retail activities involved about 
5,800 firms in Malta accounting for about 4.7 % of 
added  value.  The  Commission’s  Restrictiveness 
Indicator  shows  that  Malta  is  among  the  ten  most 
restrictive  EU  countries  in  this  area  (European 
Commission,  2018n).  Simplifying  procedures 
would favour competition, reducing mark-ups and 
increasing  retailers’  incentives  to  innovate  and 
invest. It would also trigger growth in the logistics 
and warehouse sectors that are essential for on-line 
trade  development.  In  addition,  several  market 
regulatory  frameworks  are  more  restrictive  than 
most  EU  countries  (OECD,  2015;  European 
Commission,  2018c),  for  example  in  the  area  of 
professional  services. This suggests there is  scope 
for lifting unnecessary constraints. 

The  gaming  sector  continues  to  experience 
strong  growth,  generating  spillovers.  In  2017, 
gross  added  value  in  the  gaming  sector  increased 
by  10 %  and  represented  11 %  of  total  added 
value.  In  the  same  year,  the  number  of  remote 
gaming  licences  increased  by  22 %.  Employment 
increased  by  8 %,  with  90 %  of  employees  in  the 
sector  working  on  remote  gaming  activities.  The 
gaming  sector  also  generates  important  spillovers 
in  other  economic  sectors  with  high  value  added 
(see  also  Section  1).  Further  expansion  of  the 
sector  is  expected  following  the  new  regulatory 
framework  adopted  in  2018,  which  simplifies 
licensing  process  (Malta  Gaming 
further 
Authority,  2018).  As 
the  sector  has  been 
vulnerable  to  money  laundering  practices  in  the 
past, ensuring effective supervision is crucial, also 
in  view of the strengthened obligations to prevent 
money  laundering  that  recently  came  into  force 
(see also Section 3.2).  

the 

Energy market 

Due  to  its  size  and  insularity,  Malta  has  no 
wholesale and retail markets for electricity and 
gas.  The  state-owned  energy  company  Enemalta 
remains  the  only  enterprise  with  a  licence  to 
supply electricity to final customers, and therefore 
it is not possible to implement customer switching. 
Malta  is  proceeding  with  electricity  smart  meter 
roll  out,  with  more  than  90 %  of  final  customers 
having an electricity smart meter.  

will  provide  an  overview  of  its  investment  needs 
until  2030  for  the  different  dimensions  of  the 
Energy Union, including renewable energy, energy 
efficiency,  security  of  supply,  and  climate 
mitigation  and  adaptation.  The 
information 
provided, including in the draft plan submitted on 
21 December  2018,  will  further  contribute  to  the 
identification  and  assessment  of  energy  and 
climate-related investment needs.  

Energy efficiency 

slightly 

increased 

increased, 
Final  energy  consumption  has 
particularly in the transport sector. Final energy 
consumption 
since  2016 
(Malta’s  National  Energy  Efficiency  Action  Plan, 
2017),  putting  the  energy  efficiency  targets  at 
risk (36). 
final  energy 
consumption  in  the  transport  sector  has  been 
increasing over the last decade and at 55 % of total 
energy  consumption  remains  well  above  the  EU 
average of 33 %.  

In  particular,  Malta's 

efficiency 

investments 

Attracting 
investment  would  contribute  to 
further  enhancing  energy  efficiency.  Policies 
have  been  put  into  place  to  promote  energy-
efficiency  in  buildings,  including  through  grant 
schemes for restoration of buildings, soft loans for 
energy-
and 
energy 
efficiency  awareness  campaigns.  A 
support 
scheme  for  vulnerable  households  is  in  place, 
under  which  old  appliances  are  replaced  by  new 
efficient  units.  Energy  efficiency  in  transport  is 
being  addressed  according  to  the  2025  Transport 
Malta Master Plan while efforts to roll-out energy 
efficient 
continued.  Further 
investment is needed to promote energy efficiency 
and achieve energy savings in buildings, transport 
and industry sectors.  

lighting 

street 

While  Malta  remains  above  its  trajectory  on 
renewable  energy  use,  further  investments  are 
needed to meet the envisaged targets. The share 
of  renewables  in  the  energy  mix  has  increased, 
reaching  7.2 % 
the 
2017/2018  indicative  trajectory  level  of  6.5 %.  In 
recent  years,  Malta  has  focused  on  the  promotion 
of  solar  energy  and  use  of  biofuels.  Further 
investments across sectors need to be implemented 
in the short term in order to meet the 2020 target of 
10 %.  

in  2017,  slightly  above 

(36)  See Annex A. 

38 

 
                                                           
3.4. Competitiveness and investment 

commerce  represents  7 %  of  SMEs 
turnover 
(below  the  EU  average  of  10 %).  SMEs  make  far 
less  use  of  key  digital  technologies  than  large 
enterprises  and  are  also  lagging  behind  in  e-
commerce  (see  Graph  3.4.4).  At  the  same  time, 
Malta scores well on big data analytics and  cross-
border sales of SMEs (9 %, compared to 8 % in the 
the  Malta  Communications 
EU). 
Authority  conducted  a  review  of  the  National  e-
commerce Strategy, to help ensure that businesses 
have  the  necessary  means  and  skills  to  capitalise 
on e-commerce opportunities.  

In  2017, 

Graph 3.4.4:  Integration of digital technologies in Malta 

Source: European Commission 

things, 

internet  of 

The  Maltese  authorities  are 
implementing 
initiatives  to  promote  digital  and  emerging 
technologies.  The  Communications  Authority 
aims  to  promote  the  importance  of  business 
process transformation and new technologies, such 
as 
‘big  data’,  quantum 
computing, cybersecurity and cloud computing. To 
incentivise  digital  entrepreneurship,  the  Malta 
Information  Technology  Agency  Innovation  Hub 
continued 
its  accelerator  programme,  which 
provides seed investment to help  early-stage start-
ups validate, prototype, test and take their business 
idea  to  the  market.  At  the  end  of  2018,  the 
government  also  announced  the  creation  of  a 
dedicated  task  force,  aimed  at  developing  a 
national strategy on artificial intelligence. 

to 

investments 

Substantial  investments  have  been  made  to 
secure  energy  supply.  The  new  interconnector 
between  the  electricity  grid  of  Malta  and  Italy 
represents  major  improvement,  increasing  Malta’s 
electricity  interconnection  level  from  0 %  to  over 
24 %.  Additional 
strengthen 
security  of  supply  have  been  made,  including  a 
new  gas  fired  combined  cycle  gas  turbine  plant, 
the conversion of an existing diesel-engine plant to 
run on natural gas and a liquid natural gas facility. 
In line  with Malta’s strategy to shift generation to 
natural gas, existing diesel-engine plants are being 
converted from the use of heavy fuel oil to natural 
gas.  The  entry  into  operation  of  a  gas  pipeline 
interconnector  with  Italy  (an  EU  project  of 
common  interest),  estimated  for  2024,  will  be  an 
important  step  toward  increasing  the  security  of 
gas supply. 

Digital economy 

on 

into 

share 

record, 

innovative 

Malta has recently introduced a new regulatory 
framework 
technologies, 
including  blockchain.  On  1  November  2018,  a 
comprehensive  legislative  package,  regulating  the 
use  of  distributed  ledger  technology    platforms, 
including  blockchain,  came 
force.  The 
technology  platforms  use 
distributed 
ledger 
and 
to 
independent  nodes 
synchronise  transactions,  instead  of  keeping  data 
centralised  as  in  a  traditional  ledger.  The  new 
regulatory 
three  acts, 
framework  comprises 
covering:  (i)  virtual  financial  assets,  including 
crypto-currencies; 
technology 
arrangements  and  services;  (iii)  the  establishment 
of  the  Malta  Digital  Innovation  Authority.  Such 
legislation  aims  at  promoting  Malta  as  a  digital 
innovation hub, as well as providing legal certainty 
in an area which is still mostly unregulated within 
the  EU.  In  November  2018,  the  Authority  started 
receiving  applications  for  the  new  professional 
technical 
profiles  of 
administrators,  while 
licensing  of  new 
technology  arrangements  is  expected  to  start  in 
the 
January  2019.  Making  efficient  use  of 
tackling 
significant 
associated risks, particularly in relation to financial 
supervision (see also Section 3.2). 

systems  auditors  and 
the 

opportunities 

innovative 

requires 

(ii) 

Maltese  small  and  medium-sized  enterprises 
(SMEs)  show a  mixed  performance  in  the  area 
of  e-commerce.  A  share  of  20 %  of  SMEs  sell 
online compared with 17 % in the EU, however e-

39 

 
 
 
3.4. Competitiveness and investment 

for  first  instance  administrative  cases  increased 
from  114 %  in  2016  to  147 %  in  2017  and 
backlogs decreased by 12.4 %. The performance of 
civil justice remained largely stable as regards the 
disposition time for first instance litigious civil and 
commercial  cases,  but  the  clearance  rate  for  first 
instance  litigious  civil  and  commercial  cases 
decreased  from  107 %  in  2016  to  97 %  in  2017 
and  backlogs  also  increased  slightly  in  2017 
(European Commission, 2019e). 

Reforms  to  improve  the  efficiency  and  the 
quality  of  the  justice  system  are  ongoing. 
Judicial  reforms  are  currently  being  implemented 
in order to promote further specialisation of courts, 
extend the use of mediation to some administrative 
cases, and enhance the administrative autonomy of 
the courts. In addition, an e-justice portal is now in 
place  as  the  main  one-stop  mobile  accessible 
service  for  legal  professionals  and  citizens.  The 
Ministry  of  Justice  started  working  on  a 
depenalisation project, to be finalised by end 2019, 
to  lighten  the  overall  caseload  of  magistrates. 
Training  for  judges  and  magistrates  has  been 
intensified  in  2018  in  various  legal  areas  such  as 
anti-money 
forensics,  ethics  and 
cybercrime. 

laundering, 

Digital public service 

of 

(online 

Malta  is  a  European  leader  in  the  provision  of 
digital public services and continued to improve 
the user experience. It ranks first in the re-use of 
information  across  administrations  to  make  life 
easier  for  citizens  (pre-filled  forms)  and  in  the 
sophistication 
service 
services 
completion), for both of which it has the maximum 
score  (European  Commission,  2018o).  However, 
the use of eGovernment and eHealth by citizens is 
below  the  EU  average.  As  part  of  the  Mobile 
the 
Government  Strategy, 
first  wave  of 
launched  focusing  on 
applications  has  been 
extending 
existing 
the 
complementing 
communication  channels  between  the  government 
and citizens, targeting a variety of services, such as 
taxation, customs and health. 

and 

3.4.3.  GOVERNANCE/INSTITUTIONS QUALITY 

Business environment 

Indicators  on  the  quality  of  the  business 
environment  provide  a  mixed  picture.  Malta 
performs  better  than  the  EU  average  in  terms  of 
internationalisation,  ICT  skills  and  growth  rates. 
However, participation of small and medium-sized 
enterprises in public tenders appears to be low. In 
addition,  resolving  insolvency  appears  twice  as 
difficult (37) in Malta as the EU average (European 
Commission, 2018k). The 2017 amendment of the 
Companies’  Act  should  improve  a  company’s 
chances 
through 
restructuring  and  refinancing  measures.  However, 
its impact has yet to be assessed.  

bankruptcy 

avoiding 

of 

Business-to-business  late  payments  remain  an 
issue.  At  the  end  of  2017,  the  average  payment 
delay  across  all  Maltese  business  sectors  was  82 
days.  In  the  construction  sector  the  delay  went 
beyond  90  days  (Malta  Association  of  Credit 
Management, 2018; European Construction Sector 
Observatory,  2018).  Such  practices  penalise  small 
and medium-sized enterprises in particular. 

Justice system 

The  justice  system  continues  to  face  a  number 
of challenges and recent reforms have not fully 
ensured  the  independence  of  the  judiciary.  In 
the  Council  of  Europe’s 
December  2018, 
Commission  for  Democracy  through  Law  (the 
Venice  Commission)  adopted  an  opinion  on 
Malta (38). The Venice Commission raised, among 
others, concerns related to the independence of the 
judiciary,  to  judicial  appointments  and  to  the  role 
of  the  Attorney  General,  making  a  number  of 
recommendations to this end.  

Some improvements were made to the efficiency 
of  administrative 
time 
remains  high  (1,147  days  in  2017  compared  to 
1,464  days  in  2016).  However,  the  clearance  rate 

justice.  Disposition 

(37)  The  assessment  is  based  on  the  strength  of  insolvency 
framework 
four  areas: 
commencement of insolvency proceedings, management of 
the  debtor’s  assets,  reorganization  proceedings,  and 
creditor participation in insolvency proceedings 

looks  at 

index 

that 

the 

(38)  Opinion  No.  940  /  2018:  “On  constitutional  arrangements 
and  separation  of  powers  and  the  independence  of  the 
judiciary and law enforcement”. 

Fight against corruption 

in  the  governance  framework 
Weaknesses 
weigh  on  the  investment  climate.  Survey  results 
indicate  insufficient  stability  and  transparency  of 
the  political,  legal  and  regulatory  framework  as 

40 

 
                                                           
3.4. Competitiveness and investment 

one  of  the  weakest  links  in  Malta’s  capacity  to 
attract  investment.  In  2018  the  parameter  fell  for 
the third consecutive year (Ernst & Young, 2018). 
A  Eurobarometer  survey  shows  that  58 %  of 
company  representatives  consider  corruption  a 
problem  when doing business in Malta (European 
Commission, 2017b). 

in 

public 

to  other 

Lack of transparency, fragmentation of tenders 
and  the  number  of  direct  grants  may  point  to 
irregularities 
procurement. 
Reportedly,  many  public  procurement  contracts 
have  been  fragmented  so  that  they  fall  below  the 
threshold,  or  subject 
irregularities 
(European  Commission,  2018p;  NAO  2011, 
2018a,  2018b).  Data  on  public  contracts,  which 
the  Freedom  of 
should  be  accessible  under 
Information  Act,  are  regularly  withheld.  The 
Ombudsman  is  reported  to  have  been  denied 
access  to  important  documents  related  to  closed 
public  tenders  (Ombudsman’s  Annual  Report, 
2017).   

There  are  risks  of  conflicts  of  interests  at 
various levels of government. A high  number of 
political  appointees  in  ad-hoc  positions  were,  for 
instance,  not  subject  to  scrutiny  or  integrity  rules 
until  November  2018,  when  the  Standards  in 
Public Life Act came into force. Part-time salaries 
received  by  members  of  Parliament  (MPs)  affect 
their  ability  to  operate  independently  from  the 
executive,  and  this  practice  was  exacerbated  by 
appointments of MPs to important paid posts such 
as  heads  of  a  public  authority.  Furthermore,  the 
investor citizenship scheme has been designed and 
implemented by a contracted  entity,  which carries 
out due diligence, yet at the same time may advise 
individuals on their applications to the scheme. In 
terms of transparency, although there is a regulator 
for  the  investor  citizenship  scheme  that  publishes 
annual reports, the transparency and governance of 
the  scheme  could  still  be  improved.  In  contrast, 
there is no regulator and very limited transparency 
as  regards  the  Maltese  investor  residence  scheme 
(European Commission, 2019c). 

The  anti-corruption  institutional  framework 
presents  serious  shortcomings.  The  Permanent 
conducts 
Commission 

against  Corruption 

fulfil 

its 
First, 

its  ability 
and 

to 
effectively. 

investigations  either  on  its  own  initiative  or 
following  reports  by  anyone.  However,  structural 
role 
flaws  hinder 
its 
independently 
membership  and 
the  appointment  of  special 
experts  depend  on  the  Prime  Minister’s  decision. 
Second, 
the  Permanent  Commission  against 
Corruption  reports  its  findings  to  the  Minister  of 
Justice  who  does  not  have  investigation  powers 
and has not – with one exception – forwarded any 
report to the police in the last decade. It is unclear 
what  follow-up  measures  have  been  taken  on  the 
Permanent Commission against Corruption reports 
or why only one case was forwarded to the police 
for  further 
is  no 
investigation.  Also, 
transparency  as  to  what  cases  the  Permanent 
Commission  against  Corruption  investigates  and 
what  recommendations  have  been  made.  The 
Venice  Commission  was 
this 
institutional set-up in its recent Opinion on Malta. 

critical  of 

there 

The  accountability  of  the  police  and  the 
Attorney General is deficient. The police, whose 
Commissioner  is  appointed  by  the  government,  is 
the  primary  authority  investigating  crimes  and  in 
part  represents 
the  prosecution.  The  police’s 
Economic Crimes Units appears understaffed and a 
major reform is planned to increase its capacity by 
2020.  Reports  on  allegations  related  to  money 
laundering, corruption, abuse of power, and crimes 
related  to  illicit  trades  received  by  the  police  are 
often  not  followed up by charges (39). The  task of 
prosecution  is  split  between  the  police  and  the 
Attorney General. The long standing double role of 
the  Attorney  General  as  an  adviser/representative 
of  the  Government  and  as  prosecutor  is  seen  as 
problematic from the viewpoint of the principle of 
the  separation  of 
checks  and  balances  and 
powers (40). 

(39)  The  Police  Economic  Crimes  Squad  investigated  20 
bribery cases in 2016, 9 in 2017 and 8 until October 2018. 
Two people were indicted in 2016, one in 2017, and none 
in 2018. 

(40)  The  Venice  Commission  report  of  December  2018  states: 
“this  is  problematic  from  the  viewpoint  of  separation  of 
powers,  notably  taking  into  account  the  method  of 
appointment  of  the  AG  and  the  Police  Commissioner, 
which  makes  it  open  to  criticism  when  considering 
politically controversial or sensitive prosecutions”. 

41 

 
 
                                                           
3.4. Competitiveness and investment 

Box 3.4.1: Investment - challenges and reforms in Malta 

Section 1. Macroeconomic perspective  

After  reaching  around  160 %  of  its  pre-crisis  level  in  2015  and  2016,  partly  due  to  exceptional  investment 
growth  in  the  energy  and  transport  sectors,  aggregate  investment  in  real  terms  declined  in  2017,  despite  a 
significant  expansion  of  residential  construction  investment.  Provisional  data  from  2018  point  to  a  further 
slight investment contraction  in real terms. In particular, construction investment remained stable; transport 
investment  fell,  while  machinery  and  equipment  investment  rose.  Looking  ahead,  a  strong  recovery  in  the 
investment outlook is expected to start in 2019, on the back of both public and private investment growth (see 
Section 1). 

Section 2. Assessment of barriers to investment and ongoing reforms 

In a context of strong GDP growth and a favourable investment climate, a number of investment challenges 
persist in Malta. Weaknesses in the governance framework, especially in relation to the judicial system and 
anti-corruption enforcement, affect the business environment (see Section 3.4). Labour and skills shortages 
still weigh on firms’ investment decisions, with the lack of availability of skilled staff resulting in significant 
reliance on foreign labour (see Section 3.3). Infrastructure bottlenecks, including severe traffic congestion, 
are  often  perceived  as  a  barrier  to  investment.  In  addition,  insufficient  innovation  and  limited  capacity  to 
scale up R&D activities still represent a challenge to firms’ growth (see Section 3.4).  

Main barriers to investment and priority actions underway 

  Vulnerabilities  in  the  governance  framework,  in  particular  in  relation  to  the  judicial  system  and  anti-
corruption  enforcement,  weigh  on  the  investment  climate.  Survey  indicators  identify  corruption,  the 
length  of  legal  proceedings  and  lack  of  legal  and  political  transparency  as  barriers  to  investment.  In 
addition,  existing  shortcomings  in  the  anti-money  laundering  framework  pose  reputational  risks  to  the 
entire economy. A number of judicial reforms to enhance the efficiency of the justice system are being 
implemented. The Maltese authorities have also recently adopted an integrated strategy to strengthen the 
anti-money laundering framework (see Sections 3.2 and 3.4). 

  Availability of skilled staff is seen by firms as one of the main barriers to investment. Skills shortages, in 
particular in the service sector, remain a challenge as the demand for skilled labour continues to outstrip 
supply. While recent policy initiatives aim to upgrade skill levels and better align education and business 
needs, their effects have not been felt yet (see Section 3.3).  

The  public  Malta  Development  Bank  was  established  in  November  2017.  It  plans  to  focus  activities  on 
complementing and supplementing the operations of market players in the provision of financing facilities, 
particularly  to  small  and  medium-sized  enterprises,  infrastructure  projects  that  contribute  to  national  or 
regional development, and projects which are socially oriented, energy efficient and environment friendly.    

42 

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, skills, lifelong learning EnergyTransportLegend:No barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressNot assessed yetPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
 
ANNEX A: OVERVIEW TABLE 

Commitments 

Summary assessment(41) 

2018 country-specific recommendations (CSRs) 

CSR  1:  Strengthen 
the  overall  governance 
framework by enhancing  the  national supervision 
of  internationally  oriented  financial  businesses 
licensed  in  Malta,  by  ensuring  the  effective 
enforcement  of 
the  Anti-Money  Laundering 
framework and by continuing to step up the  fight 
against corruption. 

Malta  has  made  limited  progress  in  addressing 
CSR1. 

taken  on  financial 
Some  steps  have  been 
supervision  and  against  money  laundering.  The 
MFSA  has  introduced  a  number  of  strategic 
initiatives  aimed  at  enhancing  its  supervisory 
capacity and regulatory performance.  

taken 

No  significant  steps  have  been 
to 
strengthen  the  anti-corruption  framework.  In 
particular, the police still appears understaffed. A 
reform is planned to increase the capacity of the 
Economic  Crimes  Squad  by  2020.  Also,  the 
Permanent  Commission 
against  Corruption 
(PCAC) conducts investigations either on its own 
initiative  or  in  response  to  reports  by  anyone. 
However,  structural  flaws  hinder  its  ability  to 
independently and effectively fulfil its role.  

CSR 2: Ensure the sustainability of the healthcare 
and  the  pension  systems,  including  by  increasing 
the  statutory  retirement  age  and  by  restricting 

Malta  has  made  limited  progress  in  addressing 
CSR2.  

In the area of pensions, a Pension Strategy Group 

(41)  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. 

43 

 
 
                                                           
 
 
 
 
 
early retirement. 

A. Overview table 

and 

income 

retirement 

was established in 2018 and a report is expected 
by  December  2020,  outlining  recommendations 
for improving adequacy and sustainability of the 
to 
pension  system.  Efforts  are  continuing 
diversify 
reduce 
dependency  on  state  pensions.  The  2019  budget 
strengthens  the  fiscal 
incentives  for  private 
pension  savings  and  voluntary  occupational 
retirement  pensions.  The  authorities  are  also 
incentivising older workers to return to work and 
stay 
to 
contributions paid, and addressing low education 
activity, 
to 
attainment 
employment  and  productivity  of  the  population. 
A  first  assessment  of  these  initiatives  points  to 
very  little  or  no  impact  on  the  sustainability  of 
the pension system, but possible increases in non-
pension income. 

through  changes 

in  work 

increase 

longer, 

levels 

In the area of health, services are continuing to be 
decentralised  —  from  hospitals  to  the  primary 
care  level  —  with  new  regional  primary  care 
centres  being  built  and  investment  made  to 
gradually  expand  the  use  of  eHealth.  Acute  and 
geriatric care capacity  will increase  by  means of 
a  public-private  partnership  between 
the 
government  and  a  private  hospital  operator, 
which 
refurbishment, 
development  and  management  of  three  public 
hospitals 
these 
initiatives seem to go into the right direction, it is 
not  yet  clear  how  they  will  affect  the  Maltese 
health system’s long-term fiscal sustainability. 

in  Malta  and  Gozo.  While 

provides 

the 

for 

Europe 2020 (national targets and progress) 

Employment rate target set in the NRP: 70 % 

Early school leaving target: 10 % 

Tertiary education target: 33 % 

The  employment  rate  in  Malta  stood  at  73 %  in 
2017 (an increase of 13.8 pps since 2008), higher 
than  EU  average  and  above  the  70 %  EU2020 
target.  

Malta  has  made  significant  progress  towards 
achieving  this  target.  The  share  of  early  leavers 
from education and training decreased to 17.7 % 
in 2017 but it is still well above the EU average 
and one of the highest in the EU. 

Malta met its target in 2017. The share of people 
aged  30-34  with  tertiary  education  attainment 
was 33.5 in 2017, still below the EU average, but 
signalling a steady increase over the last decade. 

44 

 
A. Overview table 

At risk of poverty target in numbers of people:  

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

In 2017, there  were 83,000 at risk of poverty or 
social exclusion, a decrease of 5,000 people since 
2017. In absolute terms, 2,000 more people are at 
risk  of  poverty  or  social  exclusion  in  2017 
compared to 2008. 

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

According  to  the  latest  national  projections 
submitted  to  the  Commission,  the  2020  target 
under the Effort Sharing Decision is expected to 
be missed by a margin of 11 pps. 

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

The  2020  indicative  energy  efficiency  target 
(absolute level of energy consumption in 2020) is:  

-  0.823  Mtoe  expressed 
consumption, and 

in  primary  energy 

-  0.623  Mtoe  expressed 
consumption. 

in 

final  energy 

R&D target: 2 % of GDP 

The  share  of  renewables  in  Malta  was  7.2 %  in 
2017,  slightly  above  the  indicative  trajectory 
level  of  6.5 %.  In  view  of  rising  energy 
consumption  and  the  steeper  trajectory  towards 
2020,  further 
in  the  renewable 
energy  sector  are  required  to  meet  the  2020 
target of 10 %. 

investments 

Progress  is  still  limited  as  regards  improving 
energy  efficiency.  Malta  should  increase  its 
efforts  to  decrease  its  primary  and  final  energy 
consumption in order to ensure that its indicative 
national 2020 energy efficiency targets are met. 

Malta  managed  to  reduce  its  primary  energy 
consumption (from 0.916 Mtoe in 2005 rising up 
to 0.970 Mtoe  in 2012 and then falling  to 0.723 
Mtoe  in  2016).  Indicators  for  2017  show  an 
increase to 0.823 Mtoe..  

However,  Malta's  final  energy  consumption  is 
continuously increasing over the last years (from 
0.464  Mtoe  in  2005  up  to  0.623  Mtoe  in  2017), 
with the transport and the services being the most 
consuming sectors.  

R&D intensity stood at 0.55 % of GDP in 2017. 
Malta is unlikely to reach its target by 2020. 

In  2017,  Malta’s  R&D  intensity  was  composed 
of  62%  private  investment  (0.34%of  GDP)  and 
38% public investment (0.21%of GDP). 

45 

 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

46 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2017201820192020202120222023202420252026202720282029Gross debt ratio50.947.944.842.138.935.832.830.027.324.622.219.917.8Changes in the ratio (-1+2+3)-5.4-3.0-3.1-2.8-3.2-3.1-3.0-2.8-2.7-2.7-2.5-2.3-2.1of which(1) Primary balance (1.1+1.2+1.3)5.42.92.62.02.02.12.22.12.02.12.01.91.8(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)4.92.52.42.22.12.22.22.12.02.12.01.91.8(1.1.1) Structural primary balance (bef. CoA)4.92.52.42.22.22.22.22.22.22.22.22.22.2(1.1.2) Cost of ageing0.10.00.00.10.10.10.20.30.4(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.00.00.00.0(1.2) Cyclical component0.70.40.2-0.2-0.1-0.10.00.00.00.00.00.00.0(1.3) One-off and other temporary measures-0.30.00.10.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-3.0-2.0-1.7-1.5-1.2-1.0-0.8-0.7-0.7-0.6-0.5-0.4-0.4(2.1) Interest expenditure1.81.61.51.31.21.11.11.00.90.90.80.70.6(2.2) Growth effect-3.4-2.6-2.2-1.8-1.6-1.3-1.2-1.1-1.0-0.9-0.8-0.7-0.6(2.3) Inflation effect-1.4-1.1-1.0-0.9-0.9-0.8-0.7-0.6-0.6-0.5-0.5-0.4-0.4(3) Stock-flow adjustments2.91.91.30.70.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Fiscal Sustainability Report (FSR) 2018. b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2033. The critical values used are 0 and 2.5 pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018.MT - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 1020304050607020162017201820192020202120222023202420252026202720282029Debt as % of GDP -MTBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario1020304050607020162017201820192020202120222023(% of GDP)Stochastic debt projections 2019-2023 -MTp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline1020304050607020162017201820192020202120222023202420252026202720282029Debt as % of GDP -MTBaselineHistorical SPB scenarioSGP scenario1020304050607020162017201820192020202120222023202420252026202720282029Debt as % of GDP -MTBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryLOWLOWLOWLOWLOWLOWDebt level (2029)17.826.319.318.819.2Debt peak year20182018201820182018Percentile rank23.0%35.0%Probability debt higher8.1%Dif. between percentiles27.5MEDIUMLong termDSALOWDebt sustainability analysis (detail)Medium termLOWLOWShort termLOW(S0 = 0.1)(S1 = -4.7)S2MEDIUM(S2 = 3.3)S1 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2018. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2018. 
(3) Quarterly values are not annualised. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

47 

201320142015201620172018Total assets of the banking sector (% of GDP)1)658,7621,6497,6454,6431,3386,7Share of assets of the five largest banks (% of total assets)76,581,581,380,380,9-Foreign ownership of banking system (% of total assets)2)74,971,466,559,657,955,7Financial soundness indicators:2)              - non-performing loans (% of total loans)-6,05,14,13,13,2              - capital adequacy ratio (%)46,425,121,220,221,121,8              - return on equity (%)3)3,74,46,38,17,24,1Bank loans to the private sector (year-on-year % change)1)-7,410,10,75,88,56,4Lending for house purchase (year-on-year % change)1)6,29,68,67,57,58,2Loan to deposit ratio2)-54,249,156,361,466,1Central Bank liquidity as % of liabilities1)-0,90,30,4-0,2Private debt (% of GDP)143,9135,7122,5123,5120,2-Gross external debt (% of GDP)2) - public8,57,06,36,56,76,2    - private705,7684,0634,6596,2569,7543,4Long-term interest rate spread versus Bund (basis points)*179,3144,899,279,696,497,1Credit default swap spreads for sovereign securities (5-year)*215,8208,5208,5208,7208,7208,7 
 
 
 
 
 
C. Standard tables 

Table C.2: 

Headline Social Scoreboard indicators 

(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) Long-term unemployed are people who have been unemployed for at least 12 months.       
(4) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019.       
(5) 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).       
(6) Average of first three quarters of 2018 for the employment rate, unemployment rate and gender employment gap. Data 
for unemployment rate is seasonally adjusted.       
Source: Eurostat 

48 

201320142015201620172018 6Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)20,820,920,219,217,7:Gender employment gap (pps)28,626,826,825,524,122,2Income inequality, measured as quintile share ratio (S80/S20)4,14,04,24,24,2:At-risk-of-poverty or social exclusion rate1 (AROPE)24,023,822,420,119,2:Young people neither in employment nor in education and training (% of population aged 15-24)9,910,310,58,88,6:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)66,267,969,071,173,074,7Unemployment rate2 (15-74 years)6,15,75,44,74,03,9Long-term unemployment rate3 (as % of active population)2,82,72,41,91,61,0Gross disposable income of households in real terms per capita4 (Index 2008=100) ::::::Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)21404212842121821243::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)2,0-0,7-0,20,4::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction532,633,231,230,729,1:Children aged less than 3 years in formal childcare20,018,217,931,339,6:Self-reported unmet need for medical care0,91,10,81,00,2:Individuals who have basic or above basic overall digital skills (% of population aged 16-74)::53,050,057,0: 
 
 
 
 
C. Standard tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) 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.       
(2) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(3) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science.       
(4) Average of first three quarters of 2018. Data for youth unemployment rate is seasonally adjusted. 
Source: Eurostat, OECD 

49 

Labour market indicators201320142015201620172018 4Activity rate (15-64)66,367,868,970,672,2:Employment in current job by durationFrom 0 to 11 months10,39,910,312,413,9:From 12 to 23 months9,910,710,111,612,4:From 24 to 59 months16,718,919,718,719,6:60 months or over61,459,459,057,354,0:Employment growth* (% change from previous year)3,75,13,94,25,35,3Employment rate of women(% of female population aged 20-64)51,754,355,358,060,663,2Employment rate of men (% of male population aged 20-64)80,381,182,183,584,785,4Employment rate of older workers* (% of population aged 55-64)37,139,542,345,847,249,1Part-time employment* (% of total employment, aged 15-64)14,015,314,313,913,713,3Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)7,67,77,57,66,07,5Participation in activation labour market policies(per 100 persons wanting to work)5,416,011,58,2::Transition rate from temporary to permanent employment(3-year average)31,612,714,9:::Youth unemployment rate (% active population aged 15-24)12,711,711,610,710,68,5Gender gap in part-time employment19,321,220,119,918,317,0Gender pay gap1 (in undadjusted form)9,710,610,411,0::Education and training indicators201320142015201620172018Adult participation in learning(% of people aged 25-64 participating in education and  training)7,77,77,47,810,6:Underachievement in education2::29,1:::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)28,728,629,132,033,5:Variation in performance explained by students' socio-economic status3::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 

50 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare5.96.05.95.55.4:Disability0.70.70.70.60.6:Old age and survivors10.29.89.38.68.7:Family/children1.11.21.31.11.0:Unemployment0.50.60.50.50.4:Housing0.10.10.10.20.2:Social exclusion n.e.c.0.30.30.30.20.2:Total19.018.718.116.916.5:of which: means-tested benefits2.42.42.32.21.9: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)*31.032.031.328.224.022.8At-risk-of-poverty  rate1 (% of total population)15.115.715.916.316.516.8In-work at-risk-of-poverty rate (% of persons employed)5.25.95.75.45.85.9Severe material deprivation rate2  (% of total population)9.29.510.28.14.43.3Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan1.10.71.00.90.50.2Tenant, rent at market price3.44.98.04.110.14.1Proportion of people living in low work intensity households4 (% of people aged 0-59)9.09.09.89.27.36.7Poverty thresholds, expressed in national currency at constant prices*611662596554686368237223Healthy life years (at the age of 65)Females12.312.713.714.012.9:Males12.512.813.313.412.8:Aggregate replacement ratio for pensions5 (at the age of 65)0.50.60.60.50.50.6Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::54.462.966.167.9GINI coefficient before taxes and transfers*44.445.545.745.645.645.1GINI coefficient after taxes and transfers*27.127.927.728.128.528.3 
 
 
 
 
C. Standard tables 

Table C.5: 

Product market performance and policy indicators 

(1) Value added in constant prices divided by the number of persons employed.       
(2) Compensation of employees in current prices divided by value added in constant prices.       
(3) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.        
(4) 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 75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the 
application is still pending or don't know.       
(5) Percentage population aged 15-64 having completed tertiary education.       
(6) Percentage population aged 20-24 having attained at least upper secondary education.       
(7) 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        
(8) 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). 

51 

Performance indicators201220132014201520162017Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry::::::Labour productivity growth in construction::::::Labour productivity growth in market services::::::Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry::::::ULC growth in construction::::::ULC growth in market services::::::Business environment201220132014201520162017Time needed to enforce contracts3 (days)505505505505505505Time needed to start a business3 (days)38,538,533,528,026,016,0Outcome of applications by SMEs for bank loans4:0,680,580,400,170,47Research and innovation201220132014201520162017R&D intensity0,830,770,720,750,580,55General government expenditure on education as % of GDP5,805,805,605,505,40:Employed people with tertiary education and/or people employed in science and technology as % of total employment384040414144Population having completed tertiary education5171819202022Young people with upper secondary education6757675777778Trade balance of high technology products as % of GDP1,83-1,10-3,42-3,46-5,84-1,08Product and service markets and competition200320082013OECD product market regulation (PMR)7, overall::1,57OECD PMR7, retail::1,09OECD PMR7, professional services::1,66OECD PMR7, network industries8::2,28 
 
 
 
 
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 industry. 
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 Agency. 
Source: 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) 

52 

Green growth performance201220132014201520162017MacroeconomicEnergy intensity kgoe / €0,140,120,110,090,080,09Carbon intensity kg / €0,470,400,370,260,21-Resource intensity (reciprocal of resource productivity)kg / €0,630,540,670,720,700,64Waste intensity kg / €0,21-0,21-0,22-Energy balance of trade % GDP-12,2-9,0-14,9-8,8-8,7-8,8Weighting of energy in HICP%7,317,578,057,407,166,61Difference between energy price change and inflation %-2,0-1,6-17,0-8,7-1,9-1,1Real unit of energy cost% of value added18,816,614,814,614,4-Ratio of environmental taxes to labour taxesratio0,260,240,260,270,25-Environmental taxes% GDP2,92,72,82,82,72,7Sectoral Industry energy intensity kgoe / € ------Real unit energy cost for manufacturing industry excl. refining% of value added9,19,68,98,88,7-Share of energy-intensive industries in the economy% GDP------Electricity prices for medium-sized industrial users€ / kWh0,180,180,180,150,140,14Gas prices for medium-sized industrial users€ / kWh------Public R&D for energy % GDP0,000,000,000,000,000,00Public R&D for environmental protection% GDP0,000,000,000,000,000,00Municipal waste recycling rate%9,78,17,46,77,06,4Share of GHG emissions covered by ETS*%61,857,655,739,230,3-Transport energy intensitykgoe / €------Transport carbon intensitykg / €------Security of energy supplyEnergy import dependency%101,0104,297,797,0100,6102,8Aggregated supplier concentration indexHHI0,00,00,00,00,0-Diversification of energy mixHHI0,980,970,960,710,600,41 
 
 
 
 
ANNEX D: INVESTMENT GUIDANCE ON COHESION POLICY 

FUNDING 2021-2027 FOR MALTA 

Building  on  the  Commission  proposal  for  the  next  Multi-Annual  Financial  Framework  for  the  period 
2021-2027 of 2 May 2018 (COM (2018) 321), this Annex presents the  preliminary Commission services 
views  on  priority  investment  areas  and  framework  conditions  for  effective  delivery  for  the  2021-2027 
Cohesion  Policy.  These  priority  investment  areas  are  derived  from  the  broader  context  of  investment 
bottlenecks,  investment  needs  and  regional  disparities  assessed  in  the  report.  This  Annex  provides  the 
basis  for  a  dialogue  between  Malta  and  the  Commission  services  in  view  of  the  programming  of  the 
cohesion policy funds (European Regional Development Fund, Cohesion Fund and European Social Fund 
Plus). (42)  

Policy Objective 1: A Smarter Europe – Innovative and smart industrial transformation 

Malta's research and innovation performance has improved but the proportion of innovative enterprises is 
still lagging behind. Priority investment needs (43) have therefore been identified to strengthen research 
and  innovation  performance  and  foster  productivity  growth  by  identifying  smart  specialisation 
areas on the basis of national and regional needs and potential and in particular to: 

 

 
 
 
 

 

promote business investment  in research and innovation science-business cooperation and enhance 
research and development capacity in sectors linked to the smart specialisation; 
enhance development and provision of key digital technologies;  
support networking, clusters, cooperation, joint cross-regional and interregional projects; 
promote the development of innovative firms in the smart specialisation areas;  
improve  energy  and  resource  efficiency,  water-management  cycle,  waste  management  and 
sustainable mobility, such as for instance in the shipping industry; 
foster investment in eco-innovation. 

Even  though  Malta  scores  well  on  broadband  coverage,  investment  needs  are  identified  to  reap  the 
benefits of digitisation for citizens, companies and governments, including: 

 

Information  and  Communication  Technologies  up-take  in  small  and  medium  sized  enterprises, 
including infrastructures and services; 
e-government, including the take-up of Europe-wide interoperable services. 

 
Small  and  medium  enterprises  have  experienced  significant  growth,  both  in  terms  of  added  value  and 
employment. However, the limited natural resources of the country may limit their potential. Therefore, 
investment needs are identified to enhance growth and competitiveness of medium-sized enterprises 
by helping them to turn environmental challenges into opportunities, in particular in order to: 

 

 

 
 

foster the creation of new firms, growth of start-ups/scale-ups, accelerators; develop and implement 
new business models for medium sized enterprises that address country’s environmental challenges 
in the areas; 
encourage the entrepreneurial ecosystem, including development of industrial clusters and enhanced 
cooperation between  medium sized enterprises and  universities/research centres, particularly in the 
areas of green economy, circular economy, resource efficiency; 
facilitate access to finance and advanced services for medium sized enterprises; 
increase  medium  sized  enterprises  competitiveness  and  internationalisation  by  moving  up  in  the 
global value chain. 

High  priority  investment  needs  are  identified  to  enhance  skills  for  smart  specialisation,  industrial 

(42)  This Annex is to be considered in conjunction with the Proposal for a Regulation of the European Parliament and of the Council 
on the European Regional Development Fund and on the Cohesion Fund COM(2018) 372 and the Proposal for a Regulation of 
the  European  Parliament  and  of  the Council  on the  European  Social  Fund  Plus  COM(2018)  382, in particular  as  regards  the 
requirements for thematic concentration and urban earmarking outlined in these proposals. 

(43)  The intensity of needs is classified in three categories in a descending order – high priority needs, priority needs, needs. 

53 

 
 
                                                           
D. Investment guidance on cohesion policy funding 2021-2027 for Malta 

transition and entrepreneurship, especially having regard to sustainability issues in particular to: 

 

 

 

promote innovation and eco-innovation management in medium sized enterprises;  promote specific 
training and reskilling for smart specialisation areas and eco-innovation; 
strengthen  the  integration  of  education  and  training  institutions  within  innovation,  technology 
diffusion and skills development ecosystems; 
develop skills for higher education and research institutions to increase the commercial viability and 
market as well as sustainability relevance of their research projects. 

Policy Objective 2: A low carbon and greener Europe – Clean and fair energy transition, green and 
blue investment, circular economy, climate adaptation and risk prevention 

Malta's  economy  is  relatively  energy  intensive.  Energy  efficiency  and  transition  to  domestic  energy 
generation from renewable and local sources are essential to address climate change and environmental 
challenges.  In  this  respect,  the  “Clean  Energy  for  EU  islands”  initiative  sets  a  framework  to  generate 
sustainable  low-cost  energy  while  exploiting  cooperation  opportunities.  High  priority  investment  needs 
are identified to promote energy efficiency measures in particular through: 

 

 
 

energy  efficient  renovation  of  public  and  residential  buildings,  with    focus  on  tackling  energy 
poverty; 
energy efficient public lighting, including street-lighting; 
energy efficiency in medium sized enterprises and in the industrial sector. 

Malta  is  on  track  to  reach  the  10%  target  for  renewable  energies.  However,  Malta  should  continue 
integrating  energy  efficiency  and  renewable  technologies  as  a  strategic  instrument  to  decarbonise  the 
economy and secure sustainable energy. Priority investment needs are identified to promote renewable 
energy in particular through: 

 

 

 

deployment of small-scale renewable electricity capacities, owned by energy communities, medium 
sized enterprises or individual energy consumers; 
transition  to  renewable  energies  in  heating  and  cooling,  including  district  heating  and  small-scale 
installations linked to buildings outside central heating network; 
development of smart energy systems, grids and storage at local level. 

Given  its  small  size,  high  density  of  population,  and  scarcity  of  natural  resources,  Malta  is  faced  with 
significant environmental challenges. In addition, as a water-stressed country, one of Malta's most urgent 
priorities  is  to  improve  the  efficiency  of  its  water  management  system.  Priority  investments  needs  are 
identified to promote sustainable water management, in particular through: 

 

 

 

efficient drinking water supply following the water hierarchy, including leakage reduction of water 
networks and other efficiency measures; 
development of a complete water cycle, including utilisation of treated waste- and runoff- water for 
non-drinkable purposes for both non-domestic and agricultural use; 
storm-water management (storm water tanks, separate collection systems, natural water retention). 

Significant improvements are needed to bring waste management in line with EU targets, in particular as 
regards recycling, composting, landfilling and municipal waste generation. High priority investments are 
needed to improve resources efficiency and waste management, in particular to: 

 

 

support  waste  prevention,  reuse  and  recycling  as  well  as  separate  collection  systems;  awareness-
raising campaigns and support sustainable consumption practices;  
upgrade  existing  recycling  and  waste  treatment  infrastructure  and  adaptation  of  existing  waste 
management infrastructure to the new long-term recycling targets; 

54 

 
D. Investment guidance on cohesion policy funding 2021-2027 for Malta 

 
 

support capacity-building for stakeholders involved in the transition to circular economy;  
support alternatives to raw materials and the use of recycled materials as raw materials. 

Malta is particularly vulnerable to climate change (by way of, for example, sea-level change) and has had 
problems  with  floods.  Investment  needs  are  identified  to  promote  climate  change  adaptation,  risk 
prevention and disaster resilience, including through prevention and preparatory actions, targeting 
sectors  that  are  deemed  particularly  vulnerable  to  climate  change  impacts,  in  particular  water 
management, infrastructure and land use, natural ecosystems, agriculture and fisheries, health, tourism. 

Policy Objective 3: A more connected Europe – Mobility and regional Information and 
Communication Technologies connectivity 

Traffic  congestion  on  the  road  network  continues  to  be  a  major  challenge  due  to  limited  scope  for 
alternative modes of transport and lack of road public transport infrastructure. Motor vehicle penetration 
remains very high as fiscal measures fail to discourage private vehicle use. High priority investment are 
needed  to  develop  a  sustainable,  climate  resilient,  intelligent,  secure  and  intermodal  Trans-
European Transport Network in particular through: 

 

 

support to local mobility, through the development of sustainable and accessible modes of transport 
(public  transport,  multi-modal,  cycling,  dedicated  bus  lane)  and  intelligent  transport  systems  to 
reduce dependency on private cars, in the framework of existing Sustainable Urban Mobility plans;  
deployment  of  infrastructure  to  support  digitisation  and  decarbonisation  of  road  and  maritime 
transport (e.g. digitally connected roads, alternative fuels infrastructure); 

  measures  to  improve  safety  and  energy  efficiency  across  all  transport  modes,  and  to  increase  the 

share of renewable energy sources in the transport sector. 

Policy Objective 4: A more social Europe – Implementing the European Pillar of Social Rights 

The  activity  rate  remains  below  EU  average  and  the  gender  employment  gap  high  in  the  context  of  a 
tightening labour market. Investment needs are therefore identified to improve access to employment of 
inactive people and promote women’s and people with disabilities labour market participation, and 
in particular to: 

 

 

enhance  outreach  measures  for  low  activity  groups  and  engage  with  civil  society  working  with 
groups furthest from the labour market; and promote elderly-friendly forms of work organisation; 
support more work-life balance and informal carers’ in-work policies, and tackle gender stereotypes. 

Education  outcomes  are  poor,  with  an  important  link  to  the  socioeconomic  background  and  disability 
status;  A  large  share  of  the  population  is  low-skilled.  High  priority  investment  needs  are  therefore 
identified  to  promote  equal  access  to,  and  completion  of,  quality  and  inclusive  education  and 
training  and  to  promote  lifelong  learning,  notably  flexible  upskilling  and  reskilling,  including 
through infrastructure, and in particular to: 

 

 

 

strengthen inclusiveness, effectiveness and labour market relevance of education and training at all 
levels, also by developing education staff competences;  
support better anticipation of new skills requirements, including those linked to energy and resource 
efficiency, water management cycle, waste management and sustainable mobility; 
promote  participation  of  workers  in  training;  support  small  and  medium  sized  enterprises  in 
developing human capital, using tools and systems for workforce management and training. 

The  large  inflow of  foreigners poses challenges  for their socio-economic integration. There are gaps in 
the  coverage  of  social  security.  Waiting  times  for  outpatients  from  lower  socio-economic  groups  are 

55 

 
D. Investment guidance on cohesion policy funding 2021-2027 for Malta 

significant. Investment needs are therefore identified to promote the socioeconomic integration of third 
country nationals; to enhance access to quality services, including healthcare and long-term care, 
and  to  modernise  social  protection,  targeting  in  particular  disadvantaged  groups  such  as  people  in 
poverty or extreme poverty, people with disabilities, migrants, etc.; and in particular to: 

 

 

 

 
 

 

eliminate housing and labour market discrimination and enhance refugees' labour market and social 
outcomes ensuring individualised counselling and access to adult education and training;  
enhance  social  inclusion  measures  targeted  to  the  most  deprived,  including  by  ensuring  access  to 
social  protection  and  by  preventing  homelessness  and  socio-economically  integrated  housing 
investment; 
promote  inclusion  by  ensuring  that  services  such  as  childcare  include  a  cultural,  ethnic  and  socio-
economic mix; 
strengthen disease prevention through primary and community care services;  
strengthen  outpatient  care  capacity,  especially  for  specialist  services, 
infrastructure, to provide cost-effective alternatives to acute care; 
improve patient flow in the care pathway (hospitalisation to community); ensure sufficient capacity 
to  meet projected demand in  residential,  home and community care  services, shifted  from  hospital 
care, including for people with mental health issues. 

including 

through 

Policy Objective 5 – A Europe closer to citizens by fostering the sustainable and integrated 
development of urban, rural and coastal areas and local initiatives 

Considering its small size, Malta is not affected by substantial regional gaps. However, double insularity, 
territorial imbalances and regional differentiation have a stronger impact on Gozo, especially in terms of 
depopulation. Investment needs are identified to fostering the integrated social, economic, cultural and 
environmental development and security in urban areas, in particular to: 

 
 

reduce inequalities between Malta and Gozo/Comino, including as regards access to services; 
invest  in  selected  urban  areas  on  the  basis  on  integrated  territorial  development  strategies,  giving 
priority to such sectors as social inclusion, energy efficiency, environment, and waste management. 

Factors for effective delivery of Cohesion policy 

 

 

 
 

improve the capacity of managing authorities and implementing bodies to implement EU funds in a 
transparent, coordinated and simplified manner;  
dedicate adequate resources in order to attract, retain and train staff working on the implementation 
of EU funds; 
increase capacity to assess policies’ effectiveness and conduct timely and quality evaluations; 
increase the capacity and involvement of intermediate bodies, local authorities,  social partners and 
final beneficiaries in the preparatory and implementation phases of projects; 
improve  public  procurement  performance,  in  particular  with  regard  cooperative  procurement, 
efficiency of procedures, award criteria, decision speed, and procurement divided into lots; 
 
put in place efficient measures to prevent and address conflict of interest, fraud and corruption; 
  make broader use of financial instruments and contributions to a Malta compartment under InvestEU 

 

for revenue-generating and cost-saving activities; 
promote transnational and cross-border cooperation. 

 

56 

 
 
 
 
D. Investment guidance on cohesion policy funding 2021-2027 for Malta 

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