COMMISSION STAFF WORKING DOCUMENT Country Report Malta 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: Malta, economic situation, green economy, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 517 final  COMMISSION STAFF WORKING DOCUMENT Country Report Malta 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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 {SWD(2020) 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, reforms and investments 

3.5. Environmental sustainability 

Annex A: Overview Table 

Annex B: Commission debt sustainability analysis and fiscal risks 

Annex C: Standard Tables 

Annex D: Investment guidance on Just Transition Fund 2021-2027 for Malta 

Annex E: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Table 1.1: 
Table 2.1: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 
Table E.1: 

Key economic and financial indicators - Malta 

Annual assessment of the 2019 CSRs (*) 

Financial market indicators 

Headline Social Scoreboard indicators 

Labour market and education indicators 

Social inclusion and health indicators 

Product market performance and policy indicators 

Green growth 

Indicators measuring Malta’s progress towards the SDGs 

1 

3 

7 

15 

19 

19 

24 

29 

38 

47 

54 

62 

63 

69 

70 

74 

14 
17 
63 
64 
65 
66 
67 
68 
70 

 
 
 
 
LIST OF GRAPHS 

Graph 1.1:  Gross Added Value by sector, 2009-2018 

Graph 1.2: 

Real GDP and components, 2012-2021 

Graph 1.3: 

Key employment indicators 

Graph 1.4: 

Total Factor Productivity trends, Malta and selected countries 

Graph 1.5: 

Trade balance and import content of export trends, 2005-2018 

Graph 1.6: 

Current account decomposition, 2005-2018 

Graph 1.7: 

Private sector debt and benchmarks 

Graph 2.1:  Overall multiannual implementation of 2011-2019 CSRs to date 

Graph 3.1.1: 

Total outgoing dividend payments from EU Member States and share going to 

offshore financial centres*** 

Graph 3.2.1:  House price misalignment 

Graph 3.2.2:  Building permits and housing investment 

Graph 3.3.1:  Labour shortages: job finding and separation rates 

Graph 3.3.2:  Women employment rates by age cohort 

Graph 3.3.3:  At-risk-of-poverty-or-social-exclusion rate (AROPE), age groups 

Graph 3.4.1:  Malta investment trends, excluding machinery 

Graph 3.4.2:  Labour productivity by sector, 2008-2018 

Graph 3.4.3:  Productivity per person employed by sector and firm-size, 2016 

Graph 3.4.4: 

Inbound tourism, January 2018-October 2019 

Graph 3.5.1: 

Total greenhouse gas emissions (excluding international aviation), EU and Malta 

Graph 3.5.2: 

Trends in population growth and road transport sector 

LIST OF BOXES 

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

growth and competitiveness in Malta 

Box 3.3.2: Monitoring performance in light of the European Pillar of Social Rights 

Box 3.4.3: Investment challenges and reforms in Malta 

Box 3.5.4: Social and environmental sustainability implications of Malta’s housing sector 

7 

7 

8 

9 

10 

11 

12 

15 

20 

27 

28 

29 

30 

35 

38 

38 

39 

44 

48 

48 

18 

37 

46 

52 

2 

 
 
 
 
 
EXECUTIVE SUMMARY 

remain, 

Malta’s  fast-growing  economy  is  confronted 
with  long-term  sustainability  challenges.  The 
Maltese  economy  has  been  experiencing  fast 
growth  and  sustained  employment  creation  for 
several years. Recent reform efforts have helped to 
encourage  investment  in  a  number  of  important 
long-term  structural 
areas.  However,  several 
fiscal 
challenges 
sustainability  implications  of  ageing;  (ii)_  low 
skills levels and (iii) governance vulnerabilities. In 
addition,  demographic  and  economic  growth  are 
expected 
to  put  further  pressure  on  Malta’s 
infrastructure and natural resources. It is therefore 
key  to  (i)  strengthen  long-term  resilience  through 
innovation;  (ii)  improve  infrastructure  quality  and 
(iii)  take  further  steps  towards  a  climate-neutral 
and environmentally sustainable economy. (1) 

including 

the 

(i) 

Economic  growth  is  expected  to  slow  down. 
Malta’s  economic  performance  continues  to  be 
among  the  strongest  in  the  EU,  supported  by 
strong  domestic  demand  and  a  vibrant,  export-
oriented  services  sector.  Real  GDP  growth  is 
expected  to  gradually  moderate,  from  4.5%  in 
2019 to 4% in 2020 and 3.7% in 2021. Inflation is 
expected  to  stabilise  at  1.5%.  As  a  small  open 
economy,  Malta  is  subject  to  risks  in  the  external 
environment. 

The  government  is  running  fiscal  surpluses 
although at lower levels than in previous years. 
The  headline  surplus  has  declined  gradually  from 
an exceptionally high level in 2017 to an estimated 
surplus  of  about  1%  of  GDP  in  2019,  where  it  is 
expected  to  stabilise  in  the  coming  years.  A  large 
rise in tax revenues driven by favourable economic 
conditions  was  used 
increase  expenditure 
to 
growth.  Expenditure  composition  is  expected  to 
shift  in  favour  of  public  investment,  while  social 
and healthcare spending as a percentage of GDP is 
set  to  stabilise  below  the  figures  observed  in  the 
past.  The  decline  in  the  public  debt-to-GDP  ratio, 
which  reached  some  46%  in  2018,  is  expected  to 
continue. 

(1)  This  report  assesses  Malta’s  economy  in  light  of  the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy  published  on  17  December  2019.  In 
this 
document, the Commission sets out a new strategy on how 
to address not only the short-term economic challenges but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains, fairness and macroeconomic stability. 

3 

The banking sector remains in good health, due 
to conservative lending practices but is exposed 
to  risks.  Banks  have  remained  profitable  while 
strengthening  their  capital  base  and  maintaining 
sufficient  liquidity  owing  to  customer  deposits. 
Non-performing  loans  have  declined  as  well. 
However,  tight  lending  standards  limit  borrowing 
opportunities for companies. In addition, continued 
weaknesses 
laundering 
framework  has  put  strains  on  relationships  with 
correspondent banks. 

anti-money 

the 

in 

innovation,  natural  resource 
in 
Investing 
management,  skills  and 
infrastructure  are 
critical  to  sustaining  Malta’s  economic  growth. 
In  the  longer  term,  investment  in  areas  other  than 
residential construction  will be  crucial  to alleviate 
growing bottlenecks. Investment is also needed in 
adequate 
innovation. 
infrastructure,  skills  and 
Given spatial and resources constraints, continued 
economic  development  will  require  even  more 
focus to be placed on environmental sustainability. 
This environmental sustainability can be promoted 
by 
resource 
management  and  (ii)  increasing  the  economy’s 
energy efficiency.  

(i)  continuous 

improvement 

in 

Malta  has  made 
the 
addressing 
recommendations.   

limited (2)  progress 
2019 

in 
country-specific 

There  has  been  some  progress  in  the  following 
areas:  

  strengthening 
framework; 

the 

anti-money 

laundering 

 

 

focussing  investment-related  economic  policy 
on research and innovation; 

improving the management of natural resources 
and improving resource and energy efficiency; 

 

improving inclusive education and training. 

There  has  been  limited  progress  in  the  following 
area: 

(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 Annex A. 

is  presented 

in 

 
                                                           
                                                           
Executive summary 

  ensuring  sustainable  transport  and  reducing 

traffic congestion;  

particular,  gross  domestic  R&D  expenditure  as  a 
share of GDP has been declining (3). 

  strengthening 
through 
prosecution service.  

the 

independence, 
the  establishment  of  a  separate 

judicial 

  strengthening 

governance 
framework,  including  by  continuing  efforts  to 
detect and prosecute corruption. 

overall 

the 

There has been no progress in the following areas: 

  ensuring  long-term  sustainability  of  public 
finances  by  addressing  shortcomings  of  the 
pension and healthcare systems; 

  addressing  features of the tax system that  may 

facilitate aggressive tax planning; 

supporting 

the 
The  Social  Scoreboard 
European  Pillar  of  Social  Rights  points  to  a 
relatively  good  performance  of  Malta,  despite 
remaining  challenges.  The  robust  expansion  in 
recent  years  contributed  to:  (i)  one  of  the  highest 
employment  growth  in  the  EU  and  (ii)  a  drop  in 
both,  the  overall  and  long-term  unemployment 
rates over recent years. Income inequality is stable, 
although,  some  population  groups  face  a  higher 
risk  of  poverty  than  others.  High  level  of  early 
school leaving and poor education outcomes, (both 
of  which  are  greatly  determined  by  the  type  of 
school a pupil attends), limit equal opportunities.  

its 

Progress in reaching the national targets under 
the  Europe  2020  strategy  is  mixed.  Malta  has 
met 
tertiary 
targets  on  employment  and 
education attainment. However, it is expected that 
Malta  will  narrowly  miss  its  2020  renewable 
energy target. Other areas require further efforts to 
achieve  the  set  targets.  These  areas  include  R&D 
leaving,  poverty 
school 
expenditure, 
reduction, 
reduction  of  greenhouse  gas 
emissions and energy efficiency. 

early 

the 

Malta  has  made  some  progress  on  the  United 
Nations’  Sustainable  Development  Goals 
(SDGs).  It  made  significant  progress  on  SDG  8 
(decent  work  and  economic  growth),  with 
especially  fast  growth  in  employment.  However, 
Malta  still  faces  significant  challenges  on  SDG  9 
In 
(industry, 

innovation  and 

infrastructure). 

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

The  composition  of  Government  revenues  may 
dent  the  fiscal  position  in  the  medium  term. 
Corporate  taxes,  which  constitute  a  significant 
share of tax revenues, may prove volatile given the 
slowing  economy  and  international  initiatives  in 
the  area  of  corporate  taxation.  Moreover,  recent 
fiscal  surpluses  have  relied  to  a  large  extent  on 
proceeds  from  the  Individual  Investor  Programme 
(citizenship  scheme).  These  proceeds  are  difficult 
to predict and may decline over the medium term. 
Preserving  a  sound  fiscal  position  will  therefore 
become  increasingly  dependent  on  expenditure 
adjustments. 

Public  finances  will  come  under  increasing 
pressures  from  the  costs  of  ageing.  In  the  long 
term,  Malta’s  increase  in  public  pension  and 
healthcare  spending  is  projected  to  be  one  of  the 
largest in the EU, albeit from a level  much below 
the  EU  average.  Recent  measures  have  aimed  at 
diversifying  pension 
increasing 
pension  adequacy.  Pension  indexation  at  levels 
above increases in the cost of living contributed to 
better  adequacy,  but  this  will  weaken  public 
finances in the long term. Measures are ongoing to 
improve  healthcare  efficiency  and  to  ensure  the 
provision of long-term care services. 

income  and 

Economic  evidence  suggests  that  Malta’s  tax 
rules  are  used  for  aggressive  tax  planning 
implemented 
purposes.  Although  Malta  has 
previously  agreed  European  and 
international 
initiatives  to  address  some  ATP  concerns,  rules 
such  as  the  absence  of  withholding  taxes  and  the 
and 
design  of  Malta’s 
investor-residence  schemes  remain  a  cause  for 
concern.  

investor-citizenship 

(3)  Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring  closer  coordination  of  national  efforts.  The 
present report contains reinforced analysis and monitoring 
on  the  SDGs.  A  new  annex  (ANNEX  E)  presents  a 
statistical assessment of trends in relation to SDGs in Malta 
during  the  past  five  years,  based  on  Eurostat’s  EU  SDG 
indicator set. 

4 

 
                                                           
Executive summary 

of low-skilled adults is comparatively high, but the 
take-up of measures to promote adult learning and 
upskilling remains low. 

for 

high 

from 

long-term 
because 

growth.  Persistently 

implications 
children 

Poor  educational  outcomes  are  set  to  impede 
future 
student 
underachievement and early school leaving make it 
difficult  to  meet  the  need  for  skilled  labour.  This 
social 
also  has 
inclusion, 
socially 
disadvantaged  families  are  less  likely  to  benefit 
from the best education opportunities and are more 
likely  to  lag  behind  their  more  advantaged  peers. 
Measures have been taken to make education more 
inclusive.  The  average  performance  of  Maltese 
pupils  remains  below  the  EU  average  and  an 
increasingly  diverse  student  population  poses 
challenges  for  the  Maltese  education  system. 
Increased coordination and  more use of evidence-
based  approaches  may  make 
reforms  and 
investment in education more effective. 

(ii) 
remote  gaming; 
in 
in  virtual  assets  and  (iii) 

The  Maltese  economy  remains  vulnerable  to 
money  laundering  risks.  The  supervision  of 
financial  markets  is  improving  gradually.  Three 
aspects  of  the  Maltese  economy  are  particularly 
susceptible  to  money-laundering  risks:  (i)  its 
its 
specialisation 
specialisation 
its 
citizenship  and  residence  schemes.  Steps  have 
been taken to strengthen the role of the anti-money 
laundering  supervisor  by  investing  in  human 
resources  and  IT,  strengthening  risk  assessment 
tools 
risk-based  processes. 
However,  the  practice  of  the  Malta  Financial 
Services Authority to use a private consultancy for 
supervisory tasks raises concerns. Shortcomings in 
the 
investigation  and  prosecution  of  money 
to 
laundering 
strengthen  law  enforcement  in  the  fight  against 
money  laundering  are  under  way  but  still  need  to 
be assessed for effectiveness. 

remain  a  challenge.  Reforms 

improving 

and 

The  unabated  growth  of  residential  house 
prices needs close monitoring. Demand pressures 
have  led  to  a  surge  in  residential  investments. 
These demand pressures have, in turn, been driven 
by  job-rich  growth,  low  interest  rates,  inward 
migration  and  booming  tourism.  There  are  now 
signs  of  overheating  in  the  residential  real  estate 
market  and  surging  house  prices  have  also  raised 
concerns  about  affordability,  especially  in  the 
rental sector. Moreover, although the capital bases 
of  banks  are  solid,  the  continued  concentration  of 
their  portfolios  in  real  estate  deserves  attention. 
This  is  an  especially  pressing  issue  given  lengthy 
insolvencies  procedures  and  the  relatively  high 
ratio of household debt to gross disposable income. 

remains 

The  labour  market  is  tightening,  resulting  in 
labour  shortages  and  a  greater  reliance  on 
foreign  workers.  Employment  rates  continue  to 
increase 
for  both  men  and  women.  The 
participation of young women in the labour market 
has  significantly  increased,  facilitated  by  free 
childcare. However, the gender employment gap in 
the  EU. 
the  highest 
Malta 
long-term 
rates, 
Unemployment 
unemployment and youth unemployment, are well 
below  the  EU  average.  Malta  relies  heavily  on 
foreign workers from within and outside the EU to 
fill labour shortages. There is no strategy in place 
to  keep  these  workers  in  Malta  for  longer  periods 
even 
in 
recruiting and retaining skilled workers. The share 

though  companies  report  difficulties 

in 
including 

Inequalities  and  poverty  have  stabilised  after 
declining  in  recent  years,  but  certain  groups 
face  higher  risks  of  poverty.  Child  poverty  has 
decreased,  but  children  whose  parents  are  single, 
foreign  or  with  low  income  are  at  higher  risk  of 
poverty.  The  social  integration  of  non-Maltese 
people,  despite  their  high  participation  in  the 
labour  market,  is  limited.  The  rapid  population 
growth (+17% in the past 10 years), mainly due to 
economic  migration  from  both  EU  and  non-EU 
countries  may  exacerbate  existing  social  and 
environmental  challenges.  The  need  to  cater  to  a 
larger  and  more  diverse  population  presents 
particular pressures  for the  housing  market, social 
services, health services, and the education system. 

The  services  sector  continues  to  grow  rapidly, 
but  companies  face  increasing  difficulties  in 
access to finance. The services sector continues to 
enjoy solid growth. Tourism continues to grow all 
year-round,  albeit  at  a  slower  pace  than  in  recent 
years. The gaming industry is a key contributor to 
Malta’s economic performance, although it entails 
governance  risks,  with  potential  cross-border 
implications,  given  the  international  significance 
of the sector. Malta is also set to play an increasing 
role  in  blockchain  solutions  and  virtual  financial 
assets,  and  has  adopted  a  national  strategy  on 
artificial 
to  ongoing 
labour-shortages,  difficulties  in  access  to  bank 

intelligence.  In  addition 

5 

 
Executive summary 

risk  management  and  disaster 

such as water management; infrastructure and land 
use;  natural  ecosystems;  agriculture  and  fisheries; 
health  and  tourism  would  benefit  from  targeted 
investments  to  further  climate  neutrality.  These 
sectors  would  also  benefit  from  measures  in 
disaster 
risk 
response. Malta´s level of resource productivity is 
below  the  EU  average.  Economic  growth  and  the 
increasing  population  and  economic  activity  are 
expected 
to  further  exacerbate  environmental 
concerns  and  put  pressure  on  scarce  natural 
resources. Malta has not yet capitalised on turning 
waste  into  a  resource  or  on  turning  low  recycling 
rates  into  business  opportunities.  The  booming 
housing  and  construction  sector  is  generating 
social and environmental concerns as new projects 
exert further pressure on the already-high levels of 
land  use.  Actions 
infrastructure 
bottlenecks  emphasise  road  construction.  The 
Commission’s  proposal  for  a  Just  Transition 
Mechanism  under  the  next  multi-annual  financial 
framework  for  the  period  2021-2017,  includes  a 
Just  Transition  Fund,  a  dedicated  just  transition 
scheme  under  InvestEU,  and  a  new  public  sector 
loan facility with the EIB. It is designed to ensure 
that the transition towards EU climate neutrality is 
fair by helping Member States to address the social 
and  economic  consequences.  Key  priorities  for 
support by the Just Transition Fund, set up as part 
of  the  Just  Transition  Mechanism  under  the  next 
multi-annual  financial  framework  for  the  period 
2021-2027, are identified in Annex D, building on 
the analysis of the transition challenges outlined in 
this report. 

to  address 

sustainable 
been 

EU  funds  and  programmes  contribute  to 
addressing  structural  challenges  in  the  Maltese 
economy.  Support  from  the  EU  programmes 
focussed  especially  on  sustainable  and  inclusive 
transport.  Research 
growth  and 
facilities 
business 
strengthened.  EU 
been 
infrastructure 
programmes have also helped to promote inclusion 
in  education  and  vocational  training.  Given  the 
positive experience with EU funds in the past, EU 
funds  can  also  help  to  overcome  the  identified 
challenges in the future. 

have 

built 

and 

has 

services  and  bank  credit  are  a  growing  business 
concern, particularly for small businesses.  

It  remains  a  challenge  to  strengthen  the 
institutional capacity Different indicators point to 
a  perceived  weakness  in  Malta’s  governance 
framework,  with  negative  effects  on  the  business 
its 
environment.  The  government  announced 
intention  to  strengthen  the  independence  of  the 
judiciary  and  took  steps  to  establish  a  separate 
prosecution  service.  This  will  require  concrete 
follow-up 
implementation. 
adequate 
Institutional  shortcomings  hinder  the  effective 
detection of corruption, while investigations by the 
police seem to remain fragmentary. There is room 
for  improvement  in  (i)  the  prosecution  of  crimes 
related  to  corruption,  abuse  of  power  and  money 
laundering,  and 
in  public 
procurement. Conflicts of interest are perceived to 
be widespread, including in public procurement. 

transparency 

and 

(ii) 

Productivity  has  significantly  improved,  but 
research and innovation still play a limited role 
in the economy. Malta has experienced significant 
growth in investment and productivity experienced 
a  sizeable  growth  in  the  past  decade.  Small  and 
medium-sized enterprises are the main contributors 
to  economic  growth  and  employment.  However, 
research  and  innovation  activity  by  Maltese  firms 
remains limited. Although Malta’s scientific output 
is improving, academic research does not seem to 
translate easily into innovation. 

Malta’s efforts to cut greenhouse gas emissions, 
promote  sustainable  mobility  and 
increase 
energy efficiency do not seem to match the scale 
of  the  challenges  it  faces.  With  current  policies, 
emissions  are  projected  to  continue  increasing, 
putting  Malta  far  off  track  in  relation  to  its  2020 
and 2030 targets. If Malta is to reach these targets 
it  will  be  necessary  to  break  the  current  trend  of 
increasing  emissions  from  transport  as  well  as 
from the heating and cooling of buildings.  

transition 

to  greener  and  more 
Malta’s 
long-term, 
sustainable  growth  requires  a 
comprehensive strategy. To deliver on its climate 
and  energy  objectives,  Malta  will  need  to:  (i) 
identify  investment  needs  in  green  technologies 
and  sustainable  solutions  and  (ii)  secure  adequate 
funding.  Malta  is  the  most  urbanised  and  most 
densely  populated  country  in  the  EU  and  remains 
particularly  vulnerable  to  climate  risks.  Sectors 

6 

 
1.  ECONOMIC SITUATION AND OUTLOOK 

favourable 

labour-market 

Private  consumption  growth  is  set  to  weaken, 
while  remaining  above  its  historical  average,  due 
to 
conditions. 
Investment  growth  is  forecast  to  remain  high  into 
2020,  supported  by  large-scale  projects  in  the 
aviation, health and tourism sectors. However, it is 
set  to  slow  down  thereafter,  as  a  number  of 
infrastructure  projects  reach  completion.  Export 
growth  is  expected  to  remain  relatively  modest  in 
the  short  term,  reflecting  less  robust  growth  in 
Malta’s  main  export  markets  and  elevated  global 
uncertainty.  As  domestic  demand  continues  to 
remain  high,  imports  are  set  to  grow  somewhat 
faster than exports in 2020, before decelerating in 
2021.  As  a  small,  open  economy,  Malta’s 
economic outlook is subject to the risks of a weak 
external 
economic 
environment 
performance of its trading partners. 

and 

the 

Graph 1.2: 

Real GDP and components, 2012-2021 

Growth performance 

Malta’s economy keeps growing faster than the 
EU  average,  supported  by  a  thriving  services 
sector.  Malta’s  annual  growth 
in  real  gross 
domestic  product  (GDP)  averaged  7.8%  between 
2014  and  2018,  making  it  one  of  the  fastest 
growing  economies  in  the  EU.  In  particular,  the 
gross value added generated by the services sector 
grew  on  average  by  12%  per  year  in  the  same 
period, accounting for 68.5% of Malta’s total gross 
value added in 2018 (4) (see Graph 1.1). Economic 
growth  started  to  moderate  in  2019,  and  annual 
real  GDP  growth  is  expected  to  come  in  at  4.5% 
for  the  full  year  of  2019.  Domestic  demand  has 
been underpinned by increasing public expenditure 
and  strong  investment  growth,  which  helped  to 
boost  growth  in  goods  imports.  However,  private 
consumption  growth  was  less  than  the  very  high 
rate  recorded  in  2018.  While  rebounding  in  the 
third  quarter  of  2019,  export  growth  remained 
rather subdued compared to the strong increases of 
recent  years,  partly  reflecting  a  slowdown  in  the 
growth of tourism.  

Graph 1.1:  Gross Added Value by sector, 2009-2018 

Source: European Commission  

The  long-term  sustainability  of Malta’s  growth 
potential  remains  the  main  concern.  Malta’s 
strong  economic  performance  has  been  driven  by 
the  shift  towards  fast-growing  export-oriented 
services,  such  as  remote  gaming,  finance  and 
tourism.  The  large  inflow  of  foreign  workers  has 
helped  to  boost  labour  supply  and  enabled  strong 
jobs growth. However, the Maltese economy faces 
a  number  of  structural  challenges,  notably  an 
ageing  population,  low  skills  levels,  governance 
infrastructure  bottlenecks,  and 
vulnerabilities, 
limited innovation potential (see also Section 3). In 
this  context,  reconciling  the  increasing  economic 

Source: Eurostat 

Growth  is  expected  to  slow  in  the  short  term, 
amid external risks. Growth is set to continue, but 
the pace of expansion is expected to gradually ease 
to 4% in 2020 and 3.7% in 2021 (see Graph 1.2). 

(4)  Gross  value  added  of  services  sector,  excluding  public 
administration, in nominal terms. Gross value added in real 
terms is not available for Malta. 

7 

02468101209101112131415161718EUR bnServicesPublic administrationConstructionIndustryAgriculture, forestry and fishing-12-8-4048121612131415161718192021pps.Net exportsConsumptionInvestmentInventoriesReal GDP (y-o-y %)forecast 
     
                                                           
    
 
1. Economic situation and outlook 

labour  force;  and 

activity  with  Malta’s  physical  and  institutional 
constraints  (e.g.  land  and  other  natural  resources; 
the 
institutional  capacity) 
remains crucial to ensure the long-term economic, 
social  and  environmental  sustainability  of  the 
country’s growth model.  

positive (increasing by 0.2%). Nominal  wages are 
expected  to  continue  their  gradual  increase  in 
2020.  Unit  labour  costs  increased  by  1%  in  2018. 
However, wage growth remains both: (i) below the 
rate  consistent  with  a  stable  evolution  of  cost 
competitiveness; and (ii) below the rate consistent 
with internal labour-market conditions (5). 

Inflation 

Inflation  remains  moderate  and  is  expected  to 
increase  only  gradually.  Headline  inflation  in 
2019  registered  a  slight  deceleration  compared  to 
the  previous  year,  from  1.7%  to  1.5%.  Starting  in 
April  2019,  inflation  in  Malta  was  in  line  with 
inflation in the euro area. This followed a period in 
2017 and 2018 when inflation in Malta was lower 
than  the  euro-area  average.  Prices  of  unprocessed 
food increased particularly swiftly in the  first half 
of  2019.  By  contrast,  prices  for  non-energy 
industrial  goods  remained  low,  due  to  weak 
inflationary  pressures  in  Malta’s  trading  partners, 
helping  to  keep  core  inflation  below  headline 
inflation.  In  the  future,  labour-market  tightness  is 
expected  to  gradually  translate  into  higher  wages, 
particularly in the services sector. This is expected 
to lift the price of services in the coming years.  

Labour market  

tightening  due 

labour  market 

The 
to 
is 
sustained  job  creation  and  low  unemployment. 
Robust  economic  growth  has  gone  hand  in  hand 
with  sustained  employment  growth  (5.7%  in 
2018).  The  employment  rate  reached  75.5%  in 
2018 and has increased for both men and women. 
The  unemployment  rate  dropped  to  3.4%  in  the 
second quarter of 2019 (see Graph 1.3). Long-term 
unemployment is very low, at 1.1% in 2018. Youth 
unemployment  has  also  been 
falling,  and 
decreased  to  9.1%  in  2018,  well  below  the  EU 
average.  As  economic  growth  slows  down, 
to  moderate 
employment  growth 
slightly, but the unemployment rate is projected to 
remain below 4% in the short term. 

is  expected 

Wage growth started accelerating in 2018 and is 
expected  to  remain  strong  in  2019  and  2020. 
The  increases  in  labour  supply  due  to  significant 
inflows  of  foreign  workers,  and  the  rising  labour-
market  participation  of  women,  have  both  helped 
to  limit  wage  growth  in  recent  years.  In  2018, 
nominal  compensation  per  employee  increased  by 
2.3%,  while  real  (GDP-deflated)  wages  turned 

8 

Graph 1.3: 

Key employment indicators 

Source: Eurostat 

structural 

challenges 

Despite  the  overall  favourable  labour-market 
risk 
conditions, 
hampering  inclusive  and  sustainable  growth. 
The  population  is  rapidly  ageing  and  labour 
shortages  continue  to  remain  a  challenge.  At  the 
same  time,  the  labour-market  participation  of 
the 
certain  groups 
increased 
employment 
significantly 
the  gender 
employment gap was 21.9 pps in 2018, one of the 
highest in the EU. The labour-market participation 
of  older  people  (between  55  and  64)  and  people 
with disabilities remains below the EU average. In 
addition, Malta continues to face challenges in the 

rate  of  women  has 
recent  years, 
in 

low.  Although 

remains 

actual  wage 

the  contrary,  are  a 

(5)  The  European  Commission  regularly  assesses  whether 
wage  developments  support  macroeconomic  rebalancing 
or,  on 
source  of  potential 
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; 
and (ii) the wage growth which would be consistent with a 
constant  real  effective  exchange  rate  based  on  unit  labour 
costs 
(see  European  Commission,  2019f;  European 
Commission, 2015). 

developments  with 

01020304050607080900510152025300001020304050607080910111213141516171819%%Activity rate 20-64 (rhs)Unemployment rate 15-74Long-term unemployment rate 15-74Youth unemployment rate 15-24NEET rate 15-24     
                                                           
1. Economic situation and outlook 

significantly widened from 2004 to 2017, from 31 
to 41 pps (European Commission, 2019i). 

Productivity  

the 

Total  factor  productivity  growth  increased,  in 
contrast  to  labour  productivity  per  hour  in 
last  decade,  several  factors, 
2018.  Over 
including  the  shift  to  high-added-value  sectors, 
have helped to boost productivity growth in Malta. 
After  peaking  at  over  4% 
labour 
productivity  growth  slowed  in  2018  to  1.3%.  In 
turn,  total  factor  productivity  growth  peaked  at 
2.2%  in  2018  (see  Graph 1.4),  suggesting  that 
investment  did  not  keep  up  with  the  increase  in 
labour utilisation (see also Section 3.4). 

in  2017, 

Graph 1.4: 

Total Factor Productivity trends, Malta and 
selected countries 

Source: European Commission 

The  inflows  of  skilled  foreign  workers  helped 
lift  productivity,  but  these  inflows  also  create 
challenges.  The  Maltese  economy  experienced 
substantial  inflows  of  foreign  workers  in  the  past 
decade,  including  many  high-skilled  individuals 
(see also Section 3.3). The increased availability of 
skilled  labour  helped  to  address  skills  shortages 
and  mitigate  skills  mismatches,  which  previously 
acted  as  a  drag  on  productivity  growth.  At  the 
same 
that  EU-national 
foreign  workers  in  Malta are  generally  young and 
tend to spend a relatively short time in the country. 
In  most  cases,  these  workers  do  not  change  job 
while 
their 
employment  occupation while  there  (Borg,  2019). 

time,  research  shows 

in  Malta,  nor  do 

improve 

they 

area  of  education  and  skills,  which 
impede 
inclusive and sustainable growth. Both the share of 
low-skilled  people  and  the  early  school-leaving 
rate  remain  high,  despite  improvements  in  recent 
years. Basic skills attainment is also still weak (see 
also Section 3.3). 

Social developments and inequality 

After  a  strong  decline,  the  risk  of  poverty  or 
social  exclusion  is  stabilising,  but  some  groups 
are still at high risk. Strong economic growth and 
job creation helped to reduce the risk of poverty or 
social exclusion in recent years. However, this risk 
remains  high  for  specific  population  groups,  such 
as single earner households, the low-skilled, older 
people, and non-EU nationals.  

Inequality 
is  stable,  but  some  disparities 
remain.  Malta  has  relatively  moderate  inequality 
of  income  compared  to  EU  averages  (the  income 
quintile ratio stood at 4.28 in 2018 against 5.17 in 
EU,  and  is  stable),  despite  the  fact  that  equal 
opportunities remain limited for some groups. The 
unmet  need  for  medical  care  is  low  with  little 
variation  between  income  groups.  Disparities  in 
education  outcomes  are  strong  and  linked  to 
socioeconomic  background,  disability  status  and 
type of school (see also Section 3.3). 

Regional disparities  

the 

A  regional  gap  can  be  observed  between  the 
island of Malta and the island of Gozo. Regional 
disparities  in  Malta  can  be  observed  only  at 
NUTS3  level (6),  dividing  the  country  into  the 
island  of  Malta  (around  93%  of  total  population) 
islands  of  Gozo  and  Comino.  The 
and 
population  density  of  Gozo  in  2018  was  roughly 
one  fourth  of  the  density  on  the  island  of  Malta, 
while Comino is mostly uninhabited. The share of 
working age population (age 15-64) for the island 
of  Malta  is  generally  2  pps  higher  than  in  the 
island  of  Gozo.  More  than  20%  of  the  Gozo 
resident  workforce  works  on  the  island  of  Malta. 
In  2017,  GDP  per  capita  in  Gozo,  in  purchasing 
power  standards,  corresponded  to  60%  of  the  EU 
islands 
average.  The  gap  between 

two 

the 

(6)  The  Nomenclature  of 
territorial  units  for  statistics, 
is  a  geographical  nomenclature 
abbreviated  NUTS, 
subdividing  the  economic  territory  of  the  EU  into  regions 
at  three  different  levels  (NUTS  1,  2  and  3  respectively, 
moving from larger to smaller territorial units). 

9 

90951001051101150506070809101112131415161718index (2005=100)MTITUKFREA19                                                           
     
1. Economic situation and outlook 

The  lack  of  mobility  within  the  Maltese  labour 
market  may  weigh  on  future  productivity  growth, 
as  ﬁrms  must  routinely  hire  new  workers,  with 
limited  productivity  gains  from  ‘learning-by-
doing’. 

Competitiveness 

Graph 1.5: 

Trade balance and import content of export 
trends, 2005-2018 

Malta’s 

some 
in 

signs  of  a  moderate 
There  are 
deterioration 
external 
competitiveness. The  real effective exchange rate 
continued  to  appreciate  above  that  of  major  EU 
economies in 2018, while the export market share 
stabilised  in  2018,  after  increases  in  2014  and 
2015. As a result, with a decline in export growth 
and an increase in import growth fuelled by growth 
in  internal  demand,  the  trade  surplus  shrank 
slightly, but it remains largely positive.  

the 

A  steady  decline  in  the  import  content  of 
trade 
services  exports  has  supported 
surplus. The import content of services exports is 
deﬁned as the share of services imports to services 
exports  (in  real  terms).  Since  2012,  the  services 
import content has been on a declining path, which 
has helped to reduce total import intensity (i.e. the 
ratio  of  total  imports  to  total  demand)  and  so 
increase  the  trade  surplus.  In  2018,  services 
to  72%  of  services 
imports  were  equivalent 
exports,  signiﬁcantly  lower  than  the  2009-2018 
average,  which  was  above  80%  (see  Graph 1.5). 
The  decline  in  the  import  content  of  exports 
reflects  the  shift  in  value  added  creation  towards 
service-oriented 
information 
technology and skilled labour as their main inputs. 
These  firms  operate  in  sectors  such  as  computer 
programming and remote gaming (Central Bank of 
Malta, 2019a). 

that  use 

firms 

Source: European Commission  

External position 

Malta’s  current  account  surplus  is  among  the 
highest  in  the  EU.  The  current  account  balance 
turned  from  negative  to  positive  in  2013  and  has 
remained  in  surplus  since  then,  peaking  at  10.5% 
of GDP in 2017, among the  highest figures in the 
EU  for  both  years.  The  current  account  surplus 
reflects  a  large  surplus  in  the  balance  of  services, 
which averaged 32.4% of GDP in the four quarters 
ending  in  the  third  quarter  of  2019.  In  the  same 
period,  exports  of  services  represented  115.7%  of 
the  Maltese 
Malta’s  GDP,  an 
economy’s  services  specialisation  and 
trade 
openness  (see  Graph 1.6).  Amid  a  weakening 
external  environment,  which  was  reflected  in  the 
slowdown  in  export  growth,  the  current  account 
balance narrowed, averaging 10.1% of GDP in the 
four quarters ending in the third quarter of 2019. 

indicator  of 

10 

505560657075808590951000.00.51.01.52.02.53.03.54.04.50506070809101112131415161718%EUR bnTrade balance (total)Import content of exports (services, rhs)     
1. Economic situation and outlook 

63%  of  GDP  in  June  2019.  The  net  international 
investment  position  excluding  ‘non-defaultable’ 
debt,  which  focuses  on  the  net  international 
investment  position  components  that  may  be 
subject  to  default  or  partly  used  as  collateral, 
constituted  255%  of  GDP  in  June  2019.  This 
points  to  vulnerabilities  due  to  changes  in  debtor 
economies.  In  particular,  claims  of  UK  banks  on 
Maltese  residents  amount  to  around  46%  of 
Maltese  GDP.  The  level  of  Malta’s  total  foreign 
assets  abroad  amounted  to  €251  billion,  with 
roughly  47%  of  foreign  assets  represented  by 
portfolio  investment,  in  particular  equity  and 
investment  fund  shares.  Net  foreign  liabilities 
accounted  for  €244  billion,  of  which  €198  billion 
was direct investment (around 81%). In total, gross 
external  assets  and  liabilities  are  equivalent  to 
around 40 times the country’s GDP. 

Private sector debt 

is 

above 

in  2018, 

Private  debt  levels  highlight  the  need  for 
further  deleveraging.  Deleveraging 
still 
needed,  despite  the  reduction  in  private  sector 
borrowing due to the high nominal growth in GDP. 
Private sector consolidated debt amounted to 130% 
of  GDP 
the  European 
Commission’s  fundamental-based  and  prudential 
benchmarks (8),  while  non-consolidated  debt  was 
close  to  190% of  GDP (9)  (see  Graph 1.7).  A 
significant  share  of  total  private  debt  is  owed  by 
non-financial 
of  GDP 
consolidated,  and  just  below  139%  of  GDP  non-
consolidated).  The  significant  difference  between 
consolidated  and  non-consolidated  non-financial 
corporate debt is explained by the extensive use of 
intragroup  lending,  related  to  the  presence  of 
multinational companies. The high level of private 
debt combined with a weak insolvency framework 
(see  Section  3.2.1)  amplifies 
the  economy’s 
vulnerability to possible adverse shocks. 

corporations 

(80% 

(8)  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 (2017), and updates to the methodology have 
been  subsequently  proposed  in  European  Commission 
(2018a). 

are  described 

(9)  The  analysis  of  Malta’s  private  sector  debt  is  constrained 
by  data  limitations  (indicators  such  as  NFC  debt-to-gross 
operating surplus cannot be calculated). 

Graph 1.6:  Current account decomposition, 2005-2018 

Primary income balance not available between 2005 and 
2014. Secondary income balance not available between 
2008 and 2014.  
Source: Eurostat 

The large current account surplus is not in line 
with 
fundamentals.  The  cyclically  adjusted 
current account surplus was estimated at 13.1% of 
GDP in 2018. The current account balance remains 
above  the  current  account  norm  calculated  by  the 
European  Commission  according  to  fundamentals 
(i.e.  demographics,  reserve  currency  status  and 
manufacturing  intensity)  (Coutinho,  Turrini  and 
Zeugner,  2018),  which  for  Malta  indicates  a 
current  account  close  to  balance,  taking  into 
account the financial centre status of Malta, which 
is  estimated  to  inflate  the  current  account  balance 
by 2 pps.”. A large residual, which is not explained 
by  fundamentals,  is  the  most  important  factor 
behind  this  difference,  reflecting  the  presence  of 
large  internationally  oriented  businesses.  In  small 
finance  centres  like  Malta,  the  cross-border  flows 
associated  with  multinational companies  may also 
result in measurement errors (7). 

The net international investment position shows 
that Malta is a creditor to the rest of the world. 
Malta’s  net  assets,  measured  by 
the  net 
international  investment  position,  amounted  to 

(7)  Maltese  balance  of  payments  statistics  show  some 
weaknesses. Errors and omissions have been large in recent 
years,  ranging  from  10.4%  of  GDP  in  2012  to  -7.5%  of 
GDP  in  2018.  There  is  no  clear  pattern  over  time,  as  the 
sign of the error term changes relatively frequently. Hence 
there  does  not  appear  to  be  some  persistent  bias  which 
could explain large discrepancies. 

11 

-30-20-100102030400506070809101112131415161718% GDPPrimary income balanceSecondary income balanceTrade balance - servicesTrade balance - goodsCurrent account balance (CA)     
                                                           
                                                           
1. Economic situation and outlook 

deposits), 
liquidity. 
thus  maintaining  ample 
Comprehensive stress tests by the Central Bank of 
Malta confirm that the overall capital and liquidity 
positions of banks would remain sound and within 
the  regulatory  requirements  even  in  the  event  of 
severe  shocks.  Nevertheless,  Maltese  surveyed 
banks  have  maintained  their  tight  credit  standards 
on  loans  to  enterprises  (Central  Bank  of  Malta, 
2019b).  The  banking  sector  is  also  facing:  (i)  the 
retraction of correspondent banks from the Maltese 
in  recent  months;  and  (ii)  ongoing 
market 
weaknesses 
to 
counter money laundering (see Section 3.2). 

the  supervisory  framework 

in 

The  exposure  of  domestic  banks  to  the  real-
estate market has further increased. Total assets 
of core domestic banks (10) grew by 5.1% in 2018, 
amounting  to  some  195%  of  GDP.  Growth  was 
almost  entirely  driven  by  customer  loans  to 
residents,  especially  to  finance  mortgages,  which 
increased  by  almost  9%.  The  share  of  resident 
mortgages  in  total  resident  loans  increased  to 
49.5%  in  2018.  Loans  granted  to  the  construction 
and  real-estate  sector  also  increased.  Collectively, 
the share of property-related loans in the total loan 
portfolio  of  domestic  banks  increased  to  63%  in 
2018  compared  to  just  above  52%  in  2008.  Such 
sectoral concentration poses a growing risk for the 
local  financial  system  (Central  Bank  of  Malta, 
2019b). 

Public finances 

Public finances are expected to remain in good 
shape in the coming years. After an exceptionally 
high surplus of 3.4% of GDP recorded in 2017, the 
fiscal balance declined in 2018. The fiscal balance 
is expected to ease further to about 1% of GDP in 
2019  and  the  following  years.  Positive  fiscal 
outcomes  are  largely  sustained  by  revenue  from 
the  Individual  Investor  Programme  (citizenship 
scheme) (11), whose future development is difficult 
to  predict.  As  of  2019,  the  composition  of 
expenditures is expected to  have  shifted in  favour 

(10)  The  Central  Bank  of  Malta  divides  banks  into  three 
categories  based  on  whether  they  have  strong  (core 
domestic  banks),  limited  (non-core  domestic  banks)  or  no 
(international banks) links to the local economy. 

(11)  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 

Household indebtedness has been declining but 
remains  relatively  high.  Household  indebtedness 
as  a  share  of  GDP  decreased  from  61%  to  49% 
between 2012 and 2018, mostly reflecting the fast 
pace  of  GDP  growth.  However,  the  analysis  of 
mortgage  trends  reveals  specific  vulnerabilities 
(see  Section  3.2.3).  While  the  household  debt-to-
GDP  ratio  is  below  its  prudential  benchmark  (at 
58% of GDP), it is still somewhat higher than the 
fundamentals-based  benchmark  estimated  by  the 
European  Commission 
of  GDP). 
Furthermore,  the  ratio  of  household  debt  to  gross 
disposable income is close to 100%, suggesting the 
need  to  contain  the  increase  in  nominal  debt  to 
ensure more sustainable household balance sheets. 

(42% 

Graph 1.7: 

Private sector debt and benchmarks 

Source: European Commission 

Financial sector  

lending  practices  keep 

Conservative 
the 
financial  sector  in  good  health,  but  make 
lending  difficult.  The  median  loan-to-value  at 
origination  of  around  77%,  and  a  loan-service-to 
income  ratio  of  21%,  point  to  a  continuation  of 
conservative  practices  by  local  banks  despite 
favourable macroeconomic conditions. The overall 
ratio of  non-performing loans improved  further to 
3.4%  in  2018,  down  from  4.1%  in  2017.  This  is 
just above the EU bank average of 3.2%. The non-
performing loans ratio for mortgages also declined 
to 2.5% in 2018. Core domestic banks continue to 
be 
through  customer  deposits 
(which  account  for  80%  of  all  assets),  and  more 
specifically  by  residents  (90%  of  total  customer 

largely  funded 

12 

0204060801001201401601802000506070809101112131415161718NFC debt % of GDPHH debt % of GDPPrudential benchmarkFundamental-based benchmark     
                                                           
1. Economic situation and outlook 

of  public  investment,  which  is  expected  to  have 
exceed  4%  of  GDP,  well  above  the  long-term 
average.  In  contrast,  the  ratio  of  social  and 
healthcare  spending  to  GDP,  which  amounted  to 
9.8%  in  2018  (EU  average  20.4%),  is  set  to 
stabilise below the levels observed in the past. 

Fiscal  challenges  are  more  pronounced  in  the 
longer term. The ratio of public debt to GDP fell 
by  more  than  17  pps  between  2014  and  2018  to 
about  45%,  and  is  expected  to  decline  further  in 
the coming years. A relatively low level of public 
debt combined with fiscal surpluses makes Maltese 
public  finances  resilient 
term. 
However, in the medium term, Malta’s reliance on 
corporate  taxes  makes  the  country  vulnerable  to 
international  initiatives  on  the  fight  against  tax 
avoidance,  which could reduce  fiscal revenues. In 
the long term, an increase in ageing-related outlays 
on  pensions  and  healthcare  is  expected  to  put  an 
additional  strain  on  Malta’s  public  finances  (see 
Section 3.1). 

the  short 

in 

Progress towards sustainable development 

improvements,  Malta 

Malta’s  performance  in  relation  to  the  United 
Nations’ Sustainable Development Goals (SDG) 
is  mixed.  Malta  is  above  the  EU  average  in  most 
of  the  indicators  pertaining  to  decent  work  and 
economic  growth  (SDG 8),  which  contributed  to 
advancing  on  reducing  poverty  (SDG 1).  Good 
health  and  well-being  are  also  areas  where  Malta 
performs  relatively  well  (SDG 3).  Despite  some 
recent 
lags  behind  EU 
average  on  a  number  of  indicators  related  to 
quality  of  education  (SGD 4)  and  gender  equality 
(SDG 5).  A  declining  trend  in  terms  of  R&D 
expenditure  and  R&D  personnel  points  to  a 
particularly  weak  performance  on  SDG 9.  In 
addition,  a  number  of  environmental  challenges 
remains,  for  example  in  relation  to  final  energy 
consumption (contributing to SDG 7 on affordable 
and  clean  energy,  SDG 12  on 
responsible 
consumption  and  production,  and  SDG 13  on 
climate  action)  and  waste  recycling  (SDG 11, 
communities).  The 
and 
sustainable 
corruption  perception 
index  (SDG 16,  peace, 
justice and strong institutions) has also deteriorated 
over the past years. 

cities 

13 

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. 
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash 
benefits, expressed as a percentage of gross wage earnings. 
Source:  Source: Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 
2020 for real GDP and HICP, Autumn forecast 2019 otherwise) 

14 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)2.51.77.56.77.04.54.03.7Potential growth (y-o-y)2.52.56.16.86.25.85.34.9Private consumption (y-o-y)2.10.83.03.47.1...Public consumption (y-o-y)1.03.81.72.512.7...Gross fixed capital formation (y-o-y)6.0-3.013.9-7.2-1.8...Exports of goods and services (y-o-y)7.46.76.14.82.9...Imports of goods and services (y-o-y) 7.66.24.7-0.53.0...Contribution to GDP growth:Domestic demand (y-o-y)2.80.64.60.34.7...Inventories (y-o-y)0.00.30.2-1.61.8...Net exports (y-o-y)-0.30.82.68.00.5...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.50.62.23.23.12.62.11.7Capital accumulation (y-o-y)1.50.91.61.51.21.51.71.7Total factor productivity (y-o-y)0.51.02.42.11.91.71.61.5Output gap0.2-1.50.81.72.21.50.4-0.7Unemployment rate6.96.55.54.03.73.63.53.6GDP deflator (y-o-y)2.32.72.02.52.12.12.02.1Harmonised index of consumer prices (HICP, y-o-y)2.12.91.01.31.71.51.51.5Nominal compensation per employee (y-o-y)3.13.13.0-0.62.32.43.43.0Labour productivity (real, person employed, y-o-y)1.1-0.33.1-1.31.2...Unit labour costs (ULC, whole economy, y-o-y)1.93.40.00.71.11.42.31.7Real unit labour costs (y-o-y)-0.40.7-1.9-1.7-1.0-0.70.3-0.3Real effective exchange rate (ULC, y-o-y)1.90.9-1.21.21.4-3.1-0.10.1Real effective exchange rate (HICP, y-o-y)1.0-0.7-0.31.22.4-2.1-0.5-0.1Net savings rate of households (net saving as percentage of net disposable income)........Private credit flow, consolidated (% of GDP)12.39.68.45.57.5...Private sector debt, consolidated (% of GDP)141.0166.8141.9132.0129.2...of which household debt, consolidated (% of GDP)47.259.255.450.349.2...of which non-financial corporate debt, consolidated (% of GDP)93.8107.686.681.780.1...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)1.71.62.62.02.2...Corporations, net lending (+) or net borrowing (-) (% of GDP)........Corporations, gross operating surplus (% of GDP)30.331.134.337.3....Households, net lending (+) or net borrowing (-) (% of GDP)........Deflated house price index (y-o-y)13.4-0.73.44.25.0...Residential investment (% of GDP)6.93.92.84.65.1...Current account balance (% of GDP), balance of payments-5.4-3.93.110.510.49.18.68.3Trade balance (% of GDP), balance of payments-1.61.410.421.220.7...Terms of trade of goods and services (y-o-y)0.10.00.30.60.3-0.2-0.2-0.1Capital account balance (% of GDP)2.31.31.60.70.9...Net international investment position (% of GDP)30.711.035.763.762.8...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)87.2172.6210.6242.5247.2...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)454.5713.6587.2419.4354.2...Export performance vs. advanced countries (% change over 5 years).36.27.620.621.2...Export market share, goods and services (y-o-y)-0.72.35.6-0.31.00.5-1.3-1.7Net FDI flows (% of GDP)-155.4-79.2-87.6-83.3-78.4...General government balance (% of GDP)-2.9-3.1-1.13.41.91.21.01.0Structural budget balance (% of GDP)..-1.52.80.80.50.81.3General government gross debt (% of GDP)67.267.161.350.345.843.341.038.7Tax-to-GDP ratio (%) (3)33.033.432.732.932.733.333.633.7Tax rate for a single person earning the average wage (%) (4)20.420.022.222.923.3...Tax rate for a single person earning 50% of the average wage (%) (4)10.411.212.712.813.3...forecast 
  
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

68% 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  (CSRs)  addressed  to  Malta 
have recorded at least ‘some progress” (12). 32% 
of  these  CSRs  recorded  'limited'  or  'no  progress' 
since 2011 (see Figure  72.1). Substantial progress 
or  full  implementation  have  been  achieved  in  the 
area of fiscal policy and fiscal governance, as well 
as in certain areas of the labour market and energy 
sector. 

There remains room to  mitigate  the risks from 
money  laundering.  Malta’s  supervisory  bodies 
have been strengthened by: (i) investing in human 
resources  and  IT;  (ii)  revising  policies  and 
procedures 
risk-based 
processes;  and  (iii)  introducing  better  monitoring 
of  money 
laundering/terrorist  financing  risks. 
However,  there  has  been  insufficient  action  to 
tackle  flaws  in  the  frameworks  for  investigating 
and prosecuting money laundering. 

improving 

aimed 

at 

Graph 2.1:  Overall multiannual implementation of 2011-

2019 CSRs to date 

* The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact 
** The multiannual CSR assessment looks at the 
implementation until 2020 Country Report since the CSRs 
were first adopted. 
Source: European Commission  

remained 

Although  the  short-term  fiscal  position  has 
improved,  long-term  challenges  have  not  yet 
been sufficiently addressed. The budget has been 
in  surplus  since  2016.  In  addition,  the  structural 
balance 
the  medium-term 
above 
objective over the past years and the debt-to-GDP 
ratio fell below the 60% threshold in 2015, and has 
continued falling since then. The fiscal framework 
has been strengthened through the implementation 
of binding multiannual targets and the introduction 
of  spending  reviews.  The  further  incorporation  in 
the budgetary process of these targets and reviews 
is  ongoing.  In  contrast,  limited  action  has  been 
taken  to  improve  the  long-term  sustainability  of 
public  finances,  and  the  projected  increase  in 
ageing costs in Malta remains one of the highest in 
the EU, although from a level much below the EU 
average. 

(12)  For  the  assessment  of  other  reforms  implemented  in  the 
past, see in particular sections 3.1, 3.2, 3.3, 3.4 and 3.5. 

in 

the 

particularly 

in  the  governance  framework 
Weaknesses 
persist, 
judicial 
independence.  Although  police  resources  are 
being  increased,  efforts  to  detect  and  prosecute 
corruption remain insufficient. Reforms to improve 
the  criminal  justice  system  have  not  yet  been 
implemented.  Limited  progress  was  made 
to 
strengthen  the  independence  of  the  judiciary.  The 
government  announced  its  intention  to  tackle  the 
issue  but  concrete  measures  on  the  appointment 
and  dismissal  of  judges  have  been  announced  but 
have  not  been  taken  yet.  On  the  prosecution 
services,  the  government  took  steps  to  create  an 
autonomous prosecution service, with the adoption 
of  the  State  Advocate  Act  in  July  2019.  This 
measure  aims  at  ending  the  Attorney  General’s 
dual role as both the primary public prosecutor and 
legal 
the  primary  government  consultant 
matters.  However,  the  reform  appears  insufficient 
to  meet  existing  concerns  about  the  independent 
functioning,  effectiveness,  and  accountability  of 
the  prosecution  services.  Concerns  remain  over 
checks and balances in the appointment procedure 
for  the  Attorney  General,  which  in  practice 
remains  under 
the 
Government. 

the  exclusive  power  of 

in 

in  diversifying 

its  energy  mix, 

Energy  reforms  have  been  implemented,  but 
environmental sustainability challenges remain. 
In  recent  years,  Malta  has  made  substantial 
progress 
in 
particular  through  infrastructure  investment.  The 
growing  population  makes 
the  more 
important  to  further  strengthen  environmental 
sustainability,  especially  by  improving  the  energy 
performance  of  buildings.  In  addition,  greenhouse 
gas  emissions  are 
is 
expected  to  miss  its  2030  emissions  targets.  A 
number of policy measures to promote sustainable 
mobility  are  in  the  pipeline.  It  is  crucial  to 
strengthen  and  implement  these  measures,  as 

increasing,  and  Malta 

it  all 

15 

13%19%47%16%5%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
  
                                                           
2. Progress with country-specific recommendations 

the  independence  of  the  judiciary.  Some  progress 
has  been  made  in  focusing  investment-related 
economic  policy  on:  (i)  research  and  innovation; 
(ii)  natural-resource  management;  (iii)  resource 
and energy efficiency; and (iv) inclusive education 
and  training.  Limited  progress  was  made  on 
investing  in  sustainable  transport  and  reducing 
traffic congestion. 

Upon  request  from  a  Member  State,  the 
Commission  can  provide  tailor-made  expertise 
via the Structural Reform Support Programme 
implement  growth-
to  help  design  and 
enhancing reforms. Since 2017, such support has 
been  provided  to  Malta  for  30  projects.  In  2019, 
several projects were delivered on the ground. The 
Commission,  for  example,  helped  the  Maltese 
authorities to improve the framework for detecting 
and  supporting  students  at  risk  of  early  school 
leaving  and 
the  administrative 
capacity  of  the  Planning  Authority.  Furthermore, 
the  Commission  facilitated  the  training  of  public 
officials  working  in  the  area  of  e-government.  In 
2019,  support  continued  in  promoting  spending 
the 
a  particular 
reviews  with 
implementation  of 
in 
introducing 
budgeting 
framework,  while  work  has  started  in  supporting 
Malta’s participation in InvestEU. 

recommendations  and 

performance-based 

to  strengthen 

focus  on 

a 

traffic  congestion  generates  significant  economic 
and environmental costs. 

Measures to strengthen human capital are now 
under  way,  and  previous  reforms  have  helped 
to  broaden  the  labour  supply.  Labour-market 
reforms have helped to increase the labour supply 
in recent years. Some progress has also been made 
in  making  education  more  inclusive  for  all.  A 
policy  on  inclusive  education  in  schools  and  a 
national 
inclusive  education  framework  were 
published  in  2019.  It  is  now  important  to  ensure 
full  implementation  of  the  new  policy  in  all 
schools.  The  early-school-leaving  rate  has  been 
declining in recent years, but it remains one of the 
highest  in  the  EU.  The  government  recently 
invested  in  research  infrastructures,  aiming  to 
improve the teaching and research capacity of the 
public sector. 

Malta has  made limited progress in addressing 
the 2019 CSRs (see Table 22.1). No progress has 
been  made  in  addressing  the  2019  CSR  on  the 
long-term sustainability of public finances. This is 
because  no  new  measures  were  adopted  to:  (i) 
restrict early retirement; or (ii) reflect gains in life 
expectancy  in  the  statutory  retirement  age.  The 
steps that have been taken to address the adequacy 
to  require  additional 
of  pensions  are 
government outlays, and therefore do not improve 
the  fiscal  position  in  the  long  term.  Although 
implementation  continues  of  measures  introduced 
in  the  past  to  improve  the  efficiency  of  the 
healthcare  system,  no  new  measures  have  been 
announced to further improve the system. 

likely 

strengthened.  However, 

On  the  governance  framework,  some  progress 
has  been  made  to  improve  the  regulatory  and 
supervisory  framework  for  combating  money 
laundering. Additional resources were allocated to 
supervision  and  cooperation  among  supervisory 
the 
authorities  was 
practice  of  Malta  Financial  Services  Authority  to 
use  a  private  consultancy  for  supervisory  tasks  is 
of concern. A reform of the Financial Investigation 
is  underway. 
Department  within 
Investigations,  prosecutions  and  convictions  for 
money  laundering  and  related  offences  remain 
limited.  However,  no  progress  has  been  made  in 
altering  features  of  the  tax  system  that  may 
facilitate aggressive tax planning. In addition, only 
limited progress was made on tackling corruption. 
Limited  progress  was  also  made  on  strengthening 

the  police 

16 

2. Progress with country-specific recommendations 

Table 2.1: 

Annual assessment of the 2019 CSRs (*) 

Source:  European Commission 
(*)The assessment of CSR 3 does not take into account the contribution of the EU 2021-2027 cohesion policy funds. The 
regulatory framework underpinning the programming of the 2021-2027 EU cohesion policy funds has not yet been adopted 
by the co-legislators, pending inter alia an agreement on the multiannual financial framework (MFF). 

17 

 
  
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth 
and competitiveness in Malta. 

Malta  significantly  benefits  from  EU  cohesion  policy  funding.  The  financial  allocation  from  the  EU 
Cohesion  policy  funds (1)  for  Malta  amounts  to  €863  million  in  the  current  Multiannual  Financial 
Framework, representing around 1.1% of GDP. As of  end 2019, Malta allocated to specific projects €888 
million (more than the total amount planned) and spent €345 million (2), showing a level of implementation 
above  the  EU  average.  In  particular,  the  cohesion  policy  programmes  have  allocated  EU  funding  of  €146 
million for smart growth, €361 million for sustainable growth and sustainable transport, and €181 million 
for inclusive growth. In 2019, following a performance review (3), Malta received additional funding for €52 
million. 

EU cohesion policy is contributing to the transformation of the Maltese economy. By 2019, investments 
driven by the European Regional Development Fund (ERDF) have led to two significant research facilities 
implemented by the University of Malta: one enabling and supporting technology transfer, entrepreneurship 
and  knowledge  exchange  with  industry  (the  “Trake  project”,  the  other  one  being  a  laboratory  to  monitor 
resource efficient technologies in real life (the “Sustainable Living Complex”). With the aim of promoting 
innovation,  Malta  also  approved  the  ‘Sintegram’  project  in  2018  to  develop  a  national  spatial  data 
infrastructure, and to enhance the capacity of geo-spatial technology expertise. Malta also decided to support 
business infrastructure for SMEs through three projects: the Internationalisation Knowledge Platform (231 
enterprises  have  registered),  the  redevelopment  of  Ta’  Qali  Crafts  Villa,  and  the  ongoing  extension  of 
Xewkija Industrial Park. In the field of environment, a major project aiming at ensuring an integrated water 
resources management is set to be implemented by January 2022. The European Social Fund (ESF) notably 
promotes inclusive training opportunities. By the end 2018, 16,342 people received training or other support 
through  the  ESF,  which  aims  among  others,  at  providing  inclusive  and  quality  vocational  education  and 
training  (VET)  and  making  VET  more  attractive.  1  272  people  with  disabilities  participated  in  an  ESF 
funded activity. 9,431 people gained a qualification and 1,645 people found a job. 

Agricultural  and  fisheries  funds  and  other  EU  programmes  also  contribute  to  addressing  the 
investment needs. The European Agricultural Fund for Rural Development (EAFRD) fund makes available 
in  total  €130  million,  whereas  the  European  Maritime  and  Fisheries  Fund  (EMFF)  a  total of  €29 million, 
including national co-funding. Malta benefits also from other EU programs, such as the Connecting Europe 
Facility, which allocated EU funding of €49 million to specific projects on strategic transport networks and 
Horizon 2020 which allocated EU funding of €24 million (including €6 million support for 20 SMEs). 

EU funding contributes to  mobilise private investment. The SME initiative allocates €22 million in the 
form of loans, guarantees and equity, an increase by €7 million compared to 2018 due to the success of the 
initiative.  This  is  expected  to  leverage  additional  private  investment  amounting  to  €88  million.  At  end 
September 2019, 655 SMEs from 60 different economic sectors have benefitted from the initiative, 48% of 
which being start-ups. 

EU  funds  already  invest  substantial  amounts  on  actions  in  line  with  the  Sustainable  Development 
Goals (SDGs). In Malta the European Structural and Investment Funds support 12 out the 17 SDGs and up 
to 94% of the expenditure is contributing to those.  

(1)  European Regional Development Fund, Cohesion Fund, European Social Fund, Youth Employment Initiative. 
(2)  https://cohesiondata.ec.europa.eu/countries/MT 
(3)  The  performance  review  is  regulated  by  article  22  of  Regulation  (EU)  No  1303/2013,  whereby  5  –  7  %  of  overall 
resources  allocated  are  released  to  performing  priority  axes  of  the  operational  programmes.  The  amount  includes 
national co-financing. 

18 

 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  TAXATION 

tax  burdens 

Corporate income taxes continue to be a crucial 
source  of  government  revenues,  but  their 
volatility remains a concern. With a tax-to-GDP 
ratio  of  31.8% (13)  in  2018,  Malta  has  one  of  the 
lowest 
the  EU.  Although 
in 
consumption  and  labour-income  taxes  were  the 
largest  sources  of  tax  revenue,  the  share  of 
corporate  income tax in total  tax revenue (17.4%) 
remained  among  the  highest  in  the  EU (14),  partly 
registered  businesses. 
reflecting  a  surge 
in 
the  number  of 
Between  2010  and  2018, 
corporations  in  Malta  doubled  to  over  55,000. 
Most  of  these  corporations  have  at  most  10 
employees.  This  growth 
to 
international  companies  that  are  attracted  by  the 
Malta’s  tax  system,  which  allows  companies  to 
reduce  their  effective  tax  rate  to  between  0%  and 
10%  through  a  series  of  tax  credits  and  refunds 
even  though  the  statutory  corporate  income  tax 
rate  stands at 35% (Deloitte,  2019). High reliance 
on corporate tax revenues, combined with hard-to-
predict  revenues  from  its  Individual  Investor 
Programme  that  amount  to  some  1%  of  GDP, 
make Malta’s fiscal position sensitive to economic 
shocks  and  developments  in  the  corporate  and 
personal  tax  framework,  both  in  the  EU  and 
beyond. 

likely  due 

is 

The economic data suggests that companies and 
individuals  are  using  Malta’s  tax  rules  to 
engage  in  aggressive  tax  Planning.  Persistently 
high inward and outward foreign direct investment 
stock (which is almost exclusively held by special 
purpose  entities)  coupled  with  a  high  level  of 
dividend  (see  Graph 3.1.1)  and  royalty  payments 
as  a  percentage  of  GDP  suggests  that  companies 
use  Malta’s  tax  rules  to  engage  in  aggressive  tax 
planning 
2020b). 
(European  Commission, 
Measures identified as being of particular concern: 
the  absence  of  withholding  taxes  on  outbound 
payments,  the  country’s  investor  citizenship  and 

(13)  The  tax-to-GDP  ratio  differs  from  what  is  indicated  in 
Table  1.1  as  voluntary  actual  social  contributions  are  not 
included. 

(14)  In 2018, the share fell due to a more efficient and expedient 
administrative  process  for  refunds,  which  reduced  the 
amount  of  funds  transferred  to  the  central  government 
despite an increase in gross receipts.  

schemes 

Individual 

residence 
Investor 
(the 
Programme  and  Residence  and  Visa  Programme); 
and  the  notional  interest  deduction (15)  (European 
Commission,  2019b).  The  Maltese  treatment  of 
resident non-domiciled companies can also lead to 
situations  of  double  non-taxation  between  Malta 
and  most  countries  with  which  Malta  has 
concluded  a  bilateral  tax  treaty  (the  ‘Single  Malt’ 
structure (16)). In August 2019, Malta introduced a 
new  ‘patent  box’  regime  in  line  with  EU  and 
international  standards.  However,  the  economic 
evidence  for  the  effectiveness  of  patent  boxes  in 
encouraging  R&D  remains  limited  (CPB,  2014), 
and they could be used in aggressive tax  planning 
schemes  (Alstadsæter  et  al.,  2018).  Finally,  the 
lack  of  a  robust  transfer-pricing  framework  may 
also  allow  multinational  groups  to  use  Malta  for 
aggressive tax planning. 

is 

initiatives 

implementing  European 

and 
Malta 
internationally  agreed 
to  curb 
aggressive  tax  planning.  Malta  has  implemented 
the second anti-tax avoidance Directive (ATAD 2), 
which  should  neutralise  certain  hybrid  mismatch 
arrangements that would otherwise result in double 
non-taxation,  and  the  sixth  amendment  of  the 
Directive on Administrative Cooperation (DAC 6), 
which  provides  for  new  transparency  rules  for 
intermediaries  involved  in  tax  planning.  Further, 
Malta  has 
the  OECD  Multilateral 
Convention  to  Implement  Tax  Treaty  Related 
Measures  to  Prevent  Base  Erosion  and  Profit 
Shifting, which entered into force on 1 April 2019. 
Although Malta applies this convention to the vast 
it  has  put 
majority  of 
reservations  on  numerous  articles,  significantly 

treaty  partners, 

ratified 

its 

(15)  While  the  notional  interest  deduction  has  reduced  Malta’s 
corporate  debt-bias  from  3.8%  in  2017  (the  highest in the 
EU  together  with  France)  to  0%  in  2018  (European 
Commission,  2020b),  some  of  the  schemes  rules  warrant 
close monitoring as they may be used in ATP schemes. 
(16)  The  ‘Single  Malt’  structure  is  a  tax  arrangement  where  a 
firm  is  incorporated  in  a  given  country  but  effectively 
managed in Malta. As a result of the residence tie-breaker 
rule  in  a  number  of  bilateral  tax  treaties,  the  firm  is 
considered  to  be  tax  resident  in  Malta,  allowing  Malta  in 
principle  to  tax  that  firm’s  worldwide  profits.  Effectively, 
because  the  firm  is  incorporated  abroad,  Malta  exercises 
this tax jurisdiction only in respect of profits realized in or 
remitted  to  Malta,  whilst  foreign  profits  that  are  not 
remitted  to  Malta  (so-called  “offshore  income”)  are  not 
subject  to  tax  in  Malta,  leading  to  a  situations  of  double 
non-taxation. 

19 

 
                                                           
                                                           
3.1. Public finances and taxation 

the  effectiveness  of 

limiting 
this  multilateral 
instrument.  A  Competent  Authority  Agreement 
between  Malta  and  Ireland  came 
into  force 
in  November 2019 to make sure that the bilateral 
tax  treaty  between  those  countries  is  not  used  for 
aggressive  tax  planning  practices  through  the 
‘Single  Malt’  structure (17).  The  extent  to  which 
these  initiatives  limit  the  scope  for  aggressive  tax 
planning  remains  to  be  assessed.  No  additional 
reforms  have  been  introduced  to  address  specific 
tax  rules  used  by  multinationals  engaged  in 
aggressive tax planning structures. 

deposits  of  Maltese  citizens  held  in  low-tax 
jurisdictions reporting to the Bank of International 
Settlements increased by about 70% (Langenmayr 
and  Zyska,  2019).  The  OECD (18)  has  said  that 
Malta’s investor citizenship and residence schemes 
have  a  potentially  high  risk  of  being  misused  to 
circumvent  the  automatic  exchange  of  financial 
account information. This is because such schemes 
facilitate  the  concealment  of  the  real  jurisdictions 
of  residence.  When  used  as  tools  to  hide  assets 
held  abroad  from  reporting,  they  can  be  used  to 
evade tax. 

Graph 3.1.1:  Total outgoing dividend payments from EU 
Member States and share going to offshore 
financial centres*** 

* Countries which do not publish the share of dividend 
payments going to OFCs. 
** BE, EE, ES and IE do not publish data on separate 
incoming and outgoing dividend payments 
*** As defined in the Annex 7 of Balance of Payment 
Vademecum of Eurostat 
Source: European Commission 

is 

lost  due 

tax  revenue 

to 
Significant 
international 
individuals. 
tax  evasion  by 
Offshore  wealth  held  by  Maltese  citizens  is 
estimated to have reached 48% of GDP in 2016, 17 
pps more than the 2001-2016 average. This is very 
high compared to an EU average of 9.7% (ECOPA 
and  CASE,  2019).  The  corresponding  estimated 
level of international tax evasion of 2.4% of GDP 
was the  highest in the EU (against an EU average 
of  0.3%).  As  shown  in  a  recent  study,  after  the 
introduction of the Individual Investor Programme, 

(17)  No  such  arrangement  has  been  concluded  with  any  other 
EU  country  with  which  similar  structures  are  used  in 
Malta. 

Some  efforts  are  ongoing  to  limit  international 
tax  evasion  by 
individuals.  The  Maltese 
government  exchanges  information  with  other 
governments  about  people  that  have  obtained 
residence/citizenship 
investor 
citizenship and residence schemes. In addition, the 
country’s  common  reporting  standard  guidelines 
to  give  more  detailed 
have  been  amended 
explanations  to  financial  institutions  about  these 
schemes  and 
to  circumvent 
their  potential 
reporting guidelines. 

through  Malta’s 

Tax  compliance  has  improved  and  further 
measures  have  been  implemented.  In  2017,  the 
VAT gap (19) declined by an additional 0.7 pps to 
2%.  This  is  well  below  the  EU  average  of  10.9% 
(CASE,  2019)  and  suggests  there  have  been 
improvements in compliance. Nevertheless, due to 
VAT  exemptions  and  the  application  of  lower 
VAT rates to selected products, Malta is one of the 
EU countries  with the  highest rate  gap suggesting 
revenue  losses  due  to  the  existence  (and  level)  of 
reduced  rates.  To 
tax  evasion,  cash 
tackle 
transactions  exceeding  €10,000  were  banned  for 
purchases  such  as  properties,  vehicles,  art, 
precious stones and yachts. Given a sharp increase 
in  tourist  demand  for  private  accommodation,  in 
2019  the  authorities  made  an  agreement  with 
major  providers  of  online  booking  portals  to 
promote  properties  licensed  by  the  Malta  Tourist 
Authority.  This  will  improve  the  monitoring  of 
private rental income and improve collection of the 
15% tax that is due on this type of income. 

(18)  For more information, see OECD (2019b). 
(19)  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. 

20 

0%20%40%60%80%100%EEBE*ES*IEITELFRDEHRSIPTDKUKROPL*ATFILTBGSELVHUSKCZNLCYMTLUShare going to OFCsShare going to others    
                                                           
                                                           
3.1. Public finances and taxation 

In  addition, 

is  well  guided  by  numerical  fiscal  rules  and 
medium-term  budgetary  plans  with  clear  policy 
objectives. 
fiscal  policies  are 
monitored by an independent fiscal council. In line 
with  the  recommendations  of  the  IMF  fiscal 
transparency  report  (IMF,  2018),  the  government 
expanded  the  coverage  of  fiscal  reports  and 
improved  reporting  for  extra-budgetary  units  and 
pension  entitlements.  However,  the  transparency 
of  the  framework  would  further  benefit  from: 
reporting  tax  expenditures;  ensuring  consistency 
between  different  fiscal  reports;  reviewing  the 
performance  of  different  public  budget  entities; 
and  reviewing  the  performance  of  the  public 
corporation sector (IMF, 2018). 

Initiatives  continue  in  the  area  of  spending 
reviews. In 2019, the spending review focused on 
the Malta Police Force. The review concluded that 
the  ongoing  move 
inter-
disciplinary teams should enable police officers to 
be  better  redeployed  in  new  priority  areas  (i.e.  to 
address the changing nature of crime).  

towards  hubs  with 

3.1.3.  DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

Malta faces fiscal sustainability risks in the long 
term. A relatively low — and declining — public-
debt-to-GDP  ratio  (43%  in  2019),  combined  with 
headline  fiscal  surpluses,  make  Malta  one  of  the 
countries  with  low  fiscal  risks (20)  in  the  short-to-
medium term in the EU. However, in the long term 
the  sustainability  gap  indicator  S2 (21)  (3.0  pps  of 
GDP) 
fiscal 
sustainability.  This 
is  driven  by  a  projected 
increase  in  ageing  costs  of  6.8  pps  of  GDP  until 
2070,  which  are  due  to:  (i)  increasing  pension 
costs  (2.9  pps  of  GDP);  and  expenditure  on 
healthcare and long-term care expenditure (4.1 pps 
of GDP).  

suggests  medium 

risks 

to 

(20)  The risk is assessed based on the S0 and S1 indicators. The 
S0 indicator aims to provide early detection of fiscal stress 
stemming from risks up to 1 year ahead. The S1 indicator 
measures  the  required  fiscal  adjustment  needed  between 
2022 and 2026 to bring the public debt ratio down to 60 % 
of GDP by 2034. 

(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 additional expenditure arising from ageing. 

revenue 

Real-estate-related 
comes 
tax 
exclusively  from  transaction  taxes.  Real  estate 
taxes,  which  exclusively  come  from  transaction 
taxes, totalled 1.3% of GDP in 2018, compared to 
an EU average of 2.5%. They represented 4.2% of 
total tax revenues in Malta compared with 6.4% in 
the  EU,  since  Malta  does  not  apply  recurrent 
taxation  on  immovable  property.  Shifting  from 
transaction to recurrent property taxes could foster 
a  more  efficient  use  of  building  space,  which  is 
particularly relevant for Malta. However, as Malta 
does not have a property register, this would entail 
certain set-up costs. Recurrent property taxes could 
also  help  in  dampen  potential  boom-and-bust 
cycles,  especially  given  the  considerable  recent 
increases  in  Malta’s  property  prices  (see  Section 
3.2). 

is  scope  to 

improve  the  design  of 
There 
environmental  taxes.  Environmental 
taxation 
both in terms of GDP and total tax revenue exceed 
the EU average. This is mainly due to the category 
of  non-fuel-related  transport  taxes,  which  ranks 
among the highest in the EU. Vehicle taxes depend 
on the carbon dioxide emissions of the vehicle, and 
hence encourage fuel efficiency. However, they do 
not  affect  decisions  on  the  number  of  kilometres 
driven.  Fuel  taxes,  on  the  other  hand,  affect  the 
marginal  cost  of  using  a  vehicle  and  tend  to  have 
the  greatest  effect  in  reducing  carbon  dioxide 
emissions  from  car  use.  Fuel  taxes  are  part  of 
energy  taxes  which  is  the  largest  category  of 
environmental  taxation.  Malta’s  energy  taxes  are 
below  the  EU  average,  both  as  a  percentage  of 
GDP  and  as  a  share  of  total  tax  revenues.  In 
addition,  two  major  tax  distortions  diminish  the 
effectiveness of fuel taxes, namely the reduced 5% 
VAT rate on electricity and the diesel excise duty 
rate (which is 14% lower than the petrol rate) (see 
also  Section  3.5).  Compensatory  measures  may 
help  to  mitigate  the  potential  adverse  impacts  of 
low-income  groups  (European 
fuel 
Commission,  2019n).  It  is  also  noteworthy  that 
Malta  is  one  of  the  few  Member  States  that  does 
not appear to have a landfill tax nor an incineration 
tax  (Confederation  of  European  Waste-to-Energy 
Plants, 2017). 

taxes  for 

3.1.2.  FISCAL FRAMEWORK 

Malta’s  sound  fiscal  framework  could  be 
improved  further.  The  Maltese  fiscal  framework 

21 

                                                           
3.1. Public finances and taxation 

scheme,  which 

release 
allows  homeowner 
pensioners  to  raise  their  standard  of  living  by 
allowing  them  to  convert  a  part  of  their  home’s 
value into income. The fiscal incentives for private 
pension  savings  and  voluntary  occupational 
pensions  were  also strengthened by increasing the 
maximum  tax  credit  granted.  To  address  the 
adequacy  of  pensions,  the  government  increased 
pensions  beyond 
cost-of-living 
adjustment index. This led to a  hike of  more  than 
20%  in  the  average  public  pension  in  2020,  the 
largest  increase  since  1980.  A  broader  review  of 
the  pension  system  is  expected  in  2020  when  the 
Pension Strategy Group set up in 2018 is expected 
to publish its report. 

regular 

the 

Healthcare and long-term care system 

the  amount  of 

Public expenditure on healthcare is projected to 
increase  considerably  due  to  ageing.  Malta 
spends  9.3%  of  GDP  on  health,  only  marginally 
below the EU average of 9.8% of GDP. However, 
out-of-pocket  outlays  of  Maltese  patients  cover 
over  a  third  of  healthcare  expenditure,  more  than 
their  average  EU 
double 
counterparts.  Government 
on 
healthcare (excluding outlays on long-term care) is 
therefore relatively low at 5.9% of GDP (EU: 6.8% 
of  GDP  in  2016).  However,  given  the  ageing 
population,  public  spending  on  healthcare 
is 
projected to surge by 2.7 pps of GDP between now 
and  2070.  An  additional  increase  of  1.4  pps  of 
GDP  is  expected  for  long-term  care  expenditure 
over the same period. 

expenditure 

The  health  system  appears  to  be  effective  and 
well  accessible.  Malta  has  one  of  the  highest  life 
expectancies (82.4 years) in the EU, and in recent 
years has recorded substantial falls in treatable and 
preventable  mortality.  Nevertheless,  behavioural 
risk  factors  persist.  The  obesity  rate  remains  high 
and  requires  further  prevention  measures.  A  high 
rate  (70%)  of  family  doctor  visits  carried  out  in 
private  clinics  (OECD/European  Observatory  on 
Health  Systems  and  Policies,  2019)  is  the  main 
reason for high out-of-pocket outlays. Despite this, 
healthcare appears well accessible, as self-reported 
unmet needs for medical care are very low. 

Overuse  of  hospital  emergency  care  persists, 
while long waiting times for specialists declined. 
In  the  absence  of  after-office-hours  services  of 
private  doctors,  patients  tend  to  use  emergency 

Pension system 

The  effects  of  an  ageing  population  will  weigh 
on  the  sustainability  of  the  pension  system.  At 
8%  of  GDP  in  2016,  pension  spending  in  Malta 
was among the lowest in the EU. According to the 
European  Commission  (2018b),  Maltese  pension 
spending is projected to increase to 10.9% of GDP 
in  2070.  Although  this  would  be  close  to  the  EU 
average, the rate of growth over this time would be 
largest 
among 
contribution 
is 
projected  to  come  from  the  dependency  ratio, 
reflecting  a  relative  increase  in  the  number  of 
pensioners  compared  to  those  of  working  age. 
However,  the  indexation  rules  in  place  will  go 
some way to containing pension outlays (22). 

the  highest 
this 
to 

in 
increase 

the  EU.  The 

in  spending 

Migration  is  likely  to  dampen  pension  outlays. 
The 
intermediate  2019  Eurostat  population 
projections  envisage  faster  population  growth  for 
Malta  than  previous  projections  due  to  higher 
projected  migration  flows.  If  these  migration 
forecasts  are  confirmed  in  April  2020 (23),  the 
projected increase in pension expenditure would be 
0.8  pps  lower  by  2070  than  previously  estimated. 
However,  Malta  would  still  remain  a  ‘medium-
risk’  country  with  respect 
long-term 
sustainability of its public finances. 

the 

to 

If  sustained,  short-term  stays  of  migrant 
workers  may  ease  the  pressures  on  pension 
outlays. About half of foreign workers leave again 
after 1-2 years, and almost 70% leave the country 
by  the  sixth  year  (Borg,  2019).  Given  their 
relatively  short  stays,  not  many  foreign  workers 
meet  the  minimum  period  of  contributions  (10 
years) to qualify for pension entitlements (24). This 
is  especially  true  for  migrants  from  non-EU 
countries, whose share in total migration has been 
increasing.  

Recent  measures  aim  at  diversifying  pension 
income  and  increasing  pension  adequacy.  In 
2019,  the  government  launched  the  home  equity 

(22)  Pensions of those born before 1962 are generally increased 
at a flat rate based on a cost-of-living adjustment (COLA). 
Those born after 1962 will see their pensions being indexed 
by  a  factor  corresponding  to  70%  of  the  increase  in  the 
national average wage and 30% of inflation. 

(23)  The next update of the population projections in April 2020 

will feed into the 2021 Ageing Report. 

(24)  41  years  of  contributions  are  required  to  build  up  full 
pension rights. This applies to those born after 1968. 

22 

                                                           
3.1. Public finances and taxation 

services  is  expected  to  grow  due  to  the  ageing 
population 
labour-market 
participation of women who traditionally provided 
this type of care. 

the  growing 

and 

care in hospitals, despite the increased after-office 
hours  in  the  National  Health  Service  outpatient 
care, coupled with enhanced supply of diagnostics 
and  specialist  care.  The  government  has  run  an 
information  campaign  to  encourage  patients  in 
such  cases  to  revert  to  public  primary  health 
centres.  However,  these  measures  seem  to  be 
insufficient to yield the full efficiency potential of 
reducing  this  costly  practice.  The  public-private 
arrangements  in  outpatient  care  (e.g.  for  dentists 
and  medical  imaging)  have  reportedly  reduced 
waiting times and are expected to be revisited once 
the backlog of cases declines to a reasonable level. 
Although the number of physicians and nurses has 
increased  in  recent  years  and  converged  to  EU 
averages,  shortages  persist  for  nursing  staff  in 
hospitals and long-term care. 

increase 

is  warranted 

Various  measures  aim  to  increase  healthcare 
efficiency. Two primary-care hubs expected to be 
in  2022  will  offer  emergency 
operational 
outpatient  care  and 
the  number  of 
specialists.  Efficiency  gains  may  materialise  if 
unjustified  use  of  hospital  emergency  care  is 
limited. Given a lack of details on service fees for 
the  public-private  partnership  in  hospital  care, 
monitoring 
to  ensure  costs  are 
the  Valletta  Declaration (25) 
contained.  As 
is  still  under  development,  Malta 
initiative 
continues  to  face  challenges  from  the  high  prices 
of innovative medicines and treatments due to the 
small  size  of  its  market.  Further  policy  measures 
are  therefore  needed  in  this  area  to  address  the 
growing  pressure  on  public 
finances.  The 
electronic  patient  record  system  is  well  advanced. 
The implementation of a broader national e-health 
system,  which  has  the  potential  to  improve  the 
efficiency of the healthcare sector, is still ongoing. 

Long-term care capacity has expanded in recent 
years.  Although  public  capacity  for  institutional 
care  (i.e.  residential  homes)  is  around  the  EU 
average,  it  is  insufficient  to  meet  demand.  The 
government  therefore  contracted  long-term  care 
beds from the private sector. Home-based services 
have also expanded in recent years. The provision 
of these services is tested for needs, but not means, 
and the existing co-payments asked of patients are 
relatively  low.  The  demand  for  long-term  care 

(25)  The  initiative  aims  to  coordinate  efforts  on:  (i)  health 
technology assessment; and (ii) the pricing reimbursement 
and procurement of pharmaceuticals. 

23 

                                                           
3.2.  FINANCIAL SECTOR 

3.2.1.  FINANCIAL STABILITY 

Core  domestic  banks  continue  to  strengthen 
their  capital  positions  and  leverage  ratios. 
Capital  ratios  remained  high 
in  2018  after 
declining  mildly  in  previous  years,  which  can  be 
explained  by  balance  sheet  expansion  (leading  to 
the  growth  of  risk-weighted  assets)  and  valuation 
losses  caused  by  higher  yields.  The  total  capital 
ratio  stands  at  23.4%,  and  the  leverage  ratio  at 
12.3%, for the sector (26). The profitability of core 
domestic banks remains  slightly above their euro-
area  peers,  with  a  return  on  assets  of  0.4%  and  a 
return  on  equity  of  3.7%  (0.2%  and  3.2%  in  the 
euro  area  respectively).  In  the  first  half  of  2019, 
net  interest  income  declined  to  73.6%  of  gross 
ratio 
income.  The  operational-cost-to-income 
plunged  in  the  second  quarter  of  2019,  reaching 
48.5%, well below the euro-area average of 66.2%. 
However,  fintech  companies,  which  tap  primarily 
business  for  electronic  money,  have  become 
significant  competitors  to  local  banks  in  this 
service  area.  Although  the  impact  of  this  new 
source  of  competition  on  banks’  interest  rate 
margins is not yet relevant, the new digital players 
have  increased  their  market  share  by  taking  on 
customers  that  do  not  fit  the  risk  profile  of  a 
traditional bank. 

Aggregate figures on mortgages hide pockets of 
vulnerability.  A  shift  from  the  construction  and 
real-estate  sector  towards  mortgages  has  reduced 
concentration  risk,  as  lending  is  spread  among  a 
larger  number  of  small  borrowers.  In  addition, 
although  household  indebtedness  grew,  it  was 
accompanied  by  household  accumulation  of  net 
financial  wealth.  However,  there  has  been  an 
increase in both: (i) the shares of mortgages with a 
value  equivalent  to  5-6  times  the  client’s  gross 
income;  and  (ii)  the  share  of  mortgages  to  people 
with  a  loan-service-to-income  ratio  within  the 
20%-25% interval (Central Bank of Malta, 2019b). 
This  suggests  that  borrowers  are  increasingly 
required to borrow more compared to their income, 
and  must 
higher  monthly 
instalments.  Mortgages  are  also  largely  granted  at 
variable  rates,  indirectly  linked  to  the  European 
Central  Bank’s  main  refinancing  operations  rate 

therefore 

pay 

(26)  The total capital ratio expresses own funds as a percentage 
of risk-weighted assets. The leverage ratio is calculated by 
dividing  Tier  1  capital  (i.e.  mainly  equity  and  retained 
earnings) by the banks’ average total consolidated assets. 

(IMF,  2019),  creating  vulnerabilities  in  the  event 
of a downturn or interest-rate hikes. Nevertheless, 
sensitivity tests carried out by the Central Bank of 
Malta  on  a  potential  increase  in  the  interest  rates 
by  150  basis  points  on  new  mortgages  show  that 
only 5% of new  loans  would have a debt-service-
to-income ratio that exceeds 40%. 

sector, 

In response to the momentum in the residential 
real-estate 
supervisory  rules  were 
strengthened.  The  Central  Bank  of  Malta  issued 
Directive 16 on the Regulation on Borrower-Based 
Measures,  which  came  into  force  on  1 July  2019, 
and  applies  to  all  domestic  lenders  granting 
domestic,  residential  real-estate  loans.  For  two 
categories of borrower, the measures set limits on: 
(i)  the  size  of  loans  relative  to  the  value  of 
property;  (ii)  the  size  of  debt  service  relative  to 
income;  and  (iii)  the  maturity  of  the  loan  (27). 
Under the new rules, first-time buyers benefit from 
higher  loan-to-value  ratios  and  longer  maturities 
relative  to  category  II  buyers.  They  are  also 
exempt  from  loan-to-value  and  debt-service-to-
income restrictions if the collateral market value of 
the  acquired  property  is  below  €175,000.  With 
both  borrower  categories,  the  banks  have  ‘speed 
limits’,  which  allow  banks  to  deviate  from  the 
maximum  loan-to-value  ratios  for  a  specified 
number  of  loans,  differing  by  borrower  category. 
These  borrower-based  measures  are  expected  to: 
(i)  strengthen 
lenders  and 
the  resilience  of 
borrowers 
to  any  potential  shocks;  and  (ii) 
preserve  the  current  sound  and  prudent  lending 
standards. 

Malta  is  also  further  developing  its  capital 
market for small and medium-sized enterprises. 
The number of non-bank companies quoted on the 
Malta  Stock  Exchange  surged  between  2013  and 
2019.  There  was  also  a  corresponding  increase  in 
the amount of debt issued on financial markets by 
non-bank companies, which almost tripled over the 
the 
same  period.  This 

exacerbated 

trend 

(27)  The  new  directive  differentiates  between  first-time  buyers 
(Category I) and those acquiring their second property or a 
property  to  rent  out  (Category  II).  This  first  category  also 
includes:  (i)  non-first-time  borrowers  purchasing  their 
primary residence with no outstanding loans; (ii) borrowers 
who already own or have owned a primary residence and at 
the  origination  of  the  mortgage  loan  the  pre-existing 
primary residence has either been sold or a promise of sale 
agreement  has  been  entered  into;  and  (iii)  borrowers  who 
have  pending  proceedings  before  the  Civil  Court  (Family 
Section), which hinder the sale of the primary residence. 

24 

 
                                                           
                                                           
3.2. Financial sector 

disintermediation process (companies being able to 
raise  money  in  debt  markets  instead  of  having  to 
go to banks), and is expected to improve financial 
stability by diversifying credit risk among a range 
of market participants. Moreover, as a result of the 
national  capital-markets  strategic  plan  that  was 
launched 
in  2016,  small  and  medium-sized 
enterprises  were  able  to  issue  bonds  or  equity  via 
the  Prospects  Multilateral  Trading  Facility,  thus 
increasing  access  to  the  capital  markets  for  small 
the  Prospect  Multilateral 
players.  By  2019, 
Trading  Facility  market,  which 
consisted 
predominantly  of  bonds,  constituted  almost  2.5% 
of  outstanding  corporate  bond 
issuance  and 
amounted to some 0.4% of GDP. It is important to 
ensure 
financing 
instruments are aware of the associated risks.  

that  buyers  of  different 

sector 

The  domestic 
remains 
insurance 
profitable  and  has  retained  a  strong  solvency 
position.  Out  of  70  insurance  companies,  only  8 
firms  underwrite  risks  in  Malta  as  their  main  line 
of  business.  Notwithstanding 
the  prevailing 
uncertainty  in  yields  on  international  markets,  the 
systemically  relevant  domestic  insurance  sector 
has  remained  profitable,  with  a  return  on  assets 
and return on equity respectively standing at 1.3%  
and  12%  (EU  insurers:  0.6%  and  12.7%)  in  June 
2019.  Over  the  same  period,  the  sector  also  met 
regulatory  Solvency  II  requirements  with  all 
domestic 
capital 
ratios (28)  and  minimum  capital 
requirement 
requirement (29) ratios well above 100%. 

insurers  having 

solvency 

The  withdrawal  of  correspondent  banks  still 
needs  to  be  addressed.  Correspondent  banks, 
which help domestic banks conduct transactions in 
other  currencies,  especially  US  dollars,  have 
become  increasingly  more  risk  averse  in  recent 
years.  This  has  led  them  to  exit  or  de-risk  this 
service  in  small  jurisdictions  and  those  with  a 
concentration  of  high-risk  clients.  US  regulators 
perceive  payments  involving  online  gaming  and 
payment  gateways  that  are  outside  the  Visa  and 
MasterCard systems as high risk. To address such 

(28)  The  solvency  capital  requirement  is  the  amount  of  funds 
that  insurance  and  reinsurance  companies  are  required  to 
hold under the European Union’s Solvency  II Directive in 
order to have 99.5% confidence that they could survive the 
most extreme expected losses over the course of a year. 
(29)  The minimum capital requirement represents the threshold 
below which a national regulatory agency would intervene, 
and  is  intended  to  achieve  a  level  of  85%  probability  of 
adequacy over a one-year period. 

schemes 

concerns, several banks implemented requirements 
set  by  correspondent  banks,  such  as  refraining 
from:  (i)  processing  payments  in  the  gaming  and 
crypto-currencies  sectors;  and  (ii)  dealing  with 
clients who availed of any of Malta’s citizenship or 
residency 
2019). 
Deutsche Bank stopped providing such services to 
local banks in 2019, while ING promised to extend 
them  until  March  2020.  To 
their 
international reputation and prevent the further loss 
of  correspondent  banks,  additional  measures  to 
tackle  money-laundering  issues  may  be  required 
(see Section 3.2.2). 

(MONEYVAL, 

improve 

Lengthy procedures do not provide an adequate 
remedy  against  insolvency.  In  the  World  Bank’s 
Doing  Business  2020  report,  Malta  ranked  among 
the  last  of  all  EU  Member  States  for  resolving 
insolvency.  This  is  because  of  a  relatively  low 
recovery  rate  and  long  proceedings  (which  last 
the 
about  3  years  on  average).  Moreover, 
insolvency  framework  index (30)  points  to  overall 
weakness  in the  whole insolvency  framework.  An 
assessment of the insolvency system by the Central 
Bank of Malta in early 2019 took a sample of 204 
non-performing loans. The assessment showed that 
27  obligors  (13%  of  the  total)  were  resolved  in 
court and settled within a median timeframe of 0.7 
years, while longer-lasting cases took some 4 years 
to  settle.  To  remedy  the  system,  the  banking 
association  proposed  that  banks  with  commercial 
loans  could  be  allowed  to  sell  the  commercial 
property  themselves  to  accelerate  the  process  and 
achieve an easy disposal of assets. The government 
has not yet discussed the measure.  

3.2.2.  COMBATING MONEY LAUNDERING 

The  Maltese  economy  remains  vulnerable  to 
money-laundering risks. Money-laundering cases 
have  affected  Maltese  credit  institutions  in  recent 
years  (European  Commission,  2019k).  Following 
the findings of the European Banking Authority of 
a  breach  of  EU 
law  by  Malta’s  Financial 
Intelligence  Analysis  Unit  (FIAU)  in  July  2018, 
and  the  subsequent  opinion  from  the  European 
laundering 
Commission,  Malta’s  anti-money 

(30)  The  insolvency  framework  index  is  based  on  four  other 
indices:  the  commencement  of  proceedings  index,  the 
management  of  debtors’  assets  index,  the  reorganisation 
proceedings index, and the creditor participation index. 

25 

                                                           
                                                           
3.2. Financial sector 

identified 

system  has  been  strengthened  with  regard  to 
supervision.  However, 
the  Mutual  Evaluation 
Report  of  Malta,  published  by  MONEYVAL  in 
the 
July  2019, 
in 
investigation 
of  money 
laundering,  due  to  limited  resources  within  the 
police  and  a  lack  of  sufficient  prioritisation. 
Deficiencies  were  also  found  in  asset-tracing  and 
the confiscation regime for criminal proceeds. 

shortcomings 

prosecution 

and 

laundering.  This 

Malta’s  specialisation  in  gaming  and  plans  to 
specialise in virtual assets, which have inherent 
money laundering risks, highlights the need for 
commensurate  mitigating  measures.  Remote 
gaming  is  one  of  the  key  sectors  in  the  Maltese 
economy  and  is  expected  to  contribute  to  Malta’s 
economic growth in the coming years (EY, 2019). 
At  the  same  time,  as  highlighted  in  the  country’s 
national  risk  assessment  (Ministry  for  Finance, 
2018),  remote  gaming  is  inherently  vulnerable  to 
effective 
money 
implementation  of  appropriate  mitigating  checks, 
both  at  the  initial  stage  (when  a  customer  first 
signs  up)  and  on  an  ongoing  basis.  Cooperation 
the  Malta  Gaming 
between 
Authority  has  been  strengthened.  Furthermore,  as 
an emerging international hub in the area of virtual 
assets,  Malta  has  begun  an  analysis  aimed  at 
assessing the risks posed by the sector and related 
services.  The  findings  of  the  analysis  will  be 
crucial  to  ensure  effective  application  of  the 
to  address 
appropriate  mitigating  measures 
risks 
vulnerabilities 
emerging from this sector. 

and  money-laundering 

the  FIAU  and 

requires 

(ii) 

aimed 

reviewed 

improving 

Malta has stepped up efforts to enhance its anti-
money-laundering  regulatory  and  supervisory 
framework.  The  FIAU,  as 
the  anti-money-
laundering  supervisor,  has  adopted  a  2019-2021 
development  plan.  The  plan  aims  at  significant 
growth in all the FIAU’s areas, such as investment 
in  human  resources  and  IT  solutions  to  improve 
data  gathering  and  risk-assessment  tools.  The 
to  revise  policies  and 
FIAU  also  continues 
procedures 
risk-based 
at 
processes. In parallel, the Malta Financial Services 
Authority (MFSA) has: (i) begun to increase  staff 
levels  to  support  its  supervisory  role  (European 
Commission,  2019b);  and 
its 
structure  and  anti-money-laundering  oversight.  In 
February  2019,  the  MFSA  published  an  anti-
money-laundering/counter-financing-of-terrorism 
strategy.  The  strategy  includes  the  monitoring  of 
money-laundering/terrorist-financing 
risks 
associated  with  the  firms  overseen  by  the  MFSA. 
On  the  basis  of  a  memorandum  of  understanding, 
the  MFSA 
anti-money-laundering 
supervision jointly with the FIAU, or on its behalf, 
on 
this  FIAU’s  manual  and 
procedures.  The  response  given  by  the  Maltese 
authorities 
(European 
Commission, 2019b) is an example of the stronger 
cooperation  between  the  FIAU  and  MFSA  in  the 
credit 
anti-money-laundering 
institutions. It also shows improvements in Malta’s 
application  of  effective  sanctions  for  breaches  of 
anti-money-laundering  obligations.  However,  the 
MFSA  practice  of  using  a  private  consultancy  for 
supervisory tasks is of concern.  

the  Satabank  case 

supervision  of 

the  basis  of 

conducts 

in 

investment  scheme, 

Potential money-laundering risks are associated 
with Malta’s citizenship and residence schemes. 
In  2013,  Malta  introduced  an  investor  citizenship 
scheme, the Individual Investor Programme, and a 
residence  by 
the  Malta 
Residence  and  Visa  Programme.  The  Individual 
Investor  Programme  is  being  administered  by  an 
independent  government  entity.  In  the  country’s 
national  risk  assessment,  the  potential  risks  of 
money  laundering  linked  to  the  citizenship  and 
residence  schemes  were  not  analysed,  although 
these  schemes  inherently  raise  money-laundering 
concerns (European Commission, 2019j). Ensuring 
an  adequate  understanding  of  the  risks  posed  by 
this type of scheme and the adoption of appropriate 
mitigating measures remain a challenge. 

the 

On  the  law  enforcement  side,  additional  reforms 
are in the pipeline, although their effectiveness has 
yet to be assessed and yield results. In June 2019, 
Malta  announced a  number  of  reforms  aimed  at 
strengthening 
law  enforcement 
role  of 
authorities  in  the  fight  against  money  laundering 
and  financial  crime  more  generally  (doi.mt.gov, 
2019). These reforms include: (i) the creation of a 
new  Financial  Organised  Crime  Agency 
to 
investigate and prosecute the most serious cases of 
money  laundering  and  financial  crime;  and  (ii) 
increased  powers  for  the  Asset  Recovery  Bureau. 
It remains to be assessed how these reforms will be 
implemented in practice. Until the end of October 
2019,  the  Police  intended  setting  up  their  own 
Prosecutions  Unit  but  eventually 
this  was 
superseded by a decision taken ahead of the date of 
the fact-finding mission in November. At the time, 

26 

3.2. Financial sector 

real  terms,  reaching  5.2%  of  GDP.  In  2018,  real 
investment  in  dwellings  surpassed  even  the  peak 
reached  in  2007  (Graph 3.2.2)  and  accounted  for 
more  than  half  of  total  construction  investment. 
The  Planning  Authority  issued  the  highest-ever 
number  of  building  permits  (for  12,885  dwelling 
units)  in  2018,  an  increase  of  338%  compared  to 
2014.  The  construction  spree  is  thus  likely  to 
continue.  Building  permits  are  also  increasingly 
issued for construction on virgin land.  

The  government  is  seeking  to  tame  high  rental 
prices  amid  affordability  concerns.    The  rapid 
growth  of  house  prices  appears  to  have  made  it 
more  difficult  for  middle-income  households  to 
enter  the  property  market  (MDA,  2019).  More 
importantly,  rental  prices  have  surged,  driven  by 
growing  demand,  mainly  from  foreign  employees 
and  tourists  looking  for  temporary  and  short-term 
stays (see Box 3.5.1). High levels of rent inflation 
may crowd out vulnerable groups from  what used 
to be affordable property. To address this issue, the 
government  approved  a  reform  to  regulate  the 
rental  housing  market  starting  in  2020  without 
imposing upper limits on rent levels in new rental 
contracts.  The  main  elements  of 
the  reform 
include:  (i)  annual  rental  increases  capped  at  5%; 
(ii) residential leases of a minimum of 1 year; (iii) 
tax  credits  for  landlords  for  long-term  contracts; 
and (iv) an obligation for all rental contracts to be 
registered online using blockchain technology. 

Graph 3.2.1:  House price misalignment 

it was agreed that there would be one prosecution 
service  led  by  the  Attorney  General,  with  the 
police 
two  years 
cases  up 
imprisonment. 

retaining 

to 

3.2.3.  HOUSING MARKET 

increase 

the  peaks 

indices  reflects 

There  has  been  a  sustained 
in 
residential  house  prices  with  some  signs  of 
overvaluation.  Following 
reached 
between 2005 and 2008, property price growth was 
sluggish until 2014. Since then, house prices — as 
measured  by  the  official  transactions-based  index 
published  by  the  National  Statistical  Office  — 
gained  momentum,  growing  by  5.8%  per  year 
between 2014 and 2018. The property price index 
published  by  the  Central  Bank  of  Malta,  which  is 
based  on  advertised  prices,  suggests  even  faster 
annual  average  growth  of  9.3%.  Neither  of  these 
the  floor  area  of  sold 
two 
properties.  The  price  per  square  metre  may 
therefore  have  surged  by  even  more.  Housing 
demand  has  been  supported  by:  (i)  the  low-
(ii)  budgetary 
interest-rate  environment;  and 
measures  incentivising  property  purchases  for 
first-time  buyers  (and,  more  recently,  also  for 
second-time  buyers).  The 
job-rich  economic 
growth,  coupled  with  higher  female  participation, 
has  also  contributed  to  an  increase  in  household 
incomes, supporting borrowers’ ability to apply for 
a mortgage. Higher demand for properties was also 
driven  by  inward  migration  and  booming  tourism 
(tourists 
private 
accommodation  for  their  stays).  Ratios  of  house 
price  to  income  and  to  rent  point  to  a  positive 
deviation 
averages, 
overheating 
degree 
suggesting 
(Graph 3.2.1).  This  evidence  is  muted  by  the 
model  overvaluation  gap,  based  on  econometric 
analysis,  which 
some 
suggests 
the 
undervaluation.  Combining  all 
overall valuation gap points to an overvaluation of 
about 6% (Philiponnet and Turrini, 2017) (31).  

instead 
indicators, 

long-term 
of 

increasingly 

renting 

some 

from 

their 

are 

Supply  responded  strongly  to  the  swelling 
demand  for  residential  property.  Between  2014 
and  2018,  residential  investment  almost  tripled  in 

(31)  Estimates  of  house  prices  in  levels,  indicate  that  the  price 
of 100m2 in Malta was around 10 times income per capita 
in  2018,  with  10  years  of  income  being  considered  the 
threshold for overvaluation (Bricongne et al., 2019). 

Source: European Commission services calculations 

27 

020406080100120140-60-50-40-30-20-1001020304000010203040506070809101112131415161718Price to rent vs. hist. avg.Price to income vs. hist. avg.Model-based valuation gapHouse price (rhs)% deviation of current pricefrom hist. avgindex (2015=100)                                                           
     
 
3.2. Financial sector 

Graph 3.2.2:  Building permits and housing investment 

Source: Malta Planning Authority, Eurostat 

28 

05010015020025002468101214000102030405060708091011121314151617182015=100units (thousands)Bulding permitsDwellings investment (rhs)  
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR MARKET 

Malta is experiencing high levels of employment 
and a tightening of the labour market. In 2018, 
the  employment  rate  in  Malta  reached  75.5%.  At 
5.7%, its employment growth is the highest in the 
EU.  The  unemployment  rate  is  at  a  record  low 
(3.7%),  including  for  young  people  aged  15-24 
(9.1%). Long-term unemployment (1.1%) is also at 
a record low. The share of young people (aged 15-
24)  not  in  employment,  education  or  training  is 
7.3%,  far  below  the  EU  average  (10.5%).  The 
activity  rate  rose  to  74.7%  and  is  now  above  the 
EU  average  (73.7%).  However,  the  labour-market 
participation  of  certain  groups  remains  low.  In 
2018,  the  employment  rate  of  older  people  aged 
55-64  was  50.2%,  well  below  the  EU  average 
(58.7%).  

Graph 3.3.1:  Labour shortages: job finding and separation 

rates 

Skills mismatches remain an issue. The share of 
low-qualified adults is decreasing but remains one 
of  the  highest  in  the  EU  (46.7%  in  2018  against 
21.9%  in  the  EU).  The  employment  rate  of  low-
skilled  adults  increased  from  59.2%  in  2017  to 
62.2%  in  2018,  but  they  tend  to  be  employed  in 
jobs for which they are underqualified (the second 
highest under-qualification rate in the EU). 

increase 

Incentives 

participation 

the  EU  average 

The  uptake  of  upskilling  and  re-skilling 
schemes  remains  low,  notably  by  SMEs  and 
low-skilled  adults.  Adult 
in 
education  and  training  stood  at  10.8%  in  2018, 
almost 
(11.1%). 
reaching 
However,  only  4.1%  of 
low-skilled  adults 
participated  in  training  in  2018,  despite  their 
for 
for  upskilling. 
greater  need 
employers’ involvement, and the improved labour-
market  relevance  of  training  programmes,  may 
have  helped 
the  number  of  SMEs 
providing  training  to  their  employees  in  recent 
years.  249  SMEs  provided 
their 
employees  under  the  European  Social  Fund  co-
financed  scheme,  Investing  in  Skills,  in  2018  and 
2019.  However,  the  level  of  SME  participation  in 
training is below the EU average, and the uptake of 
existing  support  schemes  remains  low.  Most 
employees 
Public 
Employment Service report a lack of interest in in-
work  training,  mainly  because  they  claim  they 
already have the right skills for the job. Employers, 
on  the  other  hand,  report  a  lack  of  incentive  to 
invest in the training of their employees due to the 
high turnover of workers.  

by  Malta’s 

surveyed 

training 

to 

(1) Average of 4 quarters: reference quarter and 
previous 3 quarters  
Source: European Commission 

Labour  shortages  affect  all  skills  levels.  The 
share of companies reporting labour shortages as a 
major  factor  constraining  their  activity  is  among 
the highest in the EU, and increased from 4.2% in 
2013 to 38.1% in 2018. Difficulties in finding and 
retaining specialised skilled workers remain one of 
the  main  challenges  expressed  by  employers 
(see  Graph 3.3.1).  The 
(Jobsplus 
the  shortage  of 
to  address 
authorities  plan 
employees  through  incentives  for  overtime  work, 
and further promoting upskilling opportunities.  

survey) 

Foreign  labour  strongly  contributed  to Malta’s 
economic dynamism, but the population growth 
can  also  exacerbate  existing  challenges.  Malta 
relies  strongly  on  foreign  workers  to  address 
labour  shortages  and  skills  gaps.  In  2019,  foreign 
workers  represented  23.8%  of  the  labour  force  in 
Malta,  of  which  more  than  60%  were  from  other 
EU  countries  (Jobsplus).  According  to  Eurostat, 
the population residing in Malta increased by 17% 
between  2008  and  2018,  mainly  due  to  large 
economic migration flows from both EU and non-
EU  countries.  This  increased  demand  for  public 
services  (schools,  healthcare,  etc.)  and  housing, 
resulting  in  an  integration  challenge.  The  high 

29 

00.10.20.30.40.50.60.70.802468101205Q105Q306Q111Q312Q112Q313Q113Q314Q114Q315Q115Q316Q116Q317Q117Q318Q118Q319Q1Finding rateSeparation rate (rhs)% unemployed% employed 
    
3.3. Labour market, education and social policies 

turnover  of  foreign  workers  also  undermines 
investments in training (32).  

The share of non-Maltese workers varies across 
sectors,  and  their  skills  level  is  higher  than  the 
native  average.  The  share  of  foreign  workers  is 
especially  high  in  the  arts,  entertainment  and 
recreation  (including  gaming)  sector  (39.9%),  and 
in  accommodation  and  food-service  activities 
(32.1%). Foreigners aged 25-54 are represented at 
all  skill  levels.  Almost  half  of  foreign  people  are 
high-skilled  (4.1%  of  EU  nationals  and  45.6%  of 
non-EU  nationals),  against  26.9%  of  Maltese 
workers.  They  are  more  often  employed 
in 
occupations  below  their  skill  level  (41%  of  non-
EU  born  workers  in  2018,  against  13%  of  those 
born  in  Malta  (Eurostat,  Labour  Force  Survey). 
Malta  also  attracts  foreign  workers  for  medium- 
and  low-skilled  jobs.  It  has  developed  bilateral 
agreements with specific non-EU countries to meet 
the growing demand in specific sectors. 

Foreign workers tend not to settle in Malta. The 
average  length  of  stay  is  3.5  years,  relatively 
unchanged  since  2012  (Borg,  2019).  Due  to  the 
shortness of their stays, it is likely that their social 
integration  is  low.  However,  Malta  has  not  yet 
adopted  incentives  for  the  retention  of  foreign 
their 
workers, 
socioeconomic integration through labour mobility 
and  opportunities  to  improve  their  skills  or  job 
quality and better access to services. 

for  example  by 

facilitating 

increases 

income-tax  arrangements; 

Despite  significant  improvements,  the  activity 
rate  of  women  still  lags  behind  that  of  men. 
Malta  has  implemented  various  policy  initiatives 
aimed  at  attracting  more  women  to  the  labour 
market,  such  as:  back-to-work  fiscal  incentives; 
new 
in 
maternity  and  adoption  leave;  tax  credits  for  self-
employed  people;  and  exemptions  from  means-
testing for income earned by women working part-
time. Despite these efforts, the activity gap is still 
high  with  64%  of  women  aged  15-64  in  Malta 
being active, against 85% of men. At 21.9 pps, the 
gender employment gap is also one of the highest 
in  the  EU.  The  employment  rate  of  younger 
women  has  increased  significantly  in  recent  years 
(up  15.5  pps  between  2008  and  2018  for  women 
aged  25-29  and  18.2  pps  for  those  aged  30-34), 

(32)  As  shown  in  the  Malta  Employers’  Association’s  wage 

inflation survey. 

pay’ 

strategy 

facilitated  by  the  free  childcare  scheme  and  the 
‘making  work 
(European 
Commission,  2019b).  Work-life  balance  is  still  a 
concern  in  Malta,  and  the  employment  rate  of 
women  still  drops  after  the  age  of  40  (Graph 
3.3.2). One out of five women aged 46-55 provides 
unpaid  care  services  and  the  employment  rate  of 
female  informal  carers  of  this  age  group  is  below 
50% (33). More labour-market support for informal 
carers,  either  from  outside  the  labour  force  or 
unemployed,  could  further  address  the  gender 
employment gap. 

The  gender  pay  gap  is  below  the  EU  average, 
but  slightly  widening.  The  gender  pay  gap  stood 
at  12.2%  as  a  percentage  of  men’s  average  gross 
hourly  earnings  in  2017.  This  is  partly  due  to 
women  being  more  likely  to:  (i)  engage  in  the 
labour market on a part-time basis (in 2018, 6.5% 
of  men  worked  part-time  as  against  23.0%  of 
low-skilled 
women); 
positions;  and  (iii)  occupy  fewer  managerial 
positions  (men  held  70%  of  managerial  positions 
in  2018).  As  for  the  gender  pension  gap (34), 
although improving, it remains at 46%, one of the 
highest in the EU. 

fill  medium-  and 

(ii) 

Graph 3.3.2:  Women employment rates by age cohort 

Source: European Commission 

The employment rate of people with disabilities 
remains low. The employment rate of people with 
disabilities in Malta (37% in 2017) increased by 8 

(33)  European Commission Joint Research Centre calculations,  
based on the 2016 EU-SILC Module “Access to services”. 
(34)  The gender gap in pensions is defined as “how much men’s 
average  monthly  and  annual  pensions  are  higher  than 
women’s”. 

30 

0102030405060708090100%MTEU                                                           
   
                                                           
attainment 

(despite 
a 

pps in 1 year, and has more than doubled over 10 
years, but remains one of the lowest in the EU (EU 
average:  51%).  The  activity  rate  of  people  with 
disabilities  is  also  very  low.  The  weak  labour-
market  outcomes  of  people  with  disabilities  may 
be  explained  by  a  low  level  of  qualifications  and 
recent 
educational 
lack  of 
combined  with 
improvements) 
accessibility  or  reasonable  accommodation  in  the 
this 
workplace.  Current  measures 
situation 
in 
companies  employing  20  or  more  employees  at 
least  2%  of  the  workforce  are  persons  with  a 
disability, and schemes supporting the transition of 
people  with  disabilities  from  unemployment  to 
employment (including subsidies to employers and 
exemptions  from  social  security  contributions). 
Other  initiatives  include  pre-employment  training, 
job  coaching,  and  sheltered  employment  training 
(ANED, 2018).  

include  a  quota 

to  address 

requiring 

that 

Malta  has  a  high  number  of  information  and 
communication  technology  (ICT)  specialists 
and  graduates,  but  shortages  in  ICT  remain. 
Malta  is  one  of  the  EU’s  leaders  in  training  ICT 
specialists  (7.9%  of  all  graduates),  and  they 
account for a relatively high share of the workforce 
(4.8%  against  3.9% 
the  EU).  However, 
in 
mismatches remain. In 2019, 67.3% of enterprises 
that tried to recruit ICT specialists had difficulties 
recruiting employees with appropriate skills. While 
the  share  of  female  ICT  specialists  is  slightly 
above  the  EU  average,  it  is  important  to  further  
increase  the  participation  of  women  in  this  field, 
given  the  focus  of  the  country  on  the  ICT  sector. 
Steps have been taken to address skills mismatches 
and  the  gender  gap  in  the  digital  sector  with  the 
collaboration  of  all  stakeholders.  Malta’s  strategy 
for  artificial 
training, 
including a specific re-skilling programme to help 
vulnerable workers acquire digital skills. 

intelligence  promotes 

The collective bargaining system functions well, 
and  social  partners’  involvement  in  policy-
making  remains  frequent  and  meaningful. 
Examples of a functioning social dialogue include 
discussions  on  the  minimum  wage  or  pension 
reforms. However, the technical capacity of social 
partners could still be improved, and the density in 
trade-union  membership  (38%  of  workers  were 

3.3. Labour market, education and social policies 

trade-union  members  in  2018,  Eurofound (35))  is 
not  keeping  up  with  the  increase  in  employment. 
This  is  partly  a  reflection  of  the  low  trade-union-
foreign  workers,  who 
membership 
represent an increasing share of the labour force.  

rates  of 

Undeclared work is an issue, but there is a lack 
of  definition  of  this  phenomenon  and  no 
appropriate  monitoring  mechanisms.  In  2018, 
Malta’s  National  Statistical  Office  estimated  that 
the  non-observed  economy  constituted  2.9%  of 
Maltese GDP. Malta recently increased the number 
of inspections and penalties for employers that do 
not  comply  with 
labour  and  social  security 
requirements. Income tax rates have also decreased 
to  encourage  the  uptake  of  formal  employment. 
The introduction of itemised payslips in 2019 aims 
at reducing fraud and abuse, in particular for social 
security  contributions.  However,  coordination 
across  key  bodies 
tackling 
responsible 
undeclared work remains an issue. 

for 

3.3.2.  EDUCATION AND SKILLS 

A  large  percentage  of  pupils  do  not  possess  an 
adequate level of basic skills. The latest results of 
the  OECD  Programme  for  International  Student 
Assessment  (PISA)  2018  show  that,  in  all  three 
subjects  tested,  Malta’s  mean  performance  is 
below the EU average (36). These results also show 
that  the  proportion  of  underachieving  pupils  is 
above  the  EU  average  and  remains  practically 
unchanged 
(OECD,  2019a; 
European Commission, 2019h). Underachievement 
is  prevalent  across 
the  entire  socioeconomic 
distribution. This suggests  that educational factors 
such as curricula, student assessment practices, and 
teaching quality are also important determinants of 
poor student outcomes. Successful implementation 
of the curriculum and reform of student assessment 
are crucial in this context.   

since  2015 (37) 

(35)  Eurofound’s  trade-union-density  calculation  includes  the 
self-employed  but  excludes  pensioners  who  are  union 
members. Malta estimated its trade-union density at 48% in 
2019. 

(36)  The mean performance in reading is 448 v 489 at EU level, 
in  science  457  v  489  and  in  mathematics  473  v  493  in 
2018, and 447 v 494, 465 v 495, 479 v 492 respectively in 
2015. 

(37)  The  share  of  low  achievers  in  PISA  are:  Reading:  2018: 
35.9%  v  21.7%  at  EU  level,  2015:  35.6%  v  20.1%); 
Mathematics:  30.2%  v 22.4% at EU level,  2015:  29.1%  v 
22.2%), Science: (2018: 33.5% v 21.6% at EU level, 2015: 
33.5% v 20.6%). 

31 

                                                           
3.3. Labour market, education and social policies 

skilled workers in the private sector. High turnover 
teacher 
may  also  have  adverse  effects  on 
collaboration  and  student  outcomes 
(OECD, 
2019c).  This  highlights  the  need  to  make  the 
profession more attractive, and take measures that 
go beyond improving teachers’ education and their 
access to continuous professional development. 

Efforts  are  underway  to  make  education  more 
inclusive  but  challenges  remain.  The  number  of 
foreign-born  pupils  aged  under  15  increased  by 
67%  between  2014  and  2017.  In  some  schools, 
there  are  more  than  50  nationalities  represented 
among  the  pupils,  and  this  has  an  impact  on  the 
working environment for teachers (OECD, 2019c). 
According  to  the  2018  OECD  Teaching  and 
Learning International Survey (TALIS), 20.4% (vs 
13.4% at EU level) of teachers report a high need 
for training to teach in multicultural settings. Malta 
adopted  a  strategic  plan  on  inclusive  education  in 
schools in 2019. It aims to guide public schools on 
how to adapt pedagogical approaches and redesign 
their practices to meet the needs of a more diverse 
student  population.  Induction  programmes  have 
been  set  up  for  newly  arrived  pupils  who  cannot 
yet communicate in Maltese or English. This may 
help  reduce  the  average  difference  in  reading 
performance  between  foreign  pupils  who  speak 
English  at  home  and  those  who  do  not  (a 
difference  in  PISA  score  in  2018  of  63  points). 
Although the plan is  welcome, operating a central 
monitoring and assessment system would also help 
to  ensure  more  consistent  and  evidence-based 
policy implementation across and within schools. 

in 
the 

increase 
in 

Participation  in  childcare  remains  around  the 
EU  average  for  children  under  3  years  of  age. 
The  free  childcare  scheme  helped  to  double  the 
share  of  children  below  the  age  of  3  in  formal 
childcare  from  18%  in  2015  to  36.6%  in  2017, 
slightly  above  the  EU  average.  EU-SILC  data 
indicates  a  decline  to  32.1%  in  2018,  although  a 
the  number  of  children 
further 
registered 
recorded  by 
scheme 
administrative  data.  Childcare centres offer places 
for  children  of  low-income  families  who  are  not 
eligible  for  the  free  childcare  scheme,  which  is 
solely  targeted  at  parents  who  are  working  or 
studying. However, the participation of children of 
low-income  families  in  childcare  remains  low, 
even if these children would benefit the most from 
the  positive  long-term  impact  of  early  childhood 
in  early 
education  and  care.  Participation 

is 

Socioeconomic  background  and  type  of  school 
strongly influence student outcomes. PISA 2018 
also  shows  that  underachievement  is  widespread 
among  disadvantaged  students.  Around  51%  of 
pupils from the bottom socioeconomic quartile fail 
to  achieve  a  minimum  level  of  skills  in  reading 
(compared  to  34.8%  at  EU  level).  This  is  more 
than twice the rate of underachievement within the 
top  quartile  —  even  if  the  underachievement  rate 
for  the  top  quartile  is  also  high  by  international 
standards  (24.3%  against  an  EU  average  for  this 
top  quartile  of  9.3%).  The  difference  between  the 
top  and  the  bottom  quartile  in  average  reading 
score  has  decreased  by  17  points  since  2009, 
suggesting  that  equity  has  improved,  but  this 
improvement  is  still  insufficient.  Performance 
remains  strongly  related  to  the  type  of  school  a 
pupil 
school  pupils 
performing  best  (they  have  a  mean  reading  score 
of  516)  compared  to  peers  in  church  schools  (a 
score  of  473)  and  public  schools  (a  score  of  419) 
(Ministry  for  Education  and  Employment,  2019). 
This  suggests  a  persistent  fragmentation  of  the 
education  system,  whereby  children  from  socially 
disadvantaged  families,  including  some  of  those 
with a  migrant background, do not have  access to 
the best performing schools. 

attends,  with  private 

is  not 

Relatively  high  investment  in  the  education 
system 
leading  to  better  education 
outcomes.  In  2017,  Malta  spent  4.9%  of  its  GDP 
(vs  4.6%  of  GDP  at  EU  level)  and  13.9%  of  its 
total public expenditure (vs 10.2% at EU level) on 
education.  Comparatively 
of 
investment,  high  rates  of  underachievement  in 
basic  skills,  and  a  high  share  of  early  school 
leavers  suggest  there  is  a  need  for  more  effective 
and  efficient  allocation  of  resources.  They  also 
suggest  there  is  a  need  for  comprehensive  long-
term  strategies  to  tackle  the  skills  challenge  and 
accommodate  a  growing  and  more  diverse  pupil 
population. 

levels 

high 

Difficulties in recruiting and retaining teachers 
may  affect 
teaching  quality  and  student 
outcomes. Teacher shortages tend to be a recurrent 
problem.  Limited  salary  progression  throughout 
the career and a lack of appraisal and feedback on 
performance 
(European  Commission/EACEA/ 
Eurydice,  2019;  European  Commission  2019c) 
may  make  it  more  difficult  to  attract  and  retain 
better candidates into the profession. It may be all 
the  more  difficult  given  the  high  demand  for 

32 

3.3. Labour market, education and social policies 

childhood  education  for  4-year-olds  in  2017  was 
almost universal (96.5% against the EU average of 
95.4%).  

Improving  the  quality  of  early  childhood 
education  and  care  remains  a  challenge.  The 
government  has  been  working  since  March  2019 
on  a  new  national  policy  for  early  childhood 
education  and  care,  and  is  reviewing  national 
standards for the age group 0-3. The target that all 
groups of children should be supervised by at least 
one  staff  member  with  a  tertiary  qualification  has 
not yet been reached. 

primary-school 

education.  The 
population 
increased by 6.4% between 2013 and 2016, and the 
student  population  (5-16  year-olds)  is  expected  to 
increase  by  12.7%  between  2019  and  2025, 
according  to  Eurostat  baseline  projections.  This 
will  have  a  major  impact  on  the  demand  for 
teachers  and  education 
infrastructure.  Local 
authorities  have  recently  built  new  schools  or 
extended  existing  schools  (including  with  pre-
fabricated  classrooms).  However,  given 
these 
demographic 
the  pressure  on  school 
infrastructure  is  expected  to  persist  over  the 
coming years. 

trends, 

Reducing  early  school 
leaving  remains  a 
priority. Although it has declined since 2010, the 
share  of  early leavers  from education and training 
aged  18-24  is  still  significantly  above  the  EU 
average  (17.4%  against  10.6%  in  2018),  and  has 
remained almost unchanged since 2017. Secondary 
school  absenteeism  also  declined  markedly  from 
30%  in  2012/2013  to  21.6%  in  2016/2017.  Based 
on  the  support  received  through  the  European 
Commission,  Malta  is  working  to  improve  how  it 
introduce  or 
detects 
mainstream intervention measures. The new lower-
secondary  school  system  aims  to  further  reduce 
early  school-leaving  by  allowing  students 
to 
combine  general,  vocational  and  applied  subjects, 
in addition to the core curriculum. 

students  at 

risk  and 

Malta  has  developed  many 
initiatives  for 
promoting  the  acquisition  of  digital  skills. 
Young people (16-19 year-olds) reported having a 
higher  level  of  digital  skills  than  the  EU  average 
(74% against 57%) in 2017. The share of Maltese 
schools with a high provision of digital equipment 
is  greater  than  the  EU  averages  at  primary  (82% 
against  35%  at  EU  level)  and  lower-secondary 
level  (54%  against  52%).  Measures  are  underway 
to help teachers  integrate  digital technologies into 
improve  student  outcomes. 
their 
However,  there  is  no  regular  monitoring  and 
evaluation of digital education policies, creating a 
risk 
technologies  will  not  be  used 
effectively. Malta’s E-skills Foundation has started 
an ICT skills audit to collect data on skills needed 
in  the  ICT  industry.  This  could  help  to  further 
update  the  education  curriculum  and  teaching 
practices.  

teaching 

that 

the 

to 

The  number  of  new  entrants 
in  tertiary 
education is accelerating. From 2013 to 2017, the 
number  of  new  entrants  in  tertiary  education 
reflecting  demographic 
increased  by  23.3%, 
factors  and  measures 
to  ease  access.  The 
proportion of people aged 30-34 with tertiary-level 
qualifications  has  also  increased  (12.6  pps  since 
2010).  This  positive  trend  may  help  to  address 
skills  shortages  in  the  future.  However,  this 
proportion  remains  below  the  EU  average  (34.7% 
against an EU average of 40.7%) despite reaching 
the  national  target  of  33%.  Despite  having  the 
highest  employment  rate  in  the  EU  for  recent 
tertiary  graduates  (96.7%  against  85.5%  for  the 
EU), the skills of tertiary graduates in Malta do not 
sufficiently  match  the  needs  of  the  labour  market 
(EY,  2019).  Developing  a  graduate 
tracking 
system  may  help  improve  the  quality  of  tertiary 
programmes and identify skills gaps. 

training 

Despite  the  high  employability  of  vocational 
education  and 
(VET)  graduates, 
uptake  of  VET  remains  low.  The  employment 
rate  of  VET  graduates  in  Malta  is  well  above  the 
EU  average  (91%  against  79.5%  EU  in  2018). 
However,  the  share  of  upper-secondary  students 
(ISCED  3)  enrolled  in  VET  decreased  slightly 
from  28.8%  in  2017  to  27.1%  in  2018,  and 
remained  well  below  the  EU  average  of  48%. 
Expenditure  on  VET  increased  by  76%  between 
2016  and  2018  (Caruana,  2018).  The  overall 
uptake  of  VET  subjects  in  secondary  schools 
increased from 23% in 2016 to 55% in 2019. This 
substantial increase at secondary level is expected 
to be  may lead to reflected in a  higher VET take 
up at further and higher VET levels in the coming 
years. 

Demographic  trends  highlight  the  need  for 
in 
long-term 

investment 

strategies 

for 

33 

3.3. Labour market, education and social policies 

been steadily decreasing in recent years. However, 
despite  measures  aimed  at  limiting  the  time 
workers spend on the minimum wage to 1 year and 
supporting  low-wage  earners,  the  share  of  people 
at  risk  of  in-work  poverty  (6.4%)  is  increasing, 
although  it  remains  below  the  EU  average.  Wage 
polarisation  could  explain  the  trend  in  in-work 
poverty:  wages  for  high-skilled  workers  are 
growing  faster  than  wages  for  low-  and  medium-
skilled workers. Indeed, in 2019 the average basic 
salary of people occupying an elementary position 
was  less  than  half  the  average  basic  salary  of 
people in managerial occupations. Wages in high-
skilled occupations also grew twice as fast as those 
in  low-skilled  occupations  between  2014  and 
2019,  due  to  Malta  specialising  in  higher-added-
value sectors.  

Social benefits reduced the incidence of poverty 
in Malta by slightly less than the EU average. In 
2018, social transfers (excluding pensions) reduced 
the risk of poverty by 30.6% (33.2% in the EU). In 
particular, sickness, disability, and social-inclusion 
benefits have a large impact on the risk-of-poverty 
rate. The adequacy of minimum income benefits is 
high.  Benefits  in  general  significantly  increase 
beneficiaries’  income,  thereby  strongly  reducing 
the poverty gap and raising many families closer to 
the poverty line. The changes to tax-benefit policy 
introduced  since  2008  have  protected 
lower 
income groups in particular: the disposable income 
of  the  lowest  decile  increased  by  close  to  4% 
between 2008 and 2018 (compared to less than 1% 
for  the  other  deciles).  Nevertheless,  the  effect  of 
family benefits on the number of people at risk of 
poverty is one of the lowest in the EU. 

Malta has closed formal gaps in access to social 
protection.  In  2019,  Malta  extended  access  to 
social security benefits for the self-employed. The 
access  is  based  on  contributions  to  —  and 
the  Public  Employment 
registration  with  — 
Service. Trainee, apprentices, and foreign workers 
are also covered under the same criteria. 

is  decreasing,  but 
Overall  child  poverty 
children of low-skilled or foreign parents are at 
greater risk of poverty and social exclusion. The 
share  of  children  aged  0-17  at  risk  of  poverty  or 
social exclusion declined to 22.8% in 2018, below 
the  EU  average  of  24.3%  (see  Graph 3.3.3).  In 
2018,  children  facing  the  highest  risk  of  poverty 
and  social  exclusion  were  those  whose  parents 

Malta  has  taken  steps  to  improve  the  labour-
market  relevance  of  initial  VET.  On  average, 
32%  of  upper-secondary  initial  VET  students 
followed  work-based  programmes  in  2017,  well 
above  the  EU  average  of  27%.  The  number  of 
apprenticeships organised by the Malta College of 
Arts, Science and Technology (MCAST) increased 
to 950 in the 2019-2020 academic year, 130 more 
than  in  the  previous  year.  Over  90  %  of  the 
students  in  the  Institute  of  Tourism  Studies  are 
benefitting  from  internships  through  VET  for 
Hospitality  and  Tourism 
sector.  Moreover, 
partnership  agreements  with  business  have  been 
extended to students following an applied learning 
pathway.  In  2019,  the  MCAST  added  six  new 
degree  apprenticeships  at  bachelor  level  6,  which 
recognised 
allow 
qualification  while  obtaining  work  experience.  In 
addition,  a  project  co-financed  by  the  European 
Social Fund offers mentoring for MCAST lecturers 
and staff involved in apprenticeship programmes.. 
A quality assurance framework will be adopted for 
work-based  learning,  in  line  with  the  European 
Commission 
high-quality 
apprenticeships. 

standard 

students 

achieve 

for 

to 

a 

Skills-mapping  and  skills-anticipation  systems 
remain  fragmented,  but  several  initiatives  are 
ongoing,  including  in  the  area  of  green  jobs. 
Malta  has  collaborated  with  Cedefop  and  the 
Slovak Academy of Sciences to develop a national 
skills-forecasting  system.  Some  final  refinements 
are  now  being  carried  out  to  the  updated  skills 
forecasting  model.  Its  implementation  is  planned 
for  the  first  quarter  of  2020.  The  National  Skills 
Council put green skills among its priorities, and is 
planning  a  skills  audit  for  2020. The  Ministry  for 
Sustainable  Development,  the  Environment  & 
Climate Change will launch a study on green jobs 
by  the  end  of  2020  in  cooperation  with  the 
National Statistics Office. The study will assess the 
economy’s  potential  to  generate  green  jobs  and 
map the sectors contributing the most to the green 
transition.  

3.3.3.  SOCIAL POLICY 

Headline 
indicators  of  poverty  and  social 
exclusion  show  a  good  performance  but  they 
mask differences between social groups. Malta’s 
rate of people at risk of poverty or social exclusion 
(19%)  is  below  the  EU  average  (21.9%)  and  has 

34 

3.3. Labour market, education and social policies 

were  single  (51%),  low-skilled  (40%),  or  foreign-
born (33.5% of those children are at risk of poverty 
and  social  exclusion  compared  to  20.2%  for 
Maltese-born  children).  Unequal  access  to  quality 
education,  including  early  education  and  care, 
might  further  affect  equality  of  opportunity  for 
those children (see Section 3.3.2). The poverty rate 
of large families has decreased, most likely thanks 
to  the  increase  in  children’s  allowances:  since 
January 2019, families with a gross income of less 
than  €20,000  received  a  maximum  increase  in 
children’s allowance of €96 per year per child. 

Graph 3.3.3:  At-risk-of-poverty-or-social-exclusion rate 

(AROPE), age groups 

Source: European Commission 

People with disabilities are still at higher risk of 
poverty  and  social  exclusion.  In  2018,  30%  of 
people with severe or some disability were at risk 
of  poverty  and  social  exclusion,  against  17%  for 
non-disabled people. Support measures announced 
in  the  Budget  for  2020  include  improvement  of 
disability  and  invalidity  pensions,  a  grant  for 
purchasing  special  equipment,  dedicated  helpline 
and training for employees in the disability sector.” 

People aged 65 or over in Malta are at a slightly 
greater  risk  of  poverty  than  in  the  EU.  For  a 
single  person  aged  65  or  older,  the  at-risk-of-
poverty-or-social-exclusion  rate  is  30.2%  (EU: 
28.1%).  For  households  composed  of  two  adults 
with  at  least  one  over  65,  the  rate  is  28.2%  (EU: 
15.7%).  In  addition  to  the  reform  aiming  at 
limiting  early  retirement  and 
the 
duration  of  working  life  undertaken  in  recent 
years,  the  government  took  measures  to  increase 

increasing 

pension adequacy in 2019 (an additional allowance 
of €4.50 per week for all pensioners, including the 
cost-of-living  adjustment).  The  ceiling  on  which 
income  from  pensions  is  exempted  from  income 
tax  was  also  raised  in  2019.  Despite  these 
measures,  pension  adequacy  remains  an  issue  in 
Malta,  especially  for  women  and  workers  with 
incomplete careers (since 2014, a bonus is given to 
those who do not have enough social contributions 
to qualify  for the  minimum pension). Ageing also 
poses  challenges  for  the  long-term  care  and 
healthcare  systems.  In  recent  years,  Malta  has 
introduced  several  services  to  support  informal 
carers and older adults that wish to continue living 
in  their  homes  rather  than  move  into  residential 
care. These  services  include  functional  assistance, 
education,  psychological  support  and  respite  care. 
The  number  of  beds  in  institutions  was  also 
increased.  However,  staff  shortages  remain  an 
issue (see Section 3.1). 

Foreign-born  residents  are  at  greater  risk  of 
poverty  and  social  exclusion  despite  their  high 
levels  of  participation  in  the  labour  market.  In 
2018,  the  foreign-born  population  accounted  for 
18%  of  the  total  population,  and  was  almost 
equally split between non-EU born and those born 
in  other  EU  countries.  In  the  2015-2018  period, 
Malta  granted  3,845  positive  decisions  to  asylum 
applications  (equivalent  to  4.6%  of  the  total 
foreign population or 0.8% of the total population). 
People  born  outside  the  EU  face  a  much  higher 
risk  of  poverty  or  social  exclusion  (28.8%)  than 
those  born  in  Malta  (17.7%).  This  is  despite  the 
high  employment  rates  of  both  EU  born  and  non-
EU born people (80.3%) and the greater likelihood 
of  foreign-born  people  to  have  completed  tertiary 
education  (42.5%  against  22.3%  for  native-born). 
However, in comparison to EU averages, the gaps 
between  natives  and  non-EU  born  are  moderate, 
they  have  also  been  improving  since  2017.  The 
gap is higher for young people not in employment, 
education or training (20% for non-EU born vs 7% 
for native born).  

Malta  faces  challenges  in  the  economic  and 
social  integration  of  the  foreign-born.  Foreign-
born  people 
in  accessing 
face  difficulties 
healthcare  and  social  services  (language  and 
cultural barriers, lack of information, etc.). Energy 
poverty  and  access  to  affordable  housing  are 
growing  concerns  for  this  group.  The  national 
strategy  for  integration  adopted  in  2017  only 

35 

15171921232527293133350506070809101112131415161718% of populationChildren (<18y)Working age (18-64)Elderly (65+)   
3.3. Labour market, education and social policies 

average in Malta, there remain some issues related 
to  billing  services (38)  that  affect  low-income 
households in particular. 

trends  (see 

Steps  have  been  taken  to  increase  the  social 
housing  stock,  but  an  overarching  strategy  to 
address housing exclusion is lacking. To address 
the  increasing  demand  for  housing  resulting  from 
socio-demographic 
in-depth  box), 
authorities  announced  in  2019  that  they  would 
deliver  1,700  new  social  housing  units  in  the 
coming years. Homelessness in the sense of ‘living 
rough’ is rare in Malta, but tensions on the housing 
market  have  exacerbated  problems  around  access 
to  housing.  In  addition,  Malta  lacks:  (i)  a  formal 
definition  of  homelessness  and  of  housing 
exclusion;  and  (ii)  an  overarching  strategy  to 
combat homelessness and housing exclusion. 

(38)  The  current  billing  system  relies  on  60-day  estimates  of 
consumption,  causing  complaints  on  inaccurate  or  high 
bills. 

partially  addresses  the  challenges  faced  by  the 
foreign-born  residents,  as  measures  mainly  focus 
on non-compulsory language learning and cultural-
integration 
orientation  guidance.  A  follow-up 
strategy  is  planned  for  2020,  aiming  to  address 
broader issues in a more integrated way.  

than 

issues 

Overall  energy  poverty  has  declined,  but 
vulnerable groups are slightly more affected by 
environmental 
less  vulnerable 
people.  The  share  of  people  at  risk  of  poverty 
suffering  from  pollution  and  other  environmental 
problems  is  0.9  pps.  Since  2017,  the  ‘Eco-
Reduction’  scheme  has  successfully  addressed 
energy poverty in the country: the share of Maltese 
households  unable  to  keep  their  home  adequately 
warm  dropped  from  24%  in  2013  to  6%  in  2017. 
Malta  also  provides  financial  support  to  low-
income  households  to  make  their  dwellings  more 
energy efficient (see Section 3.5). While customer 
satisfaction  with  energy  services  is  above  the  EU 

36 

                                                           
3.3. Labour market, education and social policies 

Box 3.3.2: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights  seeks  to  promote  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. 

Malta scores relatively well on indicators from the Social Scoreboard supporting the European Pillar 
of Social Rights, despite remaining challenges. The strong economic expansion in recent years contributed 
to  one  of  the  highest  rates  of  employment 
growth  in  the  EU  and  a  drop  in  overall  and 
long-term  unemployment  rates.  Both  income 
and  wealth  inequalities  have  stabilised  at 
moderate  levels.  However,  some  population 
groups are at an above-average risk of poverty, 
notably:  (i)  children  of  single,  low-income  or 
foreign parents; (ii) elderly people; (iii) people 
with  disabilities;  and  (iv)  migrant  workers. 
Equality  of  opportunities  poses  challenges,  as 
Malta combines a rate of early school leaving 
and  a  share  of  underachievers  in  basic  skills 
that  are  among 
the  EU. 
Educational  outcomes  also  vary  greatly  by 
type  of  school.  On  the  positive  side,  digital 
skills are widespread in the population, and the 
number of people with an above-basic level of 
digital  skills  is  higher  than  the  EU  average. 
Unmet  needs  for  medical  care  are  low,  with 
little  variation  between  income  groups.  Long 
waiting  lists  for  inpatient  care  have  also  been 
successfully  reduced,  but 
they  remain  a 
for  specialist  outpatient 
issue 
significant 
services. 

the  highest 

in 

High  rates  of  early  school  leaving  hamper 
social  cohesion  and  the  sustainability  of 
economic  growth.  Although  decreasing,  the 
early-school-leaving rate (17.4%) remains one 
of  the  highest  in  the  EU  (the  EU  average  is 
10.6%).  Moreover, 
levels 
significantly increase the risk of future poverty 
and social exclusion. The share of low-skilled 
adults  in  Malta  is  high,  and  participation  in 
adult learning and upskilling is limited. 

low  education 

Provision  of  free  childcare  has  contributed 
to  a  significant  increase  in  the  employment 
rate  of  young  women.  The  employment  rate 
of young women increased significantly between 2014 and 2018 (+5 pps for 20-29-year-olds and +2.1 pps 
for 30-34-year-olds), facilitated by the free childcare scheme provided by the Public Employment Service to 
parents  in  employment  or  education.  The  service  expects  take-up  of  the  scheme  to  increase  further. 
However,  female  labour  market  participation  still  drops  after  the  age  of  40,  and  the  overall  gender 
employment  gap  (21.9  pps)  remains  the  highest  in  the  EU  (11.6  pps  on  average).  Support  for  the  labour-
market participation of informal carers could still improve.  

37 

3.4. COMPETITIVENESS, REFORMS AND INVESTMENTS 

3.4.1.  PRODUCTIVITY AND INNOVATION 

Investment  has  stabilised  at  high  levels,  driven 
by  construction.  Thanks  to  buoyant  economic 
growth,  investment  peaked  in  2016  and  has 
remained  at  historically  high  levels.  In  particular, 
investment has been supported by steady growth in 
(see  Graph 3.4.1). 
construction 
Construction  constituted  almost  45%  of  aggregate 
investment  in  2018.  Among  other  investment 
components, 
intellectual  property  rights  have 
experienced  a  significant  growth  in  recent  years, 
representing  17%  of  total  investment  in  2018  (up 
from 6% in 2013). 

investment 

Graph 3.4.1:  Malta investment trends, excluding machinery 

Source: AMECO 

and  2018 

Productivity  has  grown  but  remains  below  the 
EU average in most sectors. Malta’s increasingly 
services-driven  economy  (see  also  Section 1)  saw 
productivity  per  person  employed  grow  in  all 
sectors (39)  between  2008 
(see 
Graph 3.4.2).  In  addition,  the  share  of  workers 
employed  in  high-productivity  sectors  increased 
during  the  same  period.  Professional  services, 
entertainment  and 
largest 
growth  in  productivity,  followed  by  agriculture, 
construction  and  financial  services.  The  greatest 
productivity is recorded in the entertainment sector 
the  EU 
(where  productivity 
entertainment-sector 
by 
information  and  communications,  and  financial 

is  also  above 
average), 

trade  recorded 

followed 

the 

is 

for 

the 

the  sector  with 

the  EU  average 

activities  (both  sectors  have  productivity  levels 
these  sectors). 
below 
Construction 
lowest 
productivity.  However,  the  productivity  analysis 
faces  substantial  data 
limitations  (e.g.  sector 
deflators,  hours  worked  in  key  services  sectors, 
data  at  firm  level,  and  contribution  of  foreign 
activities).  Malta  recently  set  up  a  National 
Productivity  Board,  which  published  its  first 
annual 
in  November  2019 (National 
report 
Productivity Board, 2019). 

Graph 3.4.2:  Labour productivity by sector, 2008-2018 

Source: European Commission 

same  period, 

enterprises’  value 

Small and medium-size enterprises are the main 
contributors  to  economic  growth,  employment 
and productivity. In 2018, small and medium-size 
enterprises generated 82% of value added and 78% 
of  employment.  Between  2014  and  2018,  small 
and  medium-size 
added 
increased by 58%, exceeding that of large Maltese 
firms (where value added only increased 43%). In 
the 
and  medium-size 
small 
enterprises’ employment growth was 19%, lagging 
behind  the  32%  increase  in  large  Maltese  firms. 
The  annual  productivity  of  Maltese  small  and 
medium-size  enterprises (40)  is  €44,300,  close  to 
the EU average of €44,600 and higher than that of 
large  Maltese  firms  whose  number  is  low  (less 
than  1%)  given  constraints  of  the  small  local 
market  size.  Large  firms  operate  mainly 
in 
industry, administrative services and transport.  

(39)  The  analysis  excludes  real  estate  services  and  is  based  on 

constant prices. 

(40)  Defined as value added per person employed. 

38 

0.00.20.40.60.81.01.21.41.61.80506070809101112131415161718DwellingsTransport equipmentNon-residential construction and civil engineeringOther investmentbln EUR050,000100,000150,000Agriculture, forestry and fishingIndustryManufacturingConstructionTrade, transport, accomodationand foodInformation and communicationFinancial and insurance activitiesProfessional servicesPublic sectorArts, entertainment andrecreation20082018EU (2018) 
    
                                                           
   
                                                           
3.4. Competitiveness, reforms and investments 

limited  role 

performance  since  2011  (European  Commission, 
2019d), research and innovation (R&I) continue to 
play  a 
in  Malta’s  fast-growing 
economy. Malta’s R&D investment,  which is also 
relevant to progress on SGD 9, is very low (ranked 
26th in the EU) and has declined significantly since 
2012  (0.55%  of  GDP  in  2018  against  0.83%  in 
2012). Public R&D investment has also been on a 
declining  trend  since  2015,  thus  placing  Malta  at 
the  bottom  of  the  EU  ranking  on  this  measure. 
According  to  the  Maltese  authorities,  Malta  will 
miss its 2020 R&D intensity target of 2% of GDP. 

In some services sectors, micro and small firms 
are more productive than larger ones. Estimates 
of  productivity  per  sector  and  size  class (41)  show 
that,  in  2016,  micro-firms  outperformed  larger 
businesses  in  information,  communication,  and 
administrative 
firms 
services,  while 
outperformed larger businesses in the construction, 
real-estate and trade sectors, where large firms are 
almost absent. In turn, large firms performed better 
than  micro-firms  and  small  firms  in  professional 
services, 
(see 
Graph 3.4.3). 

accommodation 

small 

food 

and 

Graph 3.4.3:  Productivity per person employed by sector 

and firm-size, 2016 

Source: European Commission calculations on data from 
the Central Bank of Malta 

EU  financial 
instruments  support  strategic 
investment  in  Malta.  Between  2015  and  2019, 
total  financing  under  the  European  Fund  for 
in  Malta  reached  €44 
Strategic  Investments 
million,  which  is  set  to  trigger  €211  million  in 
additional investments. Approximately €33 million 
was  allocated  to  infrastructure  and  innovation 
targeted  at 
projects,  while  €11  million  was 
financing small and medium-size enterprises. 

Innovation 

Research  and  innovation  play  a  limited  role  in 
the economy. In spite of the increase in innovation 

(41)  Firm  size-class  definition:  micro-firms  (less  than  10 
employees),  small  firms  (between  10  and  49  employees), 
medium  firms  (50-249  employees),  large  firms  (250  or 
more employees). 

Six 

science 

Research  and  innovation  governance  remains 
overly fragmented compared to the small size of 
the 
different 
base. 
ministries/governmental bodies (42) are responsible 
for  R&I  policy,  while  public  research  is  mainly 
performed  by  one  institution  (the  University  of 
Malta).  Coordination  mechanisms  remain  weak 
between  the  different  authorities  involved  in  the 
implementation of the smart specialisation strategy 
and  the  R&I  strategy.  The  Horizon  2020  Policy 
Support Facility’s peer review of the Maltese R&I 
system pointed to the need for a major overhaul of 
R&I  policy  governance,  with  possibly  one 
institution/minister  providing  political  leadership 
(European Commission, 2019g).  

Although  Malta  is  catching  up  in  terms  of 
scientific excellence, the translation of research 
into  innovation  remains  a  concern.  In  2018, 
Malta  ranked  close  to  the  EU  average  for  the 
presence  of  its  nationals  in  international  co-
publications  in  academic  journals.  Although  the 
University  of  Malta  has  improved  its  scientific 
performance  with  a  specialisation  in  medical 
sciences,  its  research  activity  suffers  from  limited 
national 
technological 
development,  and  industrial  cooperation.  Further 
incentives could also attract new researchers, by (i) 
improving  the  framework  conditions  for  doctoral 
studies  and  post-doc  employment;  and  (ii)  adding 
popularisation  initiatives  such  as  the  ESPLORA 
science centre. Structural funds have been directed 
towards  setting  up  new  research  infrastructures 
(see  Box  2.1).  However,  academia-business  links 

for  R&D, 

funding 

(42)  The  Office  of  the  Prime  Minister;  the  Ministry  of 
Economy, 
Investment  and  Small  Business;  Malta 
Enterprise;  the  Ministry  of  Education  and  Employment; 
and the Ministry of European Affairs and Equality (hosting 
the ESIF managing authority). 

39 

020406080100120Information and Comm.Professional ServicesTransportConstruction and real estateAdministrative SupportIndustryWhol. and retail tradeAccommodation and foodEUR 1,000MicroSmallMediumLarge    
                                                           
                                                           
3.4. Competitiveness, reforms and investments 

in 

considering this to be a critical tool for improving 
the competitiveness of the country. One of the key 
initiatives  in  this  field  has  been  the  adoption  in 
2018  of  a  strategy  and  regulatory  framework 
dedicated  to  blockchain  technology  (European 
Commission, 2019b). In October 2019, Malta also 
launched  its  artificial  intelligence  strategy  (see 
Section 3.4.3). A new body, Tech.mt, was also set 
up  in  March  2019  to  ‘promote  Malta  as  a  tech 
centre  for  innovative  technologies’.  Tech.mt  will 
also focus on the development of human capital as 
the  precondition  for  growth 
the  IT  and 
technology  industries.  Malta  also  performs  very 
well  when 
to  broadband  coverage 
(including  fixed,  fast,  and  ultrafast)  with  almost 
100  %  of  households  covered.  With  regard  to  the 
5G  pioneer  bands,  according  to  the  roadmap 
published  in  Malta  in  June  2018,  the  700  MHz 
band  should  be  made  available  by  2021  whereas 
the 3.6 and 26 GHz are already available but none 
of the operators expressed interest for these bands. 
In  May  2019, 
for 
Communications published a Discussion paper and 
survey  on  "5G  Demand  and  Future  Business 
Models - Towards a Feasible 5G Deployment" but 
the  replies  of  the  stakeholders  are  not  publicly 
available. 

the  national  authority 

it  comes 

3.4.2.  GOVERNANCE AND BUSINESS 

ENVIRONMENT 

Justice system 

Strengthening the independence of the judiciary 
requires  further  efforts.  Businesses’  perception 
of judicial independence (2018-2019) remains low 
compared to other EU countries, and has worsened 
since 2010 (European Commission, 2020a).   

While  some  reforms  to  the  justice  system  are 
ongoing,  identified  shortcomings  persist.  In 
January  2020, 
the  Government  established  a 
Cabinet  committee  on  governance,  which  will  be 
in charge of key governance reforms responding to 
the  recommendations  of  the  Venice  Commission 
and GRECO, including a new  method for judicial 
appointments.  The 
the 
institutional reforms announced by the government 
in  March  2019  has  started,  notably  with  the 
adoption  of  the  State  Advocate  Act  of  July  2019. 
and  the  subsequent  appointment  of  a  new  State 
Advocate  in  December  2019.  These  are  steps  in 

implementation 

of 

are  underdeveloped  due 
absorption capacity of Maltese firms.    

the 

to 

low  R&D 

the  EU.  There  are  very  few 

Innovation  activity  by  firms  remains  limited. 
Business R&D intensity stood at 0.33% of GDP in 
2018 (vs 0.48% in 2012), one of the lowest levels 
in 
innovative 
companies  in  Malta.  Most  innovative  companies 
are  foreign-owned,  which  partly  explains  the  low 
uptake  of  most  R&I  schemes (43).  Most  Maltese 
firms  are  very  small  and  not  R&D  intensive. 
However,  Maltese 
and  medium-size 
small 
enterprises  in  the  specialised  knowledge-intensive 
services and high-tech manufacturing sectors (both 
of which are usually R&D intensive) accounted for 
38% of SME value added in the manufacturing and 
services sectors in 2018, above the EU average of 
33%.  At  the  same  time,  the  share  of  small  and 
medium-size  enterprises  introducing  innovation 
and  cooperating  with  others  remains  markedly 
below  the  EU  average  (European  Commission, 
2019a). 

Maltese  enterprises  have  high 
levels  of 
digitisation,  although  there  remains  a  gap 
between 
large  companies  and  small  and 
medium-size  enterprises.  Malta  performs  above 
the  EU  average  for  the  digitisation  of  enterprises. 
According to the digital-intensity index, only 29% 
of  companies  in  Malta  have  a  very  low  level  of 
digitisation  (compared  to  46%  in  the  EU),  and 
32% are highly digitised (compared to 18% in the 
the  EU 
EU).  Maltese  businesses  outperform 
average  for 
technologies. 
the  use  of  digital 
However,  there  is  a  difference  between  large 
companies and small and medium-size enterprises. 
For example, 54% of large enterprises have a high 
level of digital intensity,  while  this share  drops to 
31%  for  small  and  medium-size  enterprises. 
Despite the recent initiatives taken, the difficulty in 
finding  people  with  the  right  technical  skills  is  a 
barrier  to  further  progress  in  digitisation  (see  also 
Section 3.3).  

Development  of  the  digital  economy  has  been 
supported  by  dedicated  policy  measures.  The 
Maltese  government  is  prioritising  measures  for 
technologies, 
building 

capacity 

digital 

in 

(43)  Public support schemes are offered to companies by Malta 
Enterprise,  MCST,  and  through  ESIF  funds  including 
direct grants and tax incentives. At present, these schemes 
lack client demand and have very low penetration rates. 

40 

                                                           
3.4. Competitiveness, reforms and investments 

Section)  competence  to  include  competition  and 
consumer  affairs.  One  additional  judge  has  been 
assigned  to  this  section  to  decide  on  competition 
and  consumer  cases.  Measures  aimed  at  further 
improving  the  use  of  IT  in  courts  include:  (i)  e-
filing  and  the  electronic  payment  of  fees  being 
extended  to  more  civil  courts;  (ii)  free  online 
access  granted  to  citizens  and  legal  professionals 
in order to view the acts related to their cases; and 
(iii)  the  creation  of  the  e-Courts  platform,  which 
offers  a  host  of  justice-related  services  to  the 
general public and legal professionals. 

Fight against corruption 

indicators  point 

Different 
to  a  perceived 
weakness of the governance framework. Malta’s 
ranking in the World Bank’s control-of-corruption 
index  has  fluctuated  in  recent  years.  It  currently 
ranks  in  the  72nd  percentile  (a  deterioration  from 
the  77th  percentile  in  2018)  among  all  countries 
worldwide.  According 
the  2019  Business 
to 
Eurobarometer  Survey  on  corruption,  60%  of 
companies  surveyed  said  that  corruption  is  a 
problem  when  doing  business  in  Malta,  while  the 
EU  average  was  37%  (European  Commission, 
2019e). With a score of 54 in 2019 (45), similar to 
2018,  Malta  has  seen  a  significant  decline  on  the 
Transparency International’s corruption-perception 
index, 
2015 
(Transparency International, 2020).  

dropping 

points 

since 

six 

of 

and 

Permanent 

Commission 

administrative 

the  Venice  Commission 

Institutional  shortcomings  hinder  the  effective 
corruption.  The  European 
detection 
Commission, 
and 
GRECO have  all  criticised  the  lack  of  impact  of 
Malta’s 
against 
Corruption,  which  is  responsible  for  corruption 
prevention 
inquiries  on 
corruption-related  reports  (Venice  Commission, 
2018).  Structural  flaws  prevent  the  Permanent 
Commission  from  fulfilling  its  role  independently 
and  effectively.  Its  reports  provide  information  to 
the  Minister  of  Justice  and  the  Prime  Minister 
only,  while  the  law  does  not  require  follow-up 
(European 
enforcement 
Commission,  2019b).  Yet  there  are  no  specific 
plans  to  review  the  Permanent  Commission’s 
powers or to enable it to conduct inquiries in a way 
that  would  lead  to  tangible  results  and  allow  the 
police to follow up on its findings. 

prosecution 

or 

(45)  On a scale from 100 (very clean) to 0 (highly corrupt). 

the  right  direction  but  may  not  be  sufficient  to 
meet  existing  concerns  about  the  independent 
functioning and accountability of the prosecutorial 
services  and  the  police  (see  also  Section  2).  In 
particular,  challenges  remain  over:  (i)  checks  and 
balances  in  the  future  appointment  procedure  of 
the  Attorney  General;  and  (ii)  his  or  her    role. 
Moreover,  based  on  current  staffing  levels  and 
prospects  of  recruitment  for  the  Attorney  General 
Office, establishing a prosecution function separate 
from the Police requires a transitory period. Long-
standing  concerns  may  therefore  persist  until  the 
reform  is  complete  and  there  is  an  established 
positive  track  record.  Investigations  by  the  police 
remain 
to 
corruption, abuse of power, and money-laundering 
are  not effectively prosecuted. In 2019, the police 
reported  on  seven  ongoing  investigations  into 
corruption involving public officials, two of which 
concern  high-level  corruption  cases (44).  A  major 
reform  is  now  being  planned  to  increase  the 
capacity  of  the  currently  understaffed  Economic 
Crimes Squad by 2020. Timely implementation of 
this reform is essential to strengthen prosecution of 
corruption. 

fragmentary,  and  crimes 

related 

cases 

The  length  of  proceedings  remains  among  the 
longest in the EU. Despite some improvements in 
recent years, the length of proceedings at all levels 
categories  of 
and 
remains 
all 
in 
comparatively 
litigious  civil  and 
long.  For 
commercial  cases  in  first  instance,  Maltese  courts 
in  2018  required  440  days  to  complete  a  case  on 
average, which is among the longest case times in 
the  EU.  This  is  further  aggravated  by  lengthy 
proceedings  in  second  instance  (1,120  days  on 
average)  which  are  also  among 
longest 
disposition times in the EU. Similarly, proceedings 
in  administrative  courts  remain  time-consuming 
(1,057 
some 
improvements in recent years. Clearance rates also 
indicate  that  courts  are  currently  operating  at  the 
limit  of  their  capacities  (European  Commission, 
2020a, CEPEJ 2018 ). 

average), 

despite 

days 

the 

on 

Some  measures  have  been  adopted  to  improve 
the efficiency and quality of the justice  system. 
Recent  measures  taken  to  improve  the  efficiency 
and  quality  of  the  justice  system  include  the 
the  Civil  Court’s  (Commercial 
extension  of 

(44)  Information  provided  by  the  Economic  Crime  Squad  in 

October 2019. 

41 

                                                           
                                                           
3.4. Competitiveness, reforms and investments 

Business environment 

The  environment  for  small  and  medium-size 
enterprises  has  improved  in  recent  years,  but 
still lags behind in some areas. Since 2008, Malta 
has  made  good  progress  in  implementing  most 
recommendations of the Small Business Act, with 
significant  progress 
in  practically  all  areas. 
However,  Malta  still  performs  below  the  EU 
average  in  various  areas,  including  on  policies  to 
favour both access to finance and a second chance 
for failed entrepreneurs (see Section 3.2.1). In turn, 
Malta has made progress on policies to encourage 
entrepreneurship, skills and innovation.  

The  main  problems 
in  Malta’s  business 
environment remain the shortage of labour and 
limited  access  to  finance.  Businesses  complain 
about  severe  shortages  of  labour  and  a  lack  of 
readily available skilled workers (see Section 3.3). 
They  also  complain  about  growing  difficulties  in 
access to bank credit, which is the most significant 
concern  for  13%  of  Maltese  small  and  medium-
size  enterprises  (against  an  EU  average  of  7%  of 
small  and  medium-size  enterprises)  (European 
Central  Bank,  2019).  Maltese  businesses  also 
complain about bank services. A recent survey by 
the  Malta  Chamber  of  small  and  medium-size 
enterprises reveals that 60% of Maltese enterprises 
consider  that  bank  services  have  worsened  in 
recent  years:  73.4%  do  not  find  it  easy  to  get 
finance from banks and 17.4% were refused credit 
by  banks.  Moreover,  half  of  surveyed  firms  have 
encountered  difficulties  when  opening  a  bank 
account.  The  Malta  Development  Bank  is  setting 
up  guarantee  schemes  to  support  lending  to  small 
and medium-size enterprises. 

The  business  ‘birth  rate’  is  high,  thanks  to  the 
registration  of  foreign-owned  companies.  More 
than  12,000  new  businesses  registered  in  2018,  a 
rise of 7% compared to 2017. The total number of 
registered  companies  in  Malta  has  risen  by  47% 
since  2013,  and  reached  more  than  113,000  in 
2018.  Foreign-owned  companies  account 
for 
nearly  half of new and total  business registrations 
(Malta Chamber of Commerce, 2019).  

Insufficient  venture  capital  may  limit  business 
expansion. The number of high-growth firms with 
more  than  10  employees  as  a  percentage  of  all 
enterprises  in  Malta  (14%  in  2017)  is  among  the 
capital 
in  EU.  However,  venture 
highest 

scheme 

improved 

The governance of the citizenship and residence 
schemes  raises  concerns.  The  transparency  and 
governance  of  both  the  citizenship-by-investment 
scheme  (Individual  Investor  Programme)  and  the 
(Malta  Residence  Visa 
residence 
Programme)  could  be 
(European 
Commission,  2019b;  European  Commission 
2019j).  Moreover,  investor  citizenship  schemes 
potentially  raise  concerns  with  respect  to  their 
compatibility with the EU Treaties. The Individual 
Investor  Programme  has  a  dedicated  independent 
regulator  who  since  2019  reviews  all  applications 
and  issues  an  annual  report.  However,  no  similar 
regulator  exists  for  the  Malta  Residence  Visa 
Program.  The  European  Commission  continues  to 
monitor  wider  issues  of  compliance  with  EU  law 
raised by the schemes. 

to  operate 

There  are  indications  of  potential  conflicts  of 
interest.  The  newly  appointed  Commissioner  for 
Standards  remarked  that  political  appointments  in 
ad  hoc  positions  affected  the  appointed  persons’ 
ability 
the 
government. This concern has been exacerbated by 
appointments of MPs to important paid posts such 
as  heads  of  public  authorities.  According  to  the 
2019  Bertelsmann  Legislative  Actors’  Resources 
indicator,  Malta  ranks  at  the  bottom  (38th  of  46 
countries). 

independently 

from 

Limited  transparency  in  public  procurement 
affects  the  business  environment.  64%  of 
that  abuse  of  negotiated 
businesses  believe 
procedures  without  prior  publication  are  common 
in  public  procurement  (2019  Eurobarometer). 
Indeed,  official  audits  remark  on  the  common 
practice of direct orders (i.e. orders made without a 
contract  being  put  out  to  tender)  and  other 
irregularities,  and  three  concessions  in  the  health 
sectors  are  currently  under 
judicial  scrutiny 
(European  Commission,  2019b)  In  2018  direct 
orders approved by from the Ministry for Finance 
amounted to €86 million; nearly 9% of them were 
made  by  the  Ministry  for  Health  (National  Audit 
Office, 2019). The transparency of contracts is also 
low  public-contract 
limited  as  Malta  has  a 
publication rate compared with most EU countries. 
The  Ministry  of  Finance’s  Department  of 
Contracts  carries  out  several  regulatory  and 
operational tasks, and has very few staff to monitor 
public  procurement.  The  ongoing  decentralisation 
of  procurement  may  exacerbate  some  of  these 
challenges (see Section 3.4.3). 

42 

3.4. Competitiveness, reforms and investments 

investments  account  for  a  very  low  share  of 
Malta’s  GDP,  which  makes  it  difficult  to  secure 
funding for business expansion.  

3.4.3.  SINGLE MARKET INTEGRATION AND 

SECTORAL PERFORMANCE 

Digital public services 

lack  of  awareness; 

Malta  has  progressed  in  the  digital  public 
services  it  now  offers,  but  the  uptake  of  these 
services  by  the  public  remains  low.  Malta  has 
developed  e-government  services  for  citizens  and 
businesses,  including  a  number  of  mobile  apps  to 
facilitate  access  to  digital  public  services.  Its  e-
government  services  also  score  highly  when 
compared  to  other  countries (46).  However,  only 
56.8% of individuals that need to submit forms do 
so  via  online  services;  although  this  share  is 
increasing,  it  is  still  below  the  EU  average  is 
67.3%.  Similarly,  only  6%  of  the  public  uses  e-
health services (against 18% in the EU). According 
to a survey by the Maltese government, reasons for 
the  low  uptake  of  digital  e-government  services 
include:  a 
the  need  for 
simplification;  and  low  levels  of  education  (the 
lower a  person’s level of education the  less  likely 
they  are  to  use  online  government  services).  The 
survey  resulted  in  a  set  of  recommendations (47). 
Moreover, 
digital 
transformation  of  the  public  administration  for 
2019-2021  addresses  the  uptake  of  e-government 
services,  focusing  on  simplification  and  client-
centred  approaches  (Public  Service  of  Malta, 
2019). Finally, the government has embarked in a 
number  of  cybersecurity  projects,  expected  to 
increase  the  security  of  digital  infrastructure (48). 
In  2019, 
in  Malta  has 
undertaken  the  initiative  to  develop  a  Business 
Process  Re-Engineering 
to 
improve  efficiency  of  the  public  administration 
through digital means.  

the  Public  Service 

(BPR),  expected 

strategy 

new 

the 

on 

(46)  In  particular,  in  the  digital  economy  and  society  index, 
Malta  scores  high  when  it  comes  to  the  re-use  of 
information  across  administrations  to  make  life  easier  for 
citizens (pre-filled forms) and the sophistication of services 
(online service completion). 

(47)  ESF  04.0072  Mobile  Public  Services  Take-up  —  project 

surveys on mobile public services. 

(48)  Implemented  by  the  Critical  Infrastructure  Directorate 

(CIPD).  

intra-EU 

importance  of 

trade  has 
The 
increased.  Intra-EU  exports  of  services  tripled 
between  2011  and  2018,  and  represent  70%  of 
Malta’s  total  exports.  Trade  in  goods  represents  a 
fraction of trade in services, yet the share of Intra-
EU  exports  of  goods  have  increased  in  value  and 
relative  weight  over  time,  probably  due  to  the 
manufacturing  sector’s  increasing  focus  on  high-
added-value  segments:  in  2018  accounted  for 
around  58%  of  total  exports  (up  from  41%  in 
2011).  Imports  show  an  increasing  reliance  on 
intra-EU supplies for services (70% of all imports 
in 2018, up from 22% in 2011).  

Malta has significantly benefited from the single 
market.  A  recent  study  estimates  that  Malta’s 
intra-EU goods trade increased by 42% due to EU 
accession.  The  increase  is  far  above  the  EU 
average  and  particularly  high  in  the  transport 
equipment 
sectors. 
Estimates  also  show  the  country  could  benefit 
from additional trade increases (of 4.7%-7.2%) if it 
complied  fully  with  the  single  market  framework 
(European Commission, 2019m).  

food-and-beverages 

and 

Indicators  on  compliance  with  single  market 
rules point to room for improvement in the area 
of goods. Malta has a low level of notifications of 
technical  regulations  under 
the  Transparency 
Directive (Office  Journal  of  the  European  Union, 
2015). This suggests the country is making limited 
use  of  this  tool  to  allow  dialogue  with  other 
Member  States  to  improve  the  free  movement  of 
goods.  Malta  is  more  active  in  reacting  to  other 
launching 
countries’ 
notifications  on  its  own  rules.  Between  2016  and 
2018, Malta notified only 28 draft regulations, i.e. 
only  1.3%  of  the  total.  Integration  in  the  single 
market  for  goods  is  less  developed  than  in  the 
capital and services areas (LE Europe, 2017). 

notifications 

than 

in 

The effectiveness of public procurement can be 
strengthened.  TED  data (49)  show  that  the  lowest 
price  was used as the sole award criterion in 97% 
of cases in 2018. This means that the quality of the 
supplies  or  services  is  not  ensured  for  many 
contracts.  Moreover,  the  use  of  the  best  price-

(49)  Tenders  Electronic  Daily 

database, 

available 

at 

https://data.europa.eu/euodp/en/data/dataset/ted-csv. 

43 

                                                           
                                                           
3.4. Competitiveness, reforms and investments 

quality-ratio  award  criteria  may  help  to  prevent 
market  concentration  and  cartels.  In  addition, 
purchases  are  increasingly  decentralised  without 
strengthened  monitoring and  control: only 1% are 
tendered out on behalf of another public buyer (6% 
on  average  are  tendered  out  on  behalf  of  another 
buyer  in  EU).  This  suggests  that  Malta  may  be 
missing  the  opportunity  to  pool  resources  and 
expertise  to  achieve  the  best  outcome  possible. 
Decentralisation 
hamper 
may 
professionalisation  and  innovative  procurement. 
Improving  green  public  procurement  would 
contribute to sustainability goals. 

also 

Services sector 

is  a  key 
Malta’s  buoyant  services  sector 
contributor  to  the  country’s  economic  success. 
Setting aside the large financial sector (see Section 
3.2.1),  the  tourism  industry  is  one  of  the  main 
pillars  of  the  economy,  while  the  gaming  sector 
continues to experience strong growth.   

Graph 3.4.4:  Inbound tourism, January 2018-October 2019 

uncertainties  in  the  economies  of  its  trading 
partners. 

Challenges  in  the  tourism  sector  include  the 
additional pressure  it exerts on already limited 
resources.  The  significant  number  of  tourists  that 
come to Malta every year amounted to an increase 
in  population  between  15,000  and  45,000  people 
per month in 2019, with peaks during the summer. 
This  has  implications  for  water  use,  land  use, 
housing  supply,  local  mobility,  and  quality  of  life 
(see Section 3.5). 

industry  keeps  extending 

The  gaming 
its 
impact, including beyond national borders. The 
industry  accounts  for  13.2%  of  gross  value  added 
and  2.8%  of  employment  (4.1%  of  employment, 
including  related  jobs  in  support  services).  Both 
turnover  and  employment  in  the  industry  are 
expected  to  rise  in  2019  (by  12%  and  10% 
respectively)  and  2020  (by  14%  and  11% 
respectively)  (MGA,  2019).  The  sector  has  the 
highest  productivity  growth  of  any  sector  in  the 
Maltese  economy  (see  Section  3.4.1).  I-gaming 
services  provided  under  Maltese  licences  are  by 
their  nature  without  borders.  In  2018,  Maltese-
based  gaming  companies  had  almost  18  million 
customer  accounts,  30%  more  than  in  2017.  The 
land-based  premises  of  gambling  services  also 
registered  high  shares  of  total  visits  by  non-
Maltese:  55.4%  for  casinos  and  40%  for  gaming 
parlours in 2018 (MGA, 2019). 

New  rules  adopted  in  2018  gave  a  boost  to  the 
gaming  sector,  but  they  have  also  entailed 
governance 
challenges.  The  Gaming  Act 
simplified  the  licensing  system.  As  for  i-gaming, 
holders  of  either  a  business  to  consumer  or 
business to business licence can now offer a wide 
range  of  services 
that  previously  fell  under 
separate licences. Furthermore, the introduction of 
a  regulatory  framework  based  on  the  use  of 
distributed  ledger  technologies  has  opened  up  the 
to  adopt 
possibility 
for  gaming  companies 
innovative  business  models.  The 
increasing 
complexity of the industry and the amplification of 
range  of 
including  via 
platforms,  call  for  a  high  level  of  regulatory 
attention. Given the international significance of a 
involves  customers,  partners  and 
sector 
workers from a range of countries (and from other 
EU Member States in particular), there may be the 

services  provided, 

that 

Source: Malta National Statistics Office 

The  tourism  industry  continues  to  grow.  The 
number  of  inbound  visitors  has  doubled  since 
2010, reaching 2.6 million in 2018 and 2.1 million 
during  the  first  9  months  of  2019  (National 
Statistics  Office,  2019).  Tourist  expenditure  also 
grew  remarkably,  although  at  a  slower  pace.  An 
important  strength  of  the  country  has  been  its 
ability  to  attract  visitors  all  year  round.  However, 
the  tourism  sector is exposed to the  risk of  global 
economic downturns,  increases in  fuel prices,  and 

44 

-55152535JFMAMJJASONDJFMAMJJASO20182019Total touristsTotal nights%y-o-y    
3.4. Competitiveness, reforms and investments 

Artificial  Intelligence  in  Malta  2030’),  based  on 
three  strategic  pillars:  investment;  start-ups  and 
innovation; and adoption by both the public sector 
and  private  sector.  The  strategy  is  expected  to  be 
supported  by 
the  establishment  of  a  digital 
innovation  hub  and  call  for  higher  regulatory 
attention.  Malta  also  cooperates  with  other 
Member  States  in  these  strategic  areas,  having 
signed the Declaration of cooperation on Artificial 
Intelligence  and  the  Declaration  of  European 
Blockchain Partnership. 

risk  of  significant  spillovers  to  the  single  market 
(see Section 2 and Section 3.2.2).  

has 

adopted 

recently 

Innovative  digital  services  remain  a  strategic 
priority.  Malta 
a 
comprehensive regulatory  framework dedicated to 
blockchain  technology  (European  Commission, 
2019b).  The  impacts  of  this  technology  on  the 
economy  have  not  yet  materialised,  but  they  are 
expected to be felt in the future. In October 2019, 
the government also adopted a national strategy on 
artificial  intelligence  (‘A  Strategy  and  Vision  for 

45 

3.4. Competitiveness, reforms and investments 

Box 3.4.3: Investment challenges and reforms in Malta 

Section 1. Macroeconomic perspective  

Investment fell in 2017 and 2018 in constant prices, partly due to the high starting level in 2016. However, 
investment  is  now  expected  to  grow  in  2019  and 2020.  In particular,  large-scale  investment  projects  in  the 
aviation, health and tourism sectors are set to boost private investment. Investment growth is then projected to 
slow down in 2021, as some of these projects reach completion. Construction investment is predicted to grow 
at a progressively slower pace, following the strong expansion seen in recent years. The public investment-to-
GDP ratio is also expected to increase sizeably, and exceed 4% in 2019. This will be largely driven by the 
implementation of EU-funded projects. In the future, growth in public investment is expected to decline as the 
absorption rate of EU funds stabilises.   

Section 2. Assessment of barriers to investment and ongoing reforms   

The business environment has improved in recent years,  particularly for SMEs. However, gaps in access to 
finance  continue  to  limit  the  growth  prospects  of  firms.  Weaknesses  in  the  governance  framework  persist, 
especially in the justice system and the anti-corruption institutional framework. On human capital, remaining 
investment  barriers  to  be  addressed  include  low  skill  levels,  labour  shortages,  and  moderate  R&D 
performance.  In  addition,  transport  infrastructure  and  the  limited  uptake  of  sustainable  transport  solutions 
remain weak points in Malta’s business environment. The impact of planned policy measures to encourage a 
modal  shift  away  from  private  cars  is  still  limited.  Infrastructure  bottlenecks,  including  severe  traffic 
congestion,  hamper  productivity  growth  and  create  sustainability  challenges.  Addressing  the  infrastructure 
gap with a stronger focus on the environment would strengthen long-term sustainability and improve Malta’s 
ability to attract and retain workers and investment. 

Main barriers to investment 

1. Given the tightening labour market and the record-low unemployment rate, the difficulty in recruiting and 
retaining  skilled  staff  constitutes  a  sizeable  barrier  to  investment.  The  inflow  of  foreign  workers  helps  to 
mitigate  skills  shortages,  but it  also  creates  integration  and  sustainability  challenges.  Educational outcomes 
remain  poor,  and  so does  the  take-up  of  in-work  upskilling  schemes.  Ongoing  policy  measures  focused  on 
improving digital and green skills, and on fostering the deployment of digital technologies, are expected to 
help tackle this issue (see Section 3.3).  

2. Small and medium-sized enterprises experience growing difficulties in access to credit. Although the Malta 
Development Bank is creating a framework of guarantee schemes to support lending, banks have tightened 
the  terms  and  conditions  applicable  to  corporate  loans.  An  increasing  number  of  firms  find  it  difficult  to 
obtain even basic bank services (see Section 3.4.2).  

46 

Regulatory/ administrative burdenTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomEducation, skills, lifelong learning EnergyTransportCSRLegend:No barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
3.5. ENVIRONMENTAL SUSTAINABILITY 

to 

Malta  is  particularly  vulnerable  to  the  impacts  of 
climate  change.  Malta’s  low-carbon  development 
vision  integrates  both  climate-change  mitigation 
and  adaptation,  and  should  now  be  turned  into  a 
comprehensive  strategy  expected 
identify 
additional  adaptation  actions 
to  complement 
Malta’s  national  adaptation  plans.  Additional 
efforts  could  help  to  further  mainstream  climate-
change  adaptation  and  disaster-risk-reduction 
measures.  Malta  does  not  currently  have  a 
comprehensive 
disaster-risk 
management,  and  sectoral  plans  do  not  always 
include an assessment of how climate change may 
affect disaster risks. Particularly vulnerable sectors 
(such  as  water  management,  infrastructure  and 
land  use;  natural  ecosystems;  agriculture  and 
fisheries;  health; and tourism)  would benefit  from 
targeted  investments  in  resilience,  as  well  as 
disaster-risk  preparedness,  management 
and 
response. 

framework 

for 

to 

the 

the  Effort  Sharing  Decision 

Ongoing efforts to cut emissions do  not appear 
sufficient  to  achieve  Malta’s  reduction  targets. 
Although  Malta  has  the  lowest  greenhouse  gas 
emissions  per  capita  in  the  EU,  its  absolute 
emissions are rising. The 2020 emissions-reduction 
target  under 
is 
expected to be missed by a large margin of 27 pps, 
latest  national  projections 
according 
submitted  to  the  Commission,  which  takes  all 
existing  measures  into  account.  In  2030,  this  gap 
with the effort-sharing target is expected to rise to 
62 pps. Malta is currently preparing a strategy for 
climate neutrality by 2050, and on 14 June 2019 it 
endorsed  the  Valletta  Declaration  supporting  this 
goal.  On  22 October  2019,  Malta  declared  a 
‘climate  emergency’.  Reducing 
the  carbon-
intensity of the Maltese economy would contribute 
to advancing towards SDG 7 and 13. 

environmentally 

sustainability 
could 

sustainable 
Achieving 
economic  growth 
is  one  of  Malta’s  key 
challenges. Malta is  the  smallest,  most urbanised, 
and  most  densely  populated  country  in  the  EU. 
With demographic and economic growth expected 
to  put  further  pressure  on  capacity  constraints  in 
the  coming  years,  the  Maltese  economy  faces 
challenges.  These 
significant 
challenges 
future 
competitiveness 
standards.  The 
increasing economic activity is likely to exacerbate 
environmental concerns and put pressure on scarce 
natural resources. As a small island-state, Malta is 
particularly  challenged  by  the  demands  of  a 
growing population for land, water and energy. At 
the 
infrastructure 
bottlenecks  and  promoting  the  transition  to  a 
climate-neutral  economic  model  remain  crucial  to 
strengthen sustainability in the long term. 

affect  Malta’s 

addressing 

living 

same 

time, 

and 

time, 

requires 

a 
sustainability 
Strengthening 
comprehensive  strategy  covering  a  wide  range 
of  policy  areas.  Steering  the  transition  to  greener 
and  more sustainable economic development calls 
for  a  long-term,  comprehensive  strategy.  This 
targeted 
strategy  should  be 
in  particular  at 
vulnerable 
and  population  groups. 
sectors 
Overexploitation of natural resources, for example, 
the  competitiveness  of 
may  adversely  affect 
Malta’s  tourism  sector  as  well  as  employment  in 
this  sector.  At 
the  overall 
the  same 
population growth, which includes development of 
tourism  will  continue  to  exert  further  pressure  on 
water use,  waste treatment,  air quality, and traffic 
congestion.  Priority  actions  for  this  sector  could 
therefore  include  (but  not  be  limited  to):  (i) 
sustainable  natural-resource  management 
that 
promotes  climate-change  resilience  and  equity; 
and (ii) sustainable mobility. Taken together, these 
actions  could  drive  the  transition  to  a  green 
economy.  Ensuring  that  the  necessary  skills  are 
available  to  support  the  green  transition  (see 
Section  3.3.2),  and  increasing  participation  in 
innovation  projects,  would 
the 
economy’s  resilience  and  equity.  It  would  also 
equip Malta to better harness the potential of new 
climate-friendly 
(European 
Commission, 2019n). 

technologies 

consolidate 

Climate action 

Malta  is  particularly  vulnerable  to  climate 
risks.  Given  its  specificities  and  insular  nature, 

47 

 
3.5. Environmental sustainability 

Ernst  & Young, 2019). While the  development of 
road infrastructure remains a  government priority, 
it  is  unclear  to  what  extent  planned  road  projects 
will  contribute  to  enabling  modal  shift.  Targeted 
and  effective  action  in  this  area  would  lead  to 
progress on SDG 9. 

Maritime  transport  would  benefit  from  green 
solutions. Two main ports are a significant part of 
the economy through the growth and jobs that they 
create:  the  Grand  Harbour  Port  and  Marsaxlokk 
Port.  The  use  of  ship  engines  for  power  supply 
is  a  significant  source  of 
during  docking 
greenhouse  gas  emissions  and  pollution.  Malta  is 
planning  to  construct  a  system  to  provide  the 
necessary  electrical  demand  for  ships  docked  in 
the  Grand  Harbour.  This  system  and  a  similar 
system  in  the  Marsaxlokk  Port  (which  is  not  yet 
under  planning)  could  facilitate  Malta’s  green 
transition and support the ports’ competitiveness in 
the  transition  (see  Annex  D).  Another  source  of 
emissions  and  air  pollution  are  oil  tankers  not 
berthing  in  any  port,  but  sailing  or  bunkering  just 
off the coast of Malta. Green solutions are as of yet 
technically difficult to achieve, but will have to be 
included in national and regional research agendas. 

Graph 3.5.2:  Trends in population growth and road transport 

sector 

Stock of vehicles except trailers and motorcycles 
Source: European Commission 

Graph 3.5.1:  Total greenhouse gas emissions (excluding 

international aviation), EU and Malta 

Source: European Commission 

Sustainable transport  

The  road  transport  sector  generates  significant 
negative externalities, which are exacerbated by 
demographic and economic growth. The external 
cost  of  road  transport  in  Malta  is  estimated  at 
around  €400  million  annually,  approximately  4% 
of  GDP (50).  This  figure  includes  external  costs 
related to congestion, accidents, and environmental 
damage  (air  pollution;  climate  change;  and  the 
costs related to energy production, i.e. well-to-tank 
emissions,  noise,  habitat  damage).  All  of  these 
external  costs  frequently  affect  the  quality  of  life 
of  Maltese  residents.  In  recent  years,  Malta  has 
experienced 
traffic  volumes, 
mainly because of the rapid growth in population, 
the  economy  and  tourism.  The  transport  sector  is 
responsible 
total 
greenhouse  gas  emissions  in  Malta.  Air  pollution 
related  to  transport  also  generates  considerable 
social  impacts (51).  Worsening  road  congestion  is 
the  result  of  heavy  reliance  on  passenger  vehicles 
for  transportation  and  sharp  increases  in  the 
number of licensed motor vehicles. Poor transport 
infrastructure and road quality are also considered 
one  of  the  island’s  drawbacks  in  investment 
attractiveness  (World  Economic  Forum,  2019  and 

for  around  a  quarter  of 

increasing 

road 

(50)  Based on the methodology used in European Commission, 

2019l. 

(51)  For  2016,  the  European  Environment  Agency  estimated 
that  more  than  210  premature  deaths  in  Malta  were 
attributable to air pollution (EEA, 2019). 

Several  policy  measures,  recently  put  in  place 
or  planned,  have  the  potential  to  promote 
sustainable  transport.  Current  policies  appear  to 
encourage  the  uptake  of  electric  vehicles.  The 
government  has  also  renewed  grant  schemes  for 

48 

6070809010011012000010203040506070809101112131415161718MTEUindex (2000=100)1001502002503003504004505005500.200.250.300.350.400.450.500.550.600506070809101112131415161718Stock of vehicles (rhs)GHG emissionsPopulation (rhs)mio ton CO2thousand   
                                                           
   
more  fuel-efficient  passenger  vehicles.  An  impact 
assessment  of  seven  road  projects  underway  in 
April  2019  has  identified  possible  savings  of 
tonnes  of  CO2  per  year (doi.mt.gov, 
62,000 
2019b).  An  inter-ministerial  committee  has  been 
set  up  to  decide  by  the  end  of  2020  on  a  cut-off 
date for banning the importation and registration of 
new  and  second  hand  (newly  registered)  sale  of 
internal  combustion  engines  on  Maltese  territory. 
The  2020  budget 
introduces  a  number  of 
environmental measures including: (i) an extension 
of  free  public  transport  to  all  citizens  above  75 
years  of  age  and  all  students;  (ii)  grants  of  up  to 
€200,000 for the scrappage of polluting machinery 
in  exchange  for  the  purchase  of  cleaner  models; 
(iii)  reduced  electricity  tariffs  for  the  charging  of 
electric  vehicles  at  one’s  home;  (iv)  an  extension 
of  Malta’s 
(v) 
additional  schemes  to  encourage  the  purchase  of 
bicycles,  scooters  and  pedelecs.  However,  the 
budget  amounts  dedicated  to  sustainable  transport 
measures  are  considerably  smaller 
the 
investment  planned  in  new  roads.  The  impact  of 
recent measures on greenhouse gas emissions will 
be  evaluated  during  the  mid-term  review  of  the 
transport  master  plan  in  2020.  Greater  action  on 
sustainable  mobility,  including  improving  public 
transport  and  further  encouraging  its  use,  would 
help  reduce  both  congestion  and  greenhouse  gas 
emissions without increasing pressure on transport 
infrastructure. 

ferry  network  service;  and 

than 

Energy transition 

The 
impact  of  a  growing  population  and 
economy  on  energy  consumption  highlights  the 
need  for  greater  energy  efficiency.  Reaching 
Malta’s  2020  and  2030  energy  and  carbon  targets 
requires additional efforts to be made beyond those 
that  are  currently  planned.  Reducing  primary  and 
final energy consumption is essential to ensure that 
energy-efficiency  and  carbon  emission  reduction 
targets  are  met  and  support  progress  on  SDGs 7, 
12 and 13. In a context of strong demographic and 
economic  growth, 
final  energy  consumption 
continued to increase in recent years. In 2016, the 
transport  sector  was  responsible  for  over  half  of 
Malta’s  energy  consumption,  followed  by  the 
buildings  and  services  sectors.  The  Maltese 
National  Energy  and  Climate  Plan,  submitted  in 

3.5. Environmental sustainability 

December 2019 (52), estimates that the government 
would spend some €1.66 billion between 2018 and 
2030  on  energy-related  projects  and  measures. 
Expenditure is expected to peak in 2021 at 1.7% of 
real  GDP.  The  transport  sector  is  expected  to 
maintain  the  largest  share  in  terms  of  estimated 
investments, 
the  services  and 
residential sectors. 

followed  by 

The  energy  consumption  of  buildings  has  been 
increasing. The residential construction sector is a 
major  source  of  greenhouse  gas  emissions,  which 
come  from energy consumption, fluorinated  gases 
for  cooling,  and  waste  disposal 
(including 
construction waste). Apart from grant schemes for 
heat pumps, Malta has no policy in place to target 
the  growing  energy  demand  and  greenhouse  gas 
emissions from air conditioning systems. Measures 
seem  to  focus  on  increasing  the  energy  efficiency 
of air conditioning systems, rather than on a more 
targeting  a  building’s 
holistic  approach  also 
structure. 

are 

predominant 

Renovating  the  building  stock  may  help  to 
substantially  boost  energy  efficiency.  Although 
residential  buildings  account  for  84%  of  Malta’s 
building  stock,  only  around  0.6%  of  them  are 
renovated  per  year.  In  turn,  around  2.1%  of  non-
residential buildings are renovated. Energy-related 
‘deep’  renovations  are  carried  out  on  0.1%  of 
residential  buildings  and  0.4%  of  non-residential 
buildings  each  year,  while  medium  and  light 
(European 
renovations 
Commission,  2019o).  As  a  result,  renovations 
result 
the 
in  only  10%  energy  savings  for 
residential  sector  on  average  and  15%  energy 
savings  for  the  non-residential  sector.  The  uptake 
of  energy  renovation  could  benefit  from:  (i) 
increased  public  awareness  of  support  schemes; 
(ii)  better  use  of  energy  performance  certificates; 
and  (iii)  a  comprehensive  long-term  renovation 
housing 
strategy 
infrastructure  and  the  worst-performing  buildings 
in  the  building  stock.  A  project  to  assess  and 
measure  the  energy  efficiency  of  social  housing 
will be launched in 2020. 

address 

social 

both 

to 

The  uptake  of  renewable-energy  sources  is  not 
sufficient. Malta appears in line with the trajectory 
the  National  Renewable  Energy 
indicated 

in 

(52)  The European Commission will assess the final plan in the 

course of 2020. 

49 

                                                           
renewable-energy 

insufficient  to  generate 

Action  Plan  submitted  in  2017.  To  achieve  the 
2020  targets  on  renewable-energy  sources,  Malta 
has  given  priority  to  developing  domestic  energy 
sources.  It  also  intends  to  launch  additional 
schemes  to  incentivise  the  installation  of  solar 
water  heaters  and  photovoltaic  panels.  However, 
current  renewable-energy  policies  and  planned 
the 
initiatives  appear 
required 
purely 
domestically (European Commission, 2019REPR). 
Malta plans to consider statistical transfers (53) as a 
contingency  measure  to  reach  the  2020  targets. 
renewable-energy 
Further 
investments  could  be  explored  under  the  revised 
Connecting  Europe  Facility  regulation  and  the 
cohesion  policy  funds.  Malta’s  participation  in 
innovation  projects  exploring 
research  and 
offshore wind and solar technologies could provide 
additional  options 
the  share  of 
renewables. 

opportunities 

volumes 

increase 

in 

to 

Natural resources management  

to  natural 

constraints.  The 

Sound  water  management  remains  a  priority, 
given  the  sustained  and  severe  water  scarcity 
due 
“water 
exploitation index” is well above the threshold for 
severe  water  scarcity  and  it  is  increasing.  This  is 
partly balanced by Malta's low water use intensity, 
one  of  the  lowest  in  the  EU.  However,  the  latter 
indicates  a  limited  capacity  to  further  boost  the 
efficiency  of  water  consumption.  It  therefore 
remains  a  key  challenge  to  keep  up  with  the 
increasing  demand  for  water.  Although  the  major 
source  of  potable  water  is  desalination  from  three 
reverse  osmosis  plants  located  across  the  islands, 
Malta  also  heavily  relies  on  ground  water  supply 
from  aquifers.  These  aquifers  are  tapped  both  by 
private  entities  and  by  the  public  Water  Services 
Corporation.  The  Maltese  government  has 
committed  to  invest  to  continue  addressing  the 
sector.  More 
sustainability  of 
specifically, the government has planned measures 
focused on continuing to: (i) improve the quality of 
tap  water; and (ii)  address the partial treatment of 
farm liquid waste so that it can be discharged into 
the water infrastructure network. 

the  water 

3.5. Environmental sustainability 

The  steady  increase  in  land  use  represents  a 
threat to biodiversity and the Maltese economy. 
Ecosystem  services related to land  use are critical 
to  Malta’s  economy  (e.g.  loss  of  income  from 
nature-oriented 
tourism  and  agriculture)  and 
quality of life. Malta had the highest land take (54) 
in the EEA39 during the period 2012-2018 (EEA, 
2019b),  largely  due  to  mining  and  urban  sprawl. 
Data  on  construction  permits  show  a  remarkable 
increase (a trebling in the period between 2013 and 
2018)  in  the  number  of  dwelling  approvals  on 
virgin land. Natural area conversion into land use, 
including  built  areas,  is  threatening  biodiversity, 
and can also have negative economic impacts (e.g. 
a loss of income from nature-oriented tourism and 
agriculture).  High-quality  land  administration  is 
key  to  addressing  environmental  concerns,  but 
land  administration  appears  to  be  of  relatively 
modest quality in Malta (World Economic Forum, 
2019).  Ongoing  afforestation  initiatives  and  tree-
planting  schemes  (in  particular  those  required  as 
part of planning approval) are expected to improve 
land  use  efficiency  and  air  quality.  In  addition, 
Malta’s  national  biodiversity  strategy  and  action 
plan  has  set  19  national  targets  to  be  achieved  by 
2020  to  support  Malta’s  natural  heritage.  Well-
planned  and  managed  tourism  in  natural  areas, 
notably  in  Gozo,  has  a  significant  potential  for 
generating sustainable income and jobs. 

to 

the  need 

A  strong  dependence  on  external  energy 
sources,  lack  of  natural  resources  and  little 
for 
usable  space  contribute 
innovative solutions but at the same time make 
the  transition  to  a  circular  economy  harder. 
Malta has planned actions to reduce the amount of 
its waste generated and going to landfill. Relevant 
measures  to  achieve  this  include:  (i)  a  waste-to-
energy  facility;  (ii)  a  collection  system  for  the 
separation of paper, metal, plastic, paperboard and 
bio-waste;  and  (iii)  a  material  recovery  facility 
to  gather  different  waste  streams  for 
plant 
preparation  and  storage.  The  government  plans  to 
implement these measures over a four-year period, 
and  they  are  expected  to  help  the  transition  to  a 
circular economy. However, planning the capacity 
of  such  installations  requires  a  cautious  approach, 
as  these  facilities  have  a  long  life  span  and  high 
capital costs. Thus, to be economically viable they 

(53)  In  a  statistical  transfer,  an  amount  of  renewable  energy  is 
deducted from one country's progress towards its target and 
added to another's. This is an accounting procedure and no 
actual energy changes hands. 

(54)  Land  take  is  the  process  in  which  urban  areas  and  sealed 
surfaces  occupy  agricultural,  forest  or  other  semi-natural 
and natural areas 

50 

                                                           
                                                           
3.5. Environmental sustainability 

to  operate  close 

need 
to  full  capacity.  The 
remaining  gaps  to  to  boost  Maltese  economy 
circularity  include:  (i)  the  implementation  of 
robust  separate  collection  systems  (which  in  turn 
would  enable  better  quality  recycling  in  the 
country);  and  (ii)  revised  producer  responsibility 
schemes  to  improve  effectiveness,  collect  good 
quality  data,  and  ensure  that  producers  meet  their 
recycling  targets.  Construction  and  demolition 
waste  rose  to  over  2.2  million  tonnes  in  2017  (up 

from  1.3  million  tonnes  in  2016);  56%  of  which 
was backfilled and 19% of which was disposed at 
sea (55).  The  government 
launched  a  public 
consultation  for  a  Construction  and  Demolition 
Waste  Strategy  for  Malta  2020  –  2025  aiming  at 
making  its  economy  more  circular  by  treating 
construction waste as a resource. Addressing these 
challenges would lead to progress on SDG 12. 

(55)  Waste  disposed at  sea  includes  only  dredged  material  and 

excavated clean inert material. 

51 

                                                           
3.5. Environmental sustainability 

Box 3.5.4: Social and environmental sustainability implications of Malta’s housing sector 

Malta  is  experiencing  strong  growth  in  housing  demand  and  supply.  The  Maltese  population  grew 
exceptionally quickly (17%), in the last decade. This increase  was coupled with an even larger rise in the 
number of households (36.6%), which fuelled housing demand. Changes in family structures,  reduced the 
average size of households (from 2.9 people to 2.5 people in 10 years), while the number of single-person 
households more than doubled. The surge in demand for housing was backed by a rapid expansion in supply 
of  dwellings,  particularly  from  2015  onwards,  with  an  average  50%  annual  increase  in  dwelling  units 
approvals between 2015 and 2018. 

Demographic and social changes create pressure on the rental market. Although Malta continues to be a 
country of homeowners (81.2% of the population own their own home), the share of the population renting 
at market price in Malta has risen significantly  in recent years (from 2.1% in 2011 to 6.8% in 2018). This 
increase  has  come  on  the  back  of  population  growth  and  large  inflows  of  migrants  primarily  looking  for 
temporary  accommodation.  Tenants  have  an  increasingly  diverse  range  of  incomes,  and  the  current  rental 
supply  does  not  satisfy  the  demand  for  lower  priced  and  smaller  units.  This  is  partly  because  current 
construction standards impose a relatively large minimum size for new dwellings. Rental properties priced 
under €1,000 per month are noted as being in short supply and properties for under €600 a month being very 
limited. On the other hand, mid-range properties priced between €1,000 and €2,000, were in excess supply 
(MDA, 2019). 

The growing rental demand and increasing rent levels raise concerns over access and affordability for 
vulnerable families. Young couples and single people, including single parents, are among the households 
most  likely  to  rent  and  face  the  surge  in  rental  prices.  18.5%  of  single  parents  now  rent  at  market  price, 
against 6.8% for the total population. The share of rent in the disposable income of tenant households has 
been constantly growing for the past decade, from 4.6% in 2008 to 7.7% in 2018, although it remains well 
below  the  EU  average  (24.7%).  Acquiring  affordable  properties  is  becoming  increasingly  difficult, 
particularly for first-time buyers, a problem that can further increase demand in the private rental sector. 

Malta  has  taken  a  series  of  measures  to  address  these  challenges.  A  rent  reform  law  adopted  in  2019 
aims to address the lack of a regular tenancy system and appropriate legal framework. Malta also introduced 
an  affordable  housing  benefit  to  support  tenants,  and  offers  financial  aid  to  buyers  over  the  age  of  40 
through  a  ‘shared  equity’  scheme.  A  shared  equity  scheme  for  young  people  is  also  in  the  pipeline.  The 
government also announced the building of 1,700 new social housing units in 2019. Malta envisages to draft 
a National Housing Strategy,  which will include a sustainability dimension, and consider adopting a  more 
comprehensive national housing policy. 

Addressing environmental concerns remains crucial to ensure a sustainable housing market. Although 
it represents an important source of economic growth, the housing sector also presents a number of negative 
externalities (land use, greenhouse-gas emissions, energy consumption and waste generation, among others) 
that  may  severely  impact  environmental  sustainability.  The  number  of  dwelling  unit  approvals  on  virgin 
land (around 33% of the total in 2018) has increased in parallel with total dwelling unit approvals, and in 
2018 was four times higher than in 2014. Construction projects also regularly take place in areas that have 
not been zoned for development, creating a cumulative effect over time. However, the high growth in new 
construction  projects  (around  5%  in  the  residential  sector  and  7%  in  the  non-residential  sector),  creates 
significant  opportunities  to  improve  the  sector’s  energy  performance.  For  example,  energy  performance 
could be improved by updating cost-optimal  minimum requirements and adopting a  more ambitious near-
zero-emissions standard for new buildings.  

Renovation  of  the  existing  building  stock  and  targeted  training  schemes  may  help  to  improve  the 
energy performance of buildings. Malta’s low renovation rates result in insufficient energy savings. Skills 
shortages in the construction sector lead to limited expertise in energy efficiency.  The ZEROCO2 project, 
funded through the European Regional Development Fund by Interreg Europe, set up training programmes 
of Energy Perfomance  Assessors for architects and engineers  and increased grant schemes  for solar  water 
heaters.  Further  European  Regional  Development  Fund  funding  could:  (i)  provide  fiscal  incentives  for 
contractors that build to high efficiency standards, with a special focus on summer thermal insulation; (ii) 

52 

3.5. Environmental sustainability 

extend solar farm projects to the residential sector; and (iii) use R&I funds to develop energy performance 
contracting. 

Steps have been taken to ensure effective oversight of the construction sector. During times of a strong 
building  activity,  the  enforcement  of  codes  and  consideration  of  sustainability  factors  is  crucial.  This  is 
because  the  new  building  stock  will  remain  largely  unchanged  for  a  generation.  Similarly,  regular 
maintenance  is  key  for  existing  buildings  and  heating-and-cooling  systems.  The  budget  for  2020  has 
proposed  stronger  regulatory  oversight  in  the  construction  sector.  The  Malta  Construction  and  Building 
Authority  is  currently  being  set  up  to  ensure  consistent  management  and  regulation  of  the  construction 
sector, which was previously subject to fragmented legislation. 

53 

ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (56) 

2019 country-specific recommendations (CSRs)  

CSR  1:  Ensure  the  fiscal  sustainability  of  the 
healthcare  and  pension  systems, 
including  by 
restricting early retirement and adjusting the statutory 
retirement  age  in  view  of  expected  gains  in  life 
expectancy.  

Malta has made No Progress in addressing CSR 1:  

As  regards  the  pension  system,  the  adequacy  of  the 
average level of pensions is in line with EU average 
and  measures  to  increase  employment  of  older  age 
cohorts  as  well  as  incentivising  people  to  prolong 
their  working  lives  are  steps  in  the  right  direction. 
However,  public  expenditure  on  pensions  is  not 
sustainable in the long term in the absence of further 
action  such  as  restricting  early  retirement  and/or 
adjusting the statutory retirement age. Moreover, the 
additional  â‚¬3.51  weekly 
in  public 
pensions announced with the 2020 budget is assessed 
as  an  action  that  would  increase  the  pressure  on 
public  expenditure  on  pensions  in  the  long  term, 
even  if  potential  benefits  from  higher  population 
projections  would  materialize,  and  therefore,  would 
not  address  the  sustainability  problem  raised  by  the 
2019  CSR.  As  regards  the  healthcare  policies,  two 
regional  primary  care  centres  with  emergency  care 
services are being built and investments to gradually 
expand  the  use  of  eHealth  are  in  progress,  thus 
creating  the  basis  for  limiting  unjustified  hospital 
admissions  and  the  use  of  hospital  emergency  care. 

increase 

(56)  The following categories are used to assess progress in implementing the 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 fully 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. 

54 

 
                                                           
 
 
 
 
 
A. Overview Table 

Capacities  of  institutional  and  home-based  LTC  are 
being expanded which may reduce the length of stay 
in  geriatric  clinics.  Concrete  results  of 
these 
efficiency  potentials  and  their  impact  on  long-term 
fiscal  sustainability,  however,  will  become  evident 
only in a few years time. 

Malta  has  made  Limited  Progress  in  addressing 
CSR 2  

CSR 2: Address features of the tax system that may 
facilitate  aggressive  tax  planning  by  individuals  and 
multinationals,  in  particular  by  means  of  outbound 
payments.  Strengthen 
the  overall  governance 
framework, including by continuing efforts to detect 
and  prosecute  corruption.  Continue  the  ongoing 
progress  made  on  strengthening  the  anti-money-
laundering  framework,  in  particular  with  regard  to 
enforcements.  Strengthen  the  independence  of  the 
judiciary,  in  particular  the  safeguards  for  judicial 
appointments and dismissals, and establish a separate 
prosecution service.  

Address features of the tax system that may facilitate 
aggressive 
and 
multinationals,  in  particular  by  means  of  outbound 
payments.  

tax  planning  by 

individuals 

No  Progress  Economic  evidence  suggests  that 
Malta’s tax rules are used for aggressive tax planning 
purposes.  Specifically,  rules  such  as  the  absence  of 
withholding taxes and the design of Malta's investor 
citizenship  and  residence  schemes  are  causes  for 
concern.  Aside  from 
transposition  of  EU 
the 
Directives  in  this  area,  which  are  not  sufficient  to 
address  existing  concerns,  no  additional  reforms 
were announced. 

the  overall  governance 

Strengthen 
including  by  continuing  efforts 
prosecute corruption.  

framework, 
to  detect  and 

Limited    Progress  The  resources  for  the  police  are 
being  improved.  However,  the  efforts  to  detect  and 
prosecute corruption need to be further strengthened 
to meet existing concerns.  

the 

Continue 
on 
strengthening the anti-money-laundering  framework, 
in particular with regard to enforcements.  

progress  made 

ongoing 

Some  Progress  Some  progress  was  achieved  in 
strengthening  the  enforcement  of  the  anti-money 
laundering  framework.  The  Financial  Intelligence 
Analysis  Unit  (FIAU)  made  substantial  progress  in 
enhancing  its  supervisory  capacity.  The  increase  in 
the  human  resources  and  the  implementation  of  a 
risk-based  approach  to  supervision  have  already 
yielded  good  results.  Steps  have  also  been  taken  to 
strengthen the cooperation between the FIAU and the 
Malta Financial Services Authority (MFSA), but the 
MFSA’s practice of insourcing a private consultancy 
for supervisory tasks is of concern. Steps  have been 
taken to address the risks of remote gaming through 
cooperation  between  the  FIAU  and 
the  Malta 
Gaming  Authority,  while  an  assessment  of  the  risk 
exposure of virtual assets is under way. At the same 
time,  limited  progress  was  achieved  as  regards  the 

55 

A. Overview Table 

enforcement  of  repressive  measures  against  Money 
the  Financial 
Laundering.  While  a  reform  of 
Investigation  Department  within 
is 
the  police 
underway,  including  a  recent  increase  in  human 
results  have  not  materialised  yet. 
resources, 
Achievements 
investigations, 
of 
terms 
prosecutions  and  convictions  for  money  laundering 
and related offences remain limited. 

in 

Strengthen  the  independence  of  the  judiciary,  in 
particular  the  safeguards  for  judicial  appointments 
and  dismissals,  and  establish  a  separate  prosecution 
service.  

Limited  Progress.  The  government  announced  its 
intention to tackle the issue but concrete measures on 
the  appointment  and  dismissal  of  judges  have  not 
been  taken  yet.  On  the  prosecution  services,  the 
government  took  steps  to  create  an  autonomous 
prosecution  service,  with  the  adoption  of  the  State 
Advocate Act in July 2019.  This legislation aims at 
separating  the  Attorney  General’s  dual  role  as  the 
primary  public  prosecutor  and  as 
the  primary 
government consultant in legal matters. However, the 
reform  is  not  sufficient  to  meet  existing  concerns 
functioning, 
with 
effectiveness  and  accountability  of  the  prosecution 
services. Concerns remain over checks and balances 
the  Attorney 
in  the  appointment  procedure  of 
the 
General,  which 
exclusive power of the Prime Minister.  

in  practice  remain  under 

independent 

regards 

the 

to 

research  and 

CSR  3:  Focus  investment-related  economic  policy 
resources 
on 
management, 
resource  and  energy  efficiency, 
sustainable transport, reducing traffic congestion and 
inclusive education and training.  

innovation,  natural 

Malta has made Some Progress in addressing CSR 3  

investment-related  economic  policy  on 

Focus 
research and innovation,  

Some  Progress  With  support  from  ESIF, 
the 
government  has  invested  in  research  infrastructures 
aiming to improve teaching and research capacity of 
the  public  sector.  The  National  R&I  Strategy  post-
2020  is  under  preparation,  smart  specialisation 
strategy  is  being  updated  and  the  National  AI 
Strategy  launched  in  autumn  2019.  The  results  of 
these  policies  are  to  be  evaluated  in  the  coming 
years. 

natural resources management,  

Some  Progress  With  regard  to  water  management, 
the Net Zero Impact Water Utility Project is expected 
to  bring  about  a  holistic  improvement  in  the  water 
sector  in  terms  of  security  of  supply,  quality, 
groundwater  conservation  and  operation  efficiency. 
The  Maltese  waste  water 
treatment  has  been 
confronted with the dumping of farm manure into the 
collecting  systems.  This  caused  a  capacity  problem, 
but also a treatment one, as the Urban Waste Water 

56 

A. Overview Table 

Treatment  technology  is  not  adapted  to  this  type  of 
waste.  The  Maltese  authorities  reported  progress  on 
this,  by  taking  measures  to  separate  the  two  waste 
water  streams,  and  thus  provide  an  alternative  to 
farmers.  The  problem  was  reported  to be  solved  for 
Gozo  and  Malta  island  in  2020  -  separate  facilities 
will  be  put  in  place  to  manage  the  farm  waste  by 
March,  and  then  the  access  to  the  Urban  Waste 
Water  collection  system  will  be  sealed  off  for 
farmers  by  autumn.  Solidified  manure  will  return  to 
farmers  as  fertilizer,  and  liquid  is  converted  into 
irrigation  water.  In  parallel,  works  are  going  on  to 
improve  the  capacity/technology  for  the  plants  in 
south  and  north  of  Malta  island.  Some  measures 
aimed  at  optimising  the  management  of  rainwater 
runoff through valley management initiatives and the 
in 
development  of  on-field  storage 
particular  aimed  at  addressing  the  demand  of  the 
agricultural  sector,  have  been  taken.  Sea  water 
infiltrations  are  being  also  dealt  with.  Solar  energy 
remains the predominant renewable energy source in 
Malta.  An  assessment  of  Malta’s  technical  potential 
for  solar  photovoltaic  was  conducted  by  the  Energy 
&  Water  Agency  in  2018.  The  technical  potential 
assessment  indicates  that  photovoltaic  deployment 
post-2020 will be largely limited to suitable rooftops 
within  the  residential,  commercial  and  industrial 
sectors,  as  well  as  a  handful  of  ground-mounted 
trends 
systems.  Development  and  construction 
supported  by  strong  economic  growth  lead  to  an 
increase in the number of rooftops which are deemed 
unsuitable for photovoltaic installations. 

facilities, 

Some  Progress  Progress  is  still  limited  as  regards 
improving  energy  efficiency,  in  particular  in  the 
transport  and  building  sectors.  In  particular  the 
housing  sector  generates  a  number  of  negative 
externalities, including on greenhouse gas emissions 
from  waste,  heating  and  cooling.  Given  the  high 
growth  rates  in  both  the  residential  and  non-
residential sectors, energy performance requirements 
have  to  be  set,  and  most  importantly,  enforced 
rigorously. On 6 May 2019 a national roundtable on 
Financing Energy Efficiency in Malta was organized 
in  partnership  with  the  UN  Environment  Finance 
of  Transport, 
the  Ministry 
Initiative 
Infrastructure  and  Capital  Projects  of  Malta.  This 
event  revealed  the  various  structural  barriers  of  the 
buildings  sector  in  Malta,  the  investment  needs  and 
the  necessary  reforms  needed  to  boost  renovation 
rates  and  raise  awareness  in  developing  investment 
projects  and  programmes  in  sustainable  energy. 

and 

57 

resource and energy efficiency,  

A. Overview Table 

Within  the  framework  of  the  Smart  Financing  for 
Smart  Buildings  Initiative  the  European  Investment 
Bank (Group approved and signed EUR 12m funding 
agreement with Malta using European Structural and 
Investment  Funds  (ESIF)  resources.  The  decision  to 
make  use  of  the  statistical  transfer  mechanism  to 
close  the  gap  towards  the  2020  renewable  energy 
target is considered a good improvement. As precise 
identification  of  the  avenues  for  this  statistical 
transfer (i.e. MS from where to source the statistical 
transfer) is at the moment not provided, meeting the 
2020  renewable  energy  target  remains  uncertain.  
According  to  the  '‘Early  Warning  Report'’  Malta  is 
considered  at  risk  of  missing  the  2020  municipal 
waste  recycling  target  of  50  %.  Heavy  reliance  on 
waste disposal is not in line with EU targets and is an 
land.  On 
limited 
unnecessary  pressure  on 
construction  &  demolition  waste, 
a  Public 
Consultation  on  the  Construction  and  Demolition 
Waste Strategy for Malta 2020-2025 was conducted. 
This  strategy  aims  at  making  its  economy  more 
circular by treating construction waste as a resource. 
For  the  moment,  Malta  has  recorded  an  increase  of 
construction  & demolition recycling rate  and fosters 
reuse of materials to prevent them from entering this 
waste stream. 

its 

sustainable transport, reducing traffic congestion and  Limited  Progress  Malta  is  based  on  road  transport, 
with  internal  maritime  transport  being  a  potential 
alternative,  while  limited.  In  line  with  the  National 
Transport Plan 2025, investment is being focused on 
a  number  of  measures  to  encourage  a  modal  shift 
from  the  private  car  to  collective  sustainable  and 
alternative  low  carbon  transport  mode  through  the 
use  of  harbour  ferry  connections  for  travel  within 
Malta.  There  are  some  promotion  of  incentives  to 
reduce  private  vehicle  use  in  an  attempt  to  reduce 
congestion,  which  remains  the  main  transport  issue. 
Incentives are also going to cycling, electrification of 
cars,  intelligent  transport  systems  in  the  SUMPs. 
While 
infrastructure 
remains  a  Government’s  priority,  it  is  unclear  to 
what  extent  planned  road  projects  will  contribute  to 
enabling modal shift and much needed expansion of 
public  transport  offers  and  improved  reliability  of 
the  Maltese 
buses.  A  key  measure 
authorities  is  the  adoption  of  a  reform  of  the  public 
transport service. Free public transport was extended 
this  year  to  include  14-  and  20-year  olds  and  full-
time students over the age of 20. As from 2020 free 
public  transport  is  also  being  extended  to  persons 
over the age of 75. There are no reliable assessments 

the  development  of 

taken  by 

road 

58 

inclusive education and training.  

A. Overview Table 

of  the  impact  of  new  transport  measures  under  the 
Transport  Master  Plan  will  have  on  greenhouse  gas 
emissions.  Ongoing  studies  on  a  mass  rapid  transit 
system  and  a  phase  out  of  internal  combustion 
engines  are  promising  signs.  The  introduction  of 
measures  to  promote  further  the  use  of  alternative 
fuels  in  the  transport  sector  is  considered  a  positive 
development. 

Some  Progress  Some  progress  have  been  made  to 
make  education  more  inclusive  for  all.  A  policy  on 
inclusive  education 
in  schools  and  a  national 
inclusive  education  framework  were  published  in 
2019.  However,  progress  remains  to  be  done  in 
ensuring  a  full  implementation  of  the  new  policy 
across and within schools. Induction programmes for 
newly  arrived  pupils  who  cannot  communicate  in 
Maltese or English have been set up. Malta has also 
requested technical support from the Commission to 
improve  the  quality  of  services  provided  by  the 
Migrant Learners’ Unit. Measures remain to be taken 
to  reduce  differences  in  student  outcomes  between 
different  types  of  schools.  Although  positive  results 
have been recorded such as the decline in the rate of 
early  leavers  from  education  and  training  and 
increases 
attainment, 
comparatively  high  levels  of  spending  are  not 
leading  to  better  educational  outcomes  for  all. 
Education  outcomes  are  generally  lower  in  EU 
comparison  and  this  suggests  some  challenges  in 
efficiency  of  spending.  Malta  improved  the  labour 
market relevance of both initial and continuous VET. 
Despite  the  high  employability  of  initial  vocational 
education  and  training  graduates  and  important 
measures  implemented  in  the  last  years,  its  take  up 
remains low. Malta also increased its upskilling and 
adult learning offer, but the take up is low, especially 
for  SMEs,  despite  the  fact  that  the  share  of  low-
skilled  adults  is  high  and  that  employers  report 
difficulties 
retaining  skilled 
workforce. 

recruiting  and 

education 

tertiary 

in 

in 

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 70%.  

In 2018, the employment rate was of 75.5%. 

59 

 
 
 
A. Overview Table 

R&D target set in the NRP: 2% of GDP  

The set-up target will not be reached, the total R&D 
expenditure  stood  only  at  0.55  %  of  GDP  in  2018 
and has decreased since 2012. The R&I system lacks 
terms  of 
public  and  private  support  both 
investment and dedication to the field. 

in 

National  greenhouse  gas  (GHG)  emissions  target: 
+5%  in  2020  compared  with  2005  (in  sectors  not 
included in the EU emissions trading scheme)  

In 2020, emissions are projected to be 32% above the 
2005  level.  Malta  would  thereby  miss  the  2020 
target.  

2018  (interim)  target:  +5%  compared  with  2005:  In 
2018, emissions were 32% above the 2005 level. 

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

Malta has made progress towards the 2020 renewable 
energy  target,  reaching  8%  in  2018  (projected  to 
reach  a  RES  share  of  9.3%  by  the  end  of  2020). 
However, it estimates to be slightly short of the 10% 
RES  share  required  and  will  therefore  consider 
making use of biofuel imports and statistical transfers 
(as  indicated  in  the  National  Energy  and  Climate 
Plan submitted in December 2019). 

Energy efficiency, 2020 energy consumption targets:   

Progress  remains 
energy efficiency.   

limited  as  regards 

improving 

Malta's  2020  energy  efficiency  target  is  0.823  Mtoe  
expressed  in  primary  energy  consumption  (0.623  
Mtoe expressed in final energy consumption) 

Steep  increase  in  population  and  GDP,    demand  in 
the  housing  market  and  the  growth  in  tourism  are 
contributing to an increase in both primary and final 
energy consumption.  

Although  Malta  managed  to  reduce  its  primary 
energy consumption until 2016 (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 and 2018 
show  once  again  an  increasing  trend  (0.8  Mtoe 
according to Eurostat).  

final 

energy 

Malta's 
consumption  has  been 
continuously increasing over the last years (reaching 
0.7  Mtoe  in  2018,  according  to  Eurostat),  with 
transport  remaining  the  most  consuming  sector. 
According  to  the  National  Energy  and  Climate  Plan 
Malta  is  not  on  track  to  meet  the  2020  energy 
efficiency targets.  

Early school/training leaving target: 10%.  

Despite  recent  progress,  Malta  is  still  far  from  the 
target  with  an  early  school  leaving  rate  of  17.4%  in 
2018.  

Tertiary  education  target:  33%  of  population  aged 
30-34.  

Malta  has  reached  the  target  with  34.7%  of  the 
population  aged  30-34  having  completed  tertiary 

60 

A. Overview Table 

education in 2018.  

Target  for  reducing  the  number  of  people  at  risk  of 
poverty or social exclusion, expressed as an absolute 
number of people: 6,560 (base year 2010: 2,008).  

In  2018,  89,000  persons  were  at  risk  of  poverty  or 
social exclusion. In absolute terms, this is 9,000 more 
people  than  in  2008,  but  10,000  less  than  in  2015.  
This represents a 19% share of the total population. 

61 

ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

62 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio45.843.341.038.734.931.227.524.120.817.714.812.29.7Changes in the ratio (-1+2+3)-4.5-2.5-2.2-2.3-3.9-3.7-3.6-3.4-3.3-3.1-2.9-2.7-2.4of which(1) Primary balance (1.1+1.2+1.3)3.52.52.32.12.42.42.52.42.52.42.32.22.1(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)2.41.82.12.52.62.62.52.42.52.42.32.22.1(1.1.1) Structural primary balance (bef. CoA)2.41.82.12.52.52.52.52.52.52.52.52.52.5(1.1.2) Cost of ageing-0.1-0.10.00.10.00.10.20.30.4(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.00.00.00.0(1.2) Cyclical component1.10.70.2-0.3-0.2-0.10.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.00.00.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-2.6-1.8-1.3-1.1-1.5-1.3-1.1-1.0-0.8-0.7-0.6-0.5-0.4(2.1) Interest expenditure1.51.31.31.21.00.90.80.70.60.50.50.40.3(2.2) Growth effect-3.1-2.1-1.7-1.5-1.7-1.5-1.3-1.1-1.0-0.9-0.7-0.6-0.4(2.3) Inflation effect-1.0-1.0-0.8-0.8-0.8-0.7-0.6-0.5-0.5-0.4-0.3-0.3-0.2(3) Stock-flow adjustments1.61.81.31.00.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. 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 2034. 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 and the DSM 2019.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. 01020304050607020172018201920202021202220232024202520262027202820292030Debt as % of GDP -MTBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario01020304050607020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -MTp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline01020304050607020172018201920202021202220232024202520262027202820292030Debt as % of GDP -MTBaselineHistorical SPB scenarioSGP scenario01020304050607020172018201920202021202220232024202520262027202820292030Debt 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 (2030)9.718.110.910.412.5Debt peak year20192019201920192019Percentile rank20.0%31.0%Probability debt higher3.1%Dif. between percentiles20.3Short termLOW(S0 = 0.1)DSALOWDebt sustainability analysis (detail)Medium termLOWLOW(S1 = -6.4)MEDIUMLong termMEDIUM(S2 = 3)S1S2 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 - 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 - 2019. 
(3) Quarterly values are annualised. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

63 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)618.7490.8447.3425.1360.4326.0Share of assets of the five largest banks (% of total assets)81.581.380.380.977.5-Foreign ownership of banking system (% of total assets)(2)71.466.559.657.952.249.3Financial soundness indicators:(2)              - non-performing loans (% of total loans)6.05.14.13.13.13.1              - capital adequacy ratio (%)25.121.220.221.122.323.4              - return on equity (%)(3)4.46.38.17.25.27.5Bank loans to the private sector (year-on-year % change)(1)10.10.75.88.55.10.2Lending for house purchase (year-on-year % change)(1)9.68.67.57.58.610.0Loan-to-deposit ratio(2)54.249.156.361.475.059.7Central bank liquidity as % of liabilities(1)0.90.3-0.50.20.1Private debt (% of GDP)143.9134.8136.1132.0129.2-Gross external debt (% of GDP)(2) - public6.95.36.36.66.56.5    - private680.7648.5613.3595.4581.2557.0Long-term interest rate spread versus Bund (basis points)*144.899.279.696.499.094.5Credit default swap spreads for sovereign securities (5-year)*208.5208.5208.7208.7208.7208.7 
 
 
   
 
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 and/or living in households with zero or very low work intensity.       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft 2019 joint employment report.       
(4) Reduction in percentage of the risk-of-poverty rate, due to social transfers (calculated comparing at-risk-of-poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2019 for the employment rate, unemployment rate and gender employment gap.       
Source: Eurostat 

64 

201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)20.920.219.217.717.4:Gender employment gap (pps)26.826.825.524.121.919.5Income inequality, measured as quintile share ratio (S80/S20)4.04.14.24.24.3:At-risk-of-poverty or social exclusion rate(1) (AROPE)23.923.020.319.319.0:Young people neither in employment nor in education and training (% of population aged 15-24)10.310.58.88.67.3:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)67.969.071.173.075.577.0Unemployment rate(2) (15-74 years)5.75.44.74.03.73.4Long-term unemployment rate (as % of active population)2.72.41.91.61.10.7Gross disposable income of households in real terms per capita(3) (Index 2008=100) 104.4109.7110.4111.5::Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)212842121821243:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-0.72-0.170.37:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)33.330.330.730.130.6:Children aged less than 3 years in formal childcare18.217.931.336.632.1:Self-reported unmet need for medical care1.10.81.00.20.2: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) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with 10 or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores.       
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted.       
Source: Eurostat, OECD 

65 

Labour market indicators201420152016201720182019 5Activity rate (15-64)67.868.970.672.274.775.8Employment in current job by durationFrom 0 to 11 months9.910.312.413.915.1:From 12 to 23 months10.710.111.612.414.2:From 24 to 59 months18.919.718.719.620.1:60 months or over59.459.057.354.050.3:Employment growth* (% change from previous year)5.44.14.38.15.75.1Employment rate of women(% of female population aged 20-64)54.355.358.060.664.166.8Employment rate of men (% of male population aged 20-64)81.182.183.584.786.086.3Employment rate of older workers* (% of population aged 55-64)39.542.345.847.250.251.2Part-time employment* (% of total employment, aged 15-64)15.314.313.913.713.212.5Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)7.77.57.66.07.98.7Transition rate from temporary to permanent employment(3-year average)12.915.0::27.0:Youth unemployment rate (% active population aged 15-24)11.711.610.710.69.19.2Gender gap in part-time employment21.120.019.718.015.515.7Gender pay gap(2) (in undadjusted form)10.610.411.012.2::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)7.77.47.810.610.9:Underachievement in education(3):29.1::::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)28.629.132.033.534.7:Variation in performance explained by students' socio-economic status(4):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 

66 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare6.05.95.45.55.5:Disability0.70.70.60.60.6:Old age and survivors9.99.38.58.68.4:Family/children1.11.21.10.90.9:Unemployment0.60.50.50.40.4:Housing0.10.10.20.20.1:Social exclusion n.e.c.0.30.30.20.20.2:Total18.718.016.716.415.9:of which: means-tested benefits2.42.42.21.91.5:General government expenditure by function (% of GDP)Social protection13.813.112.011.611.3:Health5.75.75.65.45.4:Education5.85.55.35.24.9:Out-of-pocket expenditure on healthcare:36.837.535.134.9:Children at risk of poverty or social exclusion (% of people aged 0-17)*33.031.828.424.023.022.8At-risk-of-poverty  rate(1) (% of total population)15.815.816.616.516.716.8In-work at-risk-of-poverty rate (% of persons employed)5.75.55.55.95.76.4Severe material deprivation rate(2)  (% of total population)10.210.38.54.43.33.0Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan1.21.10.70.70.20.0Tenant, rent at market price9.89.02.710.54.95.9Proportion of people living in low work intensity households(4) (% of people aged 0-59)9.19.99.27.37.15.5Poverty thresholds, expressed in national currency at constant prices*623465656893684672367272Healthy life yearsFemales12.713.714.012.914.2:Males12.813.313.412.813.5:Aggregate replacement ratio for pensions(5)0.60.60.50.50.60.6Connectivity dimension of the Digital Economy and Society Index (DESI)(6):54.462.966.167.9:GINI coefficient before taxes and transfers*45.545.745.645.645.1:GINI coefficient after taxes and transfers*27.927.728.128.528.3: 
 
   
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

*While the indicator values from 2003 to 2013 are comparable, the methodology has considerably changed in 2018. As a 
result, past vintages cannot be compared with the 2018 PMR 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 6 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 of population aged 15-64 having completed tertiary education.       
(6) Percentage of 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) Simple average of the indicators of regulation for lawyers, accountants, architects and engineers.       
(9) Aggregate OECD indicators of regulation in energy, transport and communications.       
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

67 

Performance indicators201320142015201620172018Labour 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 environment201320142015201620172018Time needed to enforce contracts3 (days)505505505505505505Time needed to start a business3 (days)38.533.528.026.016.016.0Outcome of applications by SMEs for bank loans40.680.580.400.170.470.92Research and innovation201320142015201620172018R&D intensity0.770.710.740.570.580.55General government expenditure on education as % of GDP5.805.505.305.204.90:Employed people with tertiary education and/or people employed in S&T as % of total employment404041414246Population having completed tertiary education5181920202225Young people with upper secondary education6767577777877Trade balance of high technology products as % of GDP-1.10-3.42-3.46-5.83-1.08-1.14Product and service markets and competition2003200820132018*OECD product market regulation (PMR)7, overall::1.571.54OECD PMR7, retail::1.091.35OECD PMR7, professional services8::1.662.23OECD PMR7, network industries9::2.281.44 
 
  
 
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 including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR). 
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR). 
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels. 
Aggregated supplier concentration index: Herfindahl index covering 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. Smaller values indicate larger diversification. 
* European Commission and European Environment Agency - 2018 provisional data. 
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). 

68 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0.120.110.090.080.08-Carbon intensity kg / €0.400.370.250.210.22-Resource intensity (reciprocal of resource productivity)kg / €0.530.660.700.680.560.48Waste intensity kg / €-0.21-0.21--Energy balance of trade % GDP-9.0-14.9-8.8-8.2-6.4-8.5Weighting of energy in HICP%7.578.057.407.166.616.29Difference between energy price change and inflation p.p.-1.6-17.0-8.7-1.9-1.1-0.9Real unit of energy cost% of value added16.614.814.614.4--Ratio of environmental taxes to labour taxesratio0.280.300.340.340.31-Environmental taxes% GDP2.72.82.82.72.72.6Sectoral Industry energy intensity kgoe / € ------Real unit energy cost for manufacturing industry excl. refining% of value added9.68.98.88.7--Share of energy-intensive industries in the economy% GDP------Electricity prices for medium-sized industrial users€ / kWh0.180.180.150.140.140.13Gas 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%8.57.46.77.07.16.5Share of GHG emissions covered by ETS*%57.656.240.630.333.632.2Transport energy intensitykgoe / €------Transport carbon intensitykg / €------Security of energy supplyEnergy import dependency%104.197.797.3101.1102.9-Aggregated supplier concentration indexHHI0.00.00.00.017.7-Diversification of energy mixHHI97.195.972.961.541.3- 
  
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2027 FOR MALTA 

Building  on  the  Commission  proposal,  this  Annex (57)  presents  the  preliminary  Commission  services’ 
views on priority investment areas and framework conditions for effective delivery for the 2021-2027 Just 
Transition  Fund  investments  in  Malta.  These  priority  investment  areas  are  derived  from  the  broader 
analysis  of  territories  facing  serious  socio-economic  challenges  deriving  from  the  transition  process 
towards  a  climate-neutral  economy  of  the  Union  by  2050  in  Malta,  assessed  in  the  report.  This  Annex 
provides  the  basis  for  a  dialogue  between  Malta  and  the  Commission  services  as  well  as  the  relevant 
guidance  for  the  Member  States  in  preparing  their  territorial  just  transition  plans,  which  will  form  the 
basis for programming the Just Transition Fund. The Just Transition Fund investments complement those 
under  Cohesion  Policy  funding  for  which  guidance  in  the  form  of  Annex  D  was  given  in  the  2019 
Country Report for Malta (58). 

The draft National Energy and Climate plan indicates that particular challenges exist for Malta in meeting 
the 2030 decarbonisation targets in terms of non-ETS greenhouse gas (GHG) emissions, of primary and 
final consumption, and of renewable energy. The largest source of non-ETS GHG emissions are transport, 
and buildings, including the use of fluorinated gases. 

In this context, the Just Transition Fund could in particular target the two main Maltese ports, which are 
an  important  part  of  the  economy  in  terms  of  enabling  growth  and  providing  jobs. The Grand  Harbour 
Port for cruising vessels welcomes more than 700 000 visitors/year (59) and the Malta FreePort serves as a 
transhipment  hub  in  the  Mediterranean  Sea,  handling  3.3  million  containers/year (60).  Based  on  this 
preliminary assessment, it appears warranted that the Just Transition Fund concentrates its intervention on 
these areas. 

In  view  of  reducing  GHG  emissions  by  the  docking  ships  and  keeping  the  competitiveness  of  Maltese 
ports,  it  is  necessary  to  provide  an  alternative  to  the  burning  of  heavy  fuel/gasoil  in  these  ports  by 
providing  the  ships  with  power  supply,  in  light  of  the  experience  gained  in  other  EU  ports (61).  Such 
investments would also address possible future regulatory constraints on CO2 emissions in harbours and 
possible associated skill needs. 

In order to tackle these challenges, related investment needs have been identified. Key actions of the Just 
Transition Fund could target in particular: 

- 

- 

- 

- 

investment in the deployment of technology and infrastructures  for affordable clean energy, in 
greenhouse gas emission reduction, energy efficiency and renewable energy; 

investment  in  research  and  innovation  activities  and  fostering  the  transfer  of  advanced 
technologies; 

investments in enhancing the circular economy, including through waste prevention, reduction, 
resource efficiency, reuse, repair and recycling; 

upskilling and reskilling of workers. 

(57)  This  Annex  is  to be  considered  in  conjunction  with the  EC proposal  for  a  Regulation  of  the  European  Parliament  and  of the 
Council  on  the  Just  Transition  Fund  2021-2027  (COM  (2020) 22)  and  the  EC  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European 
Social Fund Plus, the Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and for the 
Asylum and Migration Fund, the Internal Security Fund and the Border Management and Visa Instrument (COM (2020) 23). 

(58) SWD(2019) 1017 final 
(59) https://www.globalportsholding.com/ports/10/valletta-cruise-port 
(60) http://www.maltafreeport.com.mt/content.aspx?id=107934 
(61) https://worldmaritimenews.com/archives/135596/hamburg-port-pioneers-onshore-power-supply-for-cruise-ships/ 

69 

 
                                                           
ANNEX E: PROGRESS TOWARDS THE SUSTAINABLE 

DEVELOPMENT GOALS (SDGS) 

Table  E.1  shows  the  data (62)  for  Malta  and  the  EU-28  for  the  indicators  included  in  the  EU  SDG 
indicator  set  used  by  Eurostat  for  monitoring  progress  towards  the  SDGs  in  an  EU  context (63).  As  the 
short-term trend at EU-level is assessed over a 5-year period, both the value at the beginning of the period 
and  the  latest  available  value  is  presented.  The  indicators  are  regularly  updated  on  the  SDI  dedicated 
section of the Eurostat website.  

Table E.1: 

Indicators measuring Malta’s progress towards the SDGs 

(62)  Data  extracted  on  9  February  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables). 

(63)  The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

(Continued on the next page) 

70 

 
 
                                                           
 
  
 
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(Continued on the next page) 

71 

 
 
 
 
   
 
References 

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(Continued on the next page) 

72 

 
 
 
 
   
 
References 

Table (continued) 

(Continued on the next page) 

73 

 
 
 
 
   
 
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