Recommendation for a COUNCIL RECOMMENDATION on the 2020 National Reform Programme of Malta and delivering a Council opinion on the 2020 Stability Programme of Malta
Date: 2020-05-20
Institutions: European Commission, Secretariat-General
Subjects: Malta, aid to undertakings, economic policy, economic recovery, economic reform, employment policy, epidemic, infectious disease, investment, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 518 final  Recommendation for a COUNCIL RECOMMENDATION on the 2020 National Reform Programme of Malta and delivering a Council opinion on the 2020 Stability Programme of Malta  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2020 National Reform Programme of Malta and delivering a Council opinion on 
the 2020 Stability Programme of Malta 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

On  17  December  2019,  the  Commission  adopted  the  Annual  Sustainable  Growth 
Strategy,  marking  the  start  of  the  2020  European  Semester  for  economic  policy 
coordination. It took due account of the European Pillar of Social Rights, proclaimed 
by the European Parliament, the Council and the Commission on 17 November 2017. 
On  17  December  2019,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission  also  adopted  the  Alert  Mechanism  Report,  in  which  it  did  not  identify 
Malta as one of the Member States for which an in-depth review would be carried out. 
On  the  same  date,  the  Commission  also  adopted  a  recommendation  for  a  Council 
recommendation on the economic policy of the euro area. 
The  2020  country  report  for  Malta2  was  published  on  26  February  2020.  It  assessed 
Malta’s progress  in  addressing the country-specific recommendations adopted by the 
Council  on  9  July  20193,  the  follow-up  given  to  the  recommendations  adopted  in 
previous years and Malta’s progress towards its national Europe 2020 targets.  

(3) 

On 11 March 2020, the World Health Organization officially declared the COVID-19 
outbreak  a  global  pandemic.  It  is  a  severe  public  health  emergency  for  citizens, 

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OJ L 209, 2.8.1997, p. 1. 
SWD(2020) 517 final. 
OJ C 301, 5.9.2019, p. 117. 

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societies  and  economies.  It  is  putting  national  health  systems  under  severe  strain, 
disrupting  global  supply  chains,  causing  volatility  in  financial  markets,  triggering 
consumer  demand  shocks  and  having  negative  effects  across  various  sectors.  It  is 
threatening  people’s  jobs,  their  incomes  and  companies’  business.  It  has  delivered  a 
major  economic  shock  that  is  already  having  serious  repercussions  in  the  European 
Union. On 13 March 2020, the Commission adopted a Communication4 calling for a 
coordinated economic response to the crisis, involving all actors at national and Union 
level. 

Several  Member States have declared a state of  emergency or introduced emergency 
measures.  Any  emergency  measures  should  be  strictly  proportionate,  necessary, 
limited in time, and in line with European and international standards. They should be 
subject to democratic oversight and independent judicial review. 

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of 
the general escape clause of the Stability and Growth Pact5. The clause, as set out in 
Articles 5(1), 6(3), 9(1) and 10(3) of Regulation  (EC) 1466/97 and Articles 3(5) and 
5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in 
times  of  severe  economic  downturn.  In  its  Communication,  the  Commission  shared 
with the Council its view that, given the expected severe economic downturn resulting 
from  the COVID-19 outbreak, the  current  conditions  permit  activation of the clause. 
On  23  March  2020,  the  Ministers  of  Finance  of  the  Member  States  agreed  with  the 
assessment of the Commission. The activation of the general escape clause allows for 
a temporary departure from the adjustment path  towards the medium-term budgetary 
objective,  provided  that  this  does  not  endanger  fiscal  sustainability  in  the  medium 
term. For the corrective arm, the Council may also decide, on a recommendation from 
the Commission,  to  adopt  a revised  fiscal  trajectory. The  general  escape  clause does 
not suspend the procedures of the Stability and Growth Pact. It allows Member States 
to depart from the budgetary requirements that would normally apply while enabling 
the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Continued  action  is  required  to  limit  and  control  the  spread  of  the  pandemic, 
strengthen  the  resilience  of  the  national  health  systems,  mitigate  the  socio-economic 
consequences through supportive measures for business and households and to ensure 
adequate  health  and  safety  conditions  at  the  workplace  with  a  view  to  resuming 
economic  activity.  The  Union  should  fully  use  the  various  tools  at  its  disposal  to 
support  Member  States’  efforts  in  those  areas.  In  parallel,  Member  States  and  the 
Union should work together to prepare the measures necessary to get back to a normal 
functioning of our societies and economies and to sustainable growth, integrating inter 
alia  the  green  transition  and  the  digital  transformation,  and  drawing  all  lessons  from 
the crisis. 

The  COVID-19  crisis  has  highlighted  the  flexibility  that  the  single  market  offers  to 
adapt  to  extraordinary  situations.  However,  in  order  to  ensure  a  swift  and  smooth 
transition to the recovery phase and the free movement of goods, services and workers, 
exceptional  measures that prevent  the single market  from  functioning  normally must 
be removed as soon as they are no longer indispensable. The current crisis has shown 
the need for crisis preparedness plans in the health sector, which include in particular 
improved  purchasing  strategies,  diversified  supply  chains  and  strategic  reserves  of 

(4) 

(5) 

(6) 

(7) 

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COM(2020) 112 final. 
COM(2020) 123 final. 

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(8) 

essential  supplies.  They  are  key  elements  for  developing  broader  crisis  preparedness 
plans.  
The  Union  legislator  has  already  amended  the  relevant  legislative  frameworks6  to 
allow  Member  States  to  mobilise  all  unused  resources  from  the  European  Structural 
and  Investment  Funds  so  they  can  address  the  exceptional  effects  of  the  COVID-19 
pandemic. Those amendments will provide additional flexibility, as well as simplified 
and streamlined procedures. To alleviate cash flow pressures, Member States can also 
benefit  from  a  100%  co-financing  rate  from  the  Union  budget  in  the  2020-2021 
accounting year. Malta is encouraged to make full use of those possibilities to help the 
individuals and sectors most affected by the challenges. 

(9) 

On  30  April  2020,  Malta  submitted  its  2020  National  Reform  Programme  and,  on  2 
May  2020,  its  2020  Stability  Programme.  In  order  to  take  account  of  their 
interlinkages, the two programmes have been assessed at the same time. 

(10)  Malta is currently in the preventive arm of the Stability and Growth Pact. 

(11) 

(12) 

In  its  2020  Stability  Programme,  the  government  plans  the  headline  balance  to 
deteriorate  from  a  surplus  of  0,5%  of  GDP  in  2019  to  a  deficit  of  7,5  %  of  GDP  in 
2020. The deficit is projected to decline to 3,6% of GDP in 2021. After decreasing to 
43,1%  of  GDP  in  2019,  the  general  government  debt-to-GDP  ratio  is  expected  to 
increase  to  54,5%  in  2020  according  to  the  2020  Stability  Programme.  The 
macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-
19 pandemic. 

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, 
Malta  has  adopted  budgetary  measures  to  increase  the  capacity  of  its  health  system, 
contain  the  pandemic,  and  provide  relief  to  those  individuals  and  sectors  that  have 
been  particularly  affected.  According  to  the  2020  Stability  Programme,  those 
budgetary  measures  amounted  to  4,1%  of  GDP.  The  measures  include  wage 
supplements  for  distressed  sectors,  increasing  healthcare  capacity,  and  COVID-19 
related  social  measures.  In  addition,  Malta  has  announced  measures  that,  while  not 
having  a  direct  budgetary  impact,  will  contribute  to  support  liquidity  to  businesses. 
The 2020 Stability Programme estimates that government guarantees will allow banks 
to  leverage  the  portfolio  of  new  company  loans  by  up  to  6,1%  of  GDP.  Those 
measures include loan guarantees. The 2020 Stability Programme also confirms earlier 
announcements of tax deferrals for personal and corporate income taxes, value added 
tax and social contributions. Overall, the measures taken by Malta are in line with the 
guidelines  set  out  in  the  Commission  Communication  on  a  coordinated  economic 
response  to  the  COVID-19  outbreak.  The  full  implementation  of  those  measures, 
followed  by  a  refocusing  of  fiscal  policies  towards  achieving  prudent  medium-term 
fiscal  positions  when  economic  conditions  allow,  will  contribute  to  preserving  fiscal 
sustainability in the medium term.  

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Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending 
Regulations  (EU)  No  1301/2013,  (EU)  No  1303/2013  and  (EU)  No  508/2014  as  regards  specific  measures  to 
mobilise  investments  in  the  healthcare  systems  of  Member  States  and  in  other  sectors  of  their  economies  in 
response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and 
Regulation  (EU)  2020/558  of  the  European  Parliament  and  of  the  Council  of  23  April  2020  amending 
Regulations  (EU)  No  1301/2013  and  (EU)  No  1303/2013 as  regards  specific  measures  to  provide  exceptional 
flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak 
(OJ L 130, 24.4.2020, p. 1). 

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(13)  Based  on  the  Commission  2020  spring  forecast  under  unchanged  policies,  Malta’s 
general government balance is forecast at -6,7% of GDP in 2020 and -2,5% in 2021. 
The general government debt ratio is projected to remain below 60 % of GDP in 2020 
and 2021. 

(14)  On 20 May 2020, the Commission issued a report prepared in accordance with Article 
126(3) of the Treaty due to Malta’s planned breach of the 3% of GDP deficit threshold 
in 2020. Overall, the analysis suggests that the deficit criterion as defined in the Treaty 
and in Regulation (EC) No 1467/1997 is not fulfilled.     

(15) 

In response to the COVID-19 pandemic, Malta took containment measures through an 
effective  health  communication  campaign,  putting  in  place  physical  isolation  and 
quarantine measures, monitoring and a high level  of testing and  contact  tracing. The 
Maltese  authorities  have  also  been  working  to  increase  the  capacity  of  hospitals, 
including the ones dedicated to Intensive Therapy Units. Direct acquisition of Personal 
Protective Equipment (PPEs) is being undertaken at the national level. Malta has also 
joined the Union joint procurement process for PPEs, laboratory reagents and tests and 
ventilators.  With  respect  to  medicines  and  active  ingredients,  Malta  is  actively 
monitoring the situation in order to identify and anticipate any possible shortages and 
take immediate remedial action, especially in the case of border closures by countries 
that  usually  supply  the  medicines  or  active  ingredients.  On  12  May  2020,  the 
Commission  approved  an  EUR  11,5  million  scheme  to  support  investments  in  the 
production  of  COVID-19-relevant  products  including  medicinal  products  such  as 
vaccines,  hospital  and  medical  equipment,  including  ventilators,  and  protective 
clothing and equipment. There has also been effective redeployment and re-training of 
medical  staff. Public Health Specialists who used to  occupy various positions  within 
regulatory bodies and ministries have been fully repurposed and redeployed to assist in 
response to this pandemic.  

(16)  The  Maltese  government  has  supported  businesses  through  financial  support  for 
teleworking and subsidies for workers on mandatory quarantine. The government also 
provided guarantees and tax deferral for businesses, including self-employed persons. 
Full  time  employees  of  enterprises  operating  in  sectors  such  as  retail,  wholesale, 
tourism  and  hospitality  that  suffered  drastically  due  to  the  COVID-19  pandemic  or 
sectors that had to temporarily suspend operations on the order of the Superintendent 
of Public Health will be entitled to up to five days’ salary per week, based on a salary 
of EUR 800 per month.. Employees in less harshly affected sectors are entitled to one-
two days per week, based on a salary of EUR 800 per month. The government has also 
announced  support  for  people  with  disabilities,  families  with  children  where  both 
parents are employed and neither are able to telework, workers who lost their job due 
to  the  current  crisis  and  the  jobless  living  in  rented  accommodation.    Finally,  the 
government will be financing up to 2,5 percentage points of the interest rates on bank 
loans taken out by businesses hit by the COVID19 pandemic. 

(17)  The Maltese health system delivers good health outcomes. However, the outbreak of 
the  COVID-19  pandemic  put  the  Maltese  public  health  system  under  unprecedented 
levels of pressure. Efforts that focus on building the capacity of the healthcare system 
to  respond  effectively  to  pandemic  crises,  such  as  COVID-19,  would  improve  its 
resilience.  The  following  areas  require  particular  monitoring:  (i)  the  increasing 
reliance on migrant nurses in acute and long-term care, and an ageing private general 
practitioner  workforce  may  pose  challenges;  (ii)  the  difficulties  in  making  new  and 
innovative medicines available; (iii) the high out of pocket expenditure on primary and 
outpatient care and on some medicines; (iv) waiting lists for outpatient care specialties 

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are consistently long and have been increasing recently. Reorienting service delivery 
away from hospitals to primary care remains also a key priority. 

(18)  According to the Commission forecast, unemployment is expected to rise to 5,9% in 
2020 and to  recover to  4,4% in  2021. In order to  mitigate the serious impacts  of the 
crisis  on  employment,  Malta  took  emergency  measures,  in  consultation  with  social 
partners,  to  prevent  lay-offs  by  favouring  short  time  work  instead.  The  adoption  of 
short-time work  arrangements on a more permanent  basis would  also  protect  jobs  in 
the  transition  towards  economic  recovery.  Ensuring  adequate  support  and  access  to 
social  protection  for  all  workers,  including  the  self-employed,  and  accounting  for  a 
possibly  extended  duration  of  unemployment  are  crucial.  Malta’s  social  protection 
system  also  needs  to  ensure  that  adequate  support  is  provided  to  foreign  workers  in 
finding  alternative  employment;  in  retaining  work  permits  when  possible  and 
accessing other social services. The share of low-skilled adults is comparatively high, 
aggravated by a high share of early-school-leavers. The current crisis may exacerbate 
skills  shortages  in  some  sectors  and  redefine  skill  needs  in  others.  This  makes  the 
mapping of skills and the reskilling of workers even more important, in particular for 
digital and green skills. Malta has made recent progress on education and training but 
significant challenges remain, including a high share of pupils with insufficient levels 
of basic skills.  

(19)  The COVID-19 crisis has made swift deployment of liquidity support to businesses an 
urgent priority for Malta. Ensuring a continuous flow of credit, and access to finance, 
is  of  the  essence,  especially  to  small  and  medium-sized  enterprises  in  the  most 
impacted  sectors.  The  banking  system  has  an  important  role  to  play  in  the  effective 
implementation  of  liquidity  measures  by  providing  loans  and  channeling  public 
guarantees,  thus  overcoming  the  conservative    approach  to  lending  practices  shown 
before  the  crisis.  In  the  process  of  designing  and  implementing  these  measures  the 
resilience of the banking sector needs to be taken into account. 

(20)  To  foster  the  economic  recovery,  it  will  be  important  to  front-load  mature  public 
investment  projects  and  promote  private  investment,  including  through  relevant 
reforms.  Investments  in  support  of  the  recovery  represents  an  opportunity  to  set  the 
Maltese  economy  on  a  more  sustainable  track.  Malta’s  transformation  to  a  climate 
neutral economy will require sizeable private and public investment over a sustained 
period  of  time.  Investment  to  reduce  greenhouse  gas  emissions,  described  in  its 
National  Energy  and  Climate  Plan,  and  to  address  other  negative  environmental 
externalities, in particular in sectors like construction and transport, can help achieve 
the dual objectives of economic recovery and sustainability. Supporting the renovation 
of the existing building stock and targeted training schemes will help to improve the 
energy  performance  of  buildings.  Further  investment  on  sustainable  transport  can 
ensure  viable  alternatives  to  the  use  of  private  cars.  The  programming  of  the  Just 
Transition  Fund  for  the  period  2021-2027  could  help  Malta  to  address  some  of  the 
challenges posed by the transition to a climate neutral economy as presented in Annex 
D to the country report7. This would allow Malta to make the best use of that fund.  

(21)  Placing higher importance on research and innovation and better embedding it in the 
business  environment  will  support  the  sustainability  of  Malta’s  knowledge  based 
economic  model.  Malta  has  developed  e-government  services  for  citizens  and 
businesses,  including  a  number  of  mobile  apps. However,  their  uptake  by  the  public 

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SWD(2020) 517 final. 

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remains  low.  In  order  to  facilitate  the  economy’s  digital  transition,  it  is  essential  to 
encourage the use of digital public services by citizens and businesses.   

(22)  Malta’s shift towards an internationally oriented service sector and its specialisation in 
remote  gaming,  virtual  assets  and  its  citizenship  and  residence  schemes,  while 
contributing  to  economic  growth,  makes  it  susceptible  to  money  laundering  risks, 
which  are  yet  to  be  mitigated.  To  prevent  and  combat  these  risks,  steps  have  been 
taken to strengthen the role of the anti-money laundering supervisor. Cooperation with 
other  competent  authorities  has  also  been  enhanced.  However,  the  Malta  Financial 
Services Authority’s practice of insourcing a private consultancy for supervisory tasks 
is of concern. Shortcomings in the investigation and prosecution of money laundering 
remain  a  challenge.  Enhancing  the  national  supervision  of  internationally  oriented 
financial  businesses  licensed  in  Malta  would  strengthen  the  overall  governance 
framework.  In  the  insurance  sector  the  cooperation  between  domestic  and  external 
supervisors  is  essential.  There  is  also  margin  for  improvement  in  third  country  bank 
branches’  supervision  as  well  as  enhancements  in  the  risk-oriented  approach  and 
valuation of adequacy of risk management for banking institutions. 

(23)  Tackling aggressive tax planning remains key to improve the efficiency and fairness of 
tax systems. Spillover effects of taxpayers’ aggressive tax planning strategies between 
Member  States  call  for  a  coordinated  action  of  national  policies  to  complement  EU 
legislation.  Malta  has  taken  steps  to  address  aggressive  tax  planning  practices  by 
implementing previously agreed international and European agreed initiatives, but the 
treatment of resident non-domiciled companies as well as the investor-citizenship and 
investor-residence schemes, which do not even require an individual to be resident for 
tax  purposes  in  Malta,  pose  a  risk  of  double  non-taxation  for  both,  companies  and 
individuals.  

(24)  Malta also faces challenges to strengthen its institutional capacity to fight corruption. 
Malta  has  announced  reforms  to  strengthen  the  investigation  and  prosecution  of 
corruption and it is consulting relevant stakeholders, notably the Venice Commission, 
on the reforms of the judiciary. Concrete measures have to be adopted to complete all 
these reforms and make them operational. 

to  address  medium- 

(25)  While the present recommendations focus on tackling the socio-economic impacts of 
the  pandemic  and  facilitating  the  economic  recovery,  the  2019  country-specific 
recommendations adopted by the Council on 9 July 2019 also covered reforms that are 
essential 
structural  challenges.  Those 
recommendations remain pertinent and will continue to be monitored throughout next 
year’s  European  Semester  annual  cycle.  That  also  applies  to  recommendations 
regarding investment-related economic policies. The latter recommendations should be 
taken  into  account  for  the  strategic  programming  of  cohesion  policy  funding  post-
2020, including for mitigating measures and exit strategies with regard to the current 
crisis.  

long-term 

to 

(26)  The  European  Semester  provides  the  framework  for  continuous  economic  and 
employment  policy  coordination  in  the  Union,  which  can  contribute  to  a  sustainable 
economy.  Member  States  have  taken  stock  of  progress  regarding United  Nations’ 
Sustainable  Development  Goals  (SDGs)  implementation  in  their  2020  National 
Reform  Programmes.  By  ensuring  the  full  implementation  of  the  recommendations 
below, Malta will  contribute  to  the  progress  towards  the SDGs and  to  the  common 
effort of ensuring competitive sustainability in the Union.  

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(27)  Close coordination between economies in the economic and monetary union is key to 
achieve a swift recovery from the economic impact of the COVID-19. Malta should, 
as  a  Member  State  whose  currency  is  the  euro  –  and  taking  into  account  political 
guidance by the Eurogroup – ensure its policies remain consistent with the euro area 
recommendations and coordinated with those of the other euro area Member States. 

(28) 

In  the  context  of  the  2020  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Malta’s  economic  policy  and  published  it  in  the  2020 
country  report.  It  has  also  assessed  the  2020  Stability  Programme  and  the  2020 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed to Malta in previous years. It has taken into account not only their relevance 
for  sustainable  fiscal  and  socioeconomic  policy  in  Malta  but  also  their  compliance 
with  Union  rules  and  guidance,  given  the  need  to  strengthen  the  Union’s  overall 
economic governance by providing Union-level input into future national decisions.  

(29) 

In  the  light  of  that  assessment,  the  Council  has  examined  the  2020  Stability 
Programme and its opinion8 is reflected in particular in recommendation (1) below, 

HEREBY RECOMMENDS that Malta take action in 2020 and 2021 to: 

1. 

2. 

3. 

4. 

In  line  with  the  general  escape  clause,  take  all  necessary  measures  to  effectively 
address the pandemic, sustain the economy and support the ensuing recovery. When 
economic  conditions  allow,  pursue  fiscal  policies  aimed  at  achieving  prudent 
medium-term  fiscal  positions  and  ensuring  debt  sustainability,  while  enhancing 
investment.  Strengthen the resilience of the health system with  regard to  the health 
workforce, critical medical products and primary care.  

Consolidate  short-time  work  arrangements  and  ensure 
the  adequacy  of 
unemployment protection for all workers. Strengthen the quality and inclusiveness of 
education and skills development. 

Ensure  effective  implementation  of  liquidity  support  to  affected  businesses, 
including  the  self-employed.  Front-load  mature  public  investment  projects  and 
promote  private  investment  to  foster  the  economic  recovery.    Focus  investment  on 
the  green  and  digital  transition,  in  particular  on  clean  and  efficient  production  and 
use of energy, sustainable transport, waste management, research and innovation. 

Complete  reforms  addressing  current  shortcomings  in  institutional  capacity  and 
governance to enhance judicial independence. Continue efforts to adequately assess 
and mitigate money laundering risks and to ensure effective enforcement of the anti-
money  laundering  framework.  Step  up  action  to  address  features  of  the  tax  system 
that facilitate aggressive tax planning by individuals and multinationals. 

Done at Brussels, 

For the Council 
The President 

8 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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