Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Malta and delivering a Council opinion on the 2023 Stability Programme of Malta
Date: 2023-05-24
Institutions: European Commission, Secretariat-General
Subjects: Malta, economic policy, economic recovery, economic reform, energy policy, fiscal policy, green economy, investment, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 24.5.2023  COM(2023) 618 final  Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Malta and delivering a Council opinion on the 2023 Stability Programme of Malta {SWD(2023) 618 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2023 National Reform Programme of Malta and delivering a Council opinion on 
the 2023 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) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council2,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investments,  entailing  a  fiscal  impulse 
financed  by  the  EU.  In  line  with  the  European  Semester  priorities,  it  contributes  to 
economic  and  social  recovery  and  to  the  implementation  of  sustainable  reforms  and 
investments,  in  particular  to  promote  the  green  and  digital  transition  and  make  the 
Member States’ economies more resilient. It also helps strengthen public finances and 
boost  growth  and  job  creation  in  the  medium  and  long  term,  improve  territorial 
cohesion  within  the  EU  and  support  the  continued  implementation  of  the  European 
Pillar of Social Rights. The maximum financial contribution per Member State under 
the Recovery and Resilience Facility was updated on 30 June 2022, in accordance with 
Article 11(2) of Regulation (EU) 2021/241.  

(2) 

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth 
Survey3,  marking  the  start  of  the  2023  European  Semester  for  economic  policy 
coordination. The European Council endorsed the priorities of the  survey  around the 

1 
2 

3 

OJ L 209, 2.8.1997, p. 1. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 
COM(2022) 780 final. 

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four  dimensions  of  competitive  sustainability  on  23  March  2023.  On  22  November 
2022,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the  Commission  also  adopted 
the  2023  Alert  Mechanism  Report,  in  which  it  did  not  identify  Malta  as  one  of  the 
Member States that may be affected or may be at risk of being affected by imbalances, 
and for which an in-depth review would be needed. On the same date, the Commission 
also adopted an opinion on Malta’s 2023 draft budgetary plan. The Commission also 
adopted a recommendation for a Council recommendation on the economic policy of 
the euro area, which the Council adopted on 16 May 2023, as well as the proposal for 
the 2023 Joint Employment Report analysing the implementation of the Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights,  which  the 
Council adopted on 13 March 2023.  

(3)  While the EU economies are showing remarkable resilience, the  geopolitical  context 
continues  to  have  a  negative  impact.  As  the  EU  stands  firmly  with  Ukraine,  the  EU 
economic  and  social  policy  agenda  is  focused  on  reducing  the  negative  impact  of 
energy shocks on both vulnerable households and companies in the short term, and on 
keeping  up  efforts  to  deliver  on  the  green  and  digital  transition,  support  sustainable 
and inclusive growth, safeguard macroeconomic stability and increase resilience in the 
medium  term.  It  also  focuses  heavily  on  increasing  the  EU’s  competitiveness  and 
productivity. 

(4) 

(5) 

On  1  February  2023,  the  Commission  issued  the  Communication  A  Green  Deal 
Industrial  Plan  for  the  Net-Zero  Age4  to  boost  the  competitiveness  of  the  EU’s  net-
zero  industry  and  support  the  fast  transition  to  climate  neutrality.  The  plan 
complements  ongoing  efforts  under  the  European  Green  Deal  and  REPowerEU.  It 
aims to provide a more supportive environment for scaling up the EU’s manufacturing 
capacity  for  the  net-zero  technologies  and  products  required  to  meet  the  EU’s 
ambitious climate targets, as well as ensuring access to relevant critical raw materials, 
including  by  diversifying  sourcing,  properly  exploiting  geological  resources  in 
Member States and maximising the recycling  of raw materials. The plan  is  based on 
four pillars:  a predictable and simplified regulatory  environment,  speeding up access 
to finance, enhancing skills, and open trade for resilient supply chains. On 16 March 
2023,  the  Commission  also  issued  the  Communication  Long-term  competitiveness  of 
the EU: looking beyond 20305, structured along nine mutually reinforcing drivers with 
the objective to work towards a growth enhancing regulatory framework. It sets policy 
improvements,  well  focused 
priorities  aimed  at  actively  ensuring  structural 
investments and regulatory measures for the long-term competitiveness of the EU and 
its Member States. The recommendations below help address those priorities. 

In 2023, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  Fully 
implementing  the  recovery  and  resilience  plans  remains  essential  for  delivering  the 
policy priorities under the European Semester, as the plans address all or a significant 
subset  of  the  relevant  country-specific  recommendations  issued  in  recent  years.  The 
2019, 2020 and 2022 country-specific recommendations remain equally relevant also 
for  recovery  and  resilience  plans  revised,  updated  or  amended  in  accordance  with 
Articles 14, 18 and 21 of Regulation (EU) 2021/241.  

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COM(2023) 62 final. 
COM(2023) 168 final.  

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(6) 

(7) 

(8) 

6 

7 
8 

The REPowerEU Regulation6 adopted on 27 February 2023 aims to rapidly phase out 
the  EU’s  dependence  on  Russian  fossil  fuel  imports.  This  will  contribute  towards 
energy security and the diversification of the EU’s energy supply, while increasing the 
uptake of renewables, energy storage capacities and energy efficiency. The Regulation 
enables  Member  States  to  add  a  new  REPowerEU  chapter  to  their  national  recovery 
and  resilience  plans  in  order  to  finance  key  reforms  and  investments  that  will  help 
achieve the REPowerEU objectives. They will also help boost the competitiveness of 
the EU’s net-zero industry as outlined in the Green Deal  Industrial Plan for the Net-
Zero Age and address the energy-related country-specific recommendations issued to 
the  Member  States  in  2022  and,  where  applicable,  in  2023.  The  REPowerEU 
Regulation  introduces  a  new  category  of  non-repayable  financial  support,  made 
available  to  Member  States  to  finance  new  energy-related  reforms  and  investments 
under their recovery and resilience plans.  

On 8 March 2023, the Commission adopted a communication providing fiscal policy 
guidance for 2024. It aims to support the preparation of Member States’ stability and 
thereby  strengthen  policy  coordination7.  The 
convergence  programmes  and 
Commission recalled that the general escape clause of the Stability and Growth Pact 
will be deactivated at  the end of 2023.  It  called  for fiscal  policies in  2023-2024 that 
ensure  medium-term  debt  sustainability  as  well  as  raise  potential  growth  in  a 
sustainable manner. Member States were invited to set out in their 2023 stability and 
convergence programmes how their fiscal plans will ensure that the 3% of GDP deficit 
reference value is adhered to as well as plausible and continuous debt reduction, or for 
debt  to  be  kept  at  prudent  levels  in  the  medium  term.  The  Commission  invited 
Member States to phase out national fiscal measures introduced to protect households 
and  firms  from  the  energy  price  shock,  starting  with  the  least  targeted  ones.  It 
indicated that, if support measures needed to be extended because of renewed energy 
price  pressures,  Member  States  should  target  such  measures  much  better  than  in  the 
past  towards  vulnerable  households  and  firms.  The  Commission  proposed  that  the 
fiscal  recommendations would be  quantified and differentiated  and be  formulated on 
the basis of net primary expenditure, as proposed in its Communication on orientations 
for  a  reform  of  the  EU  economic  governance  framework8.  It  recommended  that  all 
Member States should  continue to  protect  nationally  financed  investment and ensure 
the  effective  use  of  the  Recovery  and  Resilience  Facility  and  other  EU  funds,  in 
particular  in  light  of  the  green  and  digital  transition  and  resilience  objectives.  The 
Commission  indicated  that  it  will  propose  to  the  Council  to  open  deficit-based 
excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in 
line with existing legal provisions. 

On  26  April  2023,  the  Commission  presented  legislative  proposals  to  implement  a 
comprehensive reform of the EU’s economic governance rules. The central objective 
of the proposals is to strengthen public debt sustainability and promote sustainable and 
inclusive growth in all Member States through reforms and investments. The proposals 
aim at providing Member States with more control over the design of their medium-
term plans, while putting in place a more stringent enforcement regime to ensure that 

Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1). 
COM(2023) 141 final. 
COM(2022) 583 final. 

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(9) 

Member  States  deliver  on  the  commitments  undertaken  in  their  medium-term  fiscal-
structural plans. The objective is to conclude the legislative work in 2023. 

On  13  July  2021,  Malta  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance  with  the  assessment  guidelines  of  Annex  V  to  that  Regulation.  On  5 
October 2021, the Council adopted its Decision on the approval of the assessment of 
the recovery  and resilience plan for  Malta9. The release of instalments  is  conditional 
on  a  decision  by  the  Commission,  taken  in  accordance  with  Article  24(5)  of 
Regulation  (EU)  2021/241,  that  Malta  has  satisfactorily  fulfilled  the  relevant 
milestones  and  targets  set  out  in  the  Council  Implementing  Decision.  Satisfactory 
fulfilment  presupposes  that  the  achievement  of  preceding  milestones  and  targets  has 
not been reversed. 

(10)  On  25  April  2023,  Malta  submitted  its  2023  National  Reform  Programme  and,  on  3 
May 2023, its 2023 Stability Programme, in line with Article 4(1) of Regulation (EC) 
No  1466/97.  To  take  account  of  their  interlinkages,  the  two  programmes  have  been 
assessed  together.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241,  the 
2023  National  Reform  Programme  also  reflects  Malta’s  biannual  reporting  on  the 
progress made in achieving its recovery and resilience plan.  

in 

progress 

(11)  The  Commission  published  the  2023  country  report  for  Malta10  on  24  May  2023.  It 
assessed  Malta’s 
country-specific 
addressing 
recommendations  adopted by  the Council  between 2019  and  2022 and  took stock of 
Malta’s implementation of the recovery and resilience plan. Based on this analysis, the 
country report identified gaps with respect to those challenges that are not addressed or 
only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as  new  and 
emerging challenges. It also assessed Malta’s progress on implementing the European 
Pillar of Social Rights and on achieving the EU headline targets on employment, skills 
and  poverty  reduction,  as  well  as  progress  in  achieving  the  UN’s  Sustainable 
Development Goals.  

relevant 

the 

(12)  Based  on  data  validated  by  Eurostat,11  Malta’s  general  government  deficit  decreased 
from 7.8% of GDP in 2021 to 5.8% in 2022, while general government debt fell from 
55.1% of GDP at the end of 2021 to 53.4% at the end of 2022. On 24 May 2023, the 
Commission published a report under Article 126(3) TFEU;12 the report discussed the 
budgetary situation of Malta, as  its  general  government deficit in  2022 exceeded the 
3% of GDP Treaty reference value. The report concluded that the deficit criterion was 
not fulfilled. In line with the Communication of 8 March 2023,13 the Commission did 
not  propose  to  open  new  excessive  deficit  procedures  in  spring  2023;  in  turn,  the 
Commission  stated  that  it  would  propose  to  the  Council  to  open  deficit-based 
excessive deficit procedures in spring 2024, on the basis of the outturn data for 2023. 
Malta should take account of this in the execution of its 2023 budget and in preparing 
the Draft Budgetary Plan for 2024. 

9 

10 
11 
12 
13 

Council Implementing Decision of  5 October 2021 on the approval of the assessment of the  recovery 
and resilience plan for Malta (ST 11941/2021 INIT; ST 11941/2021 ADD 1). 
SWD(2023) 618 final. 
Eurostat-Euro Indicators, 47/2023, 21.4.2023 
COM(2023) 631 final, 24.5.2023. 
COM(2023) 141 final, 8.3.2023. 

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(13)  The  general  government  balance  has  been  impacted  by  the  fiscal  policy  measures 
adopted to mitigate the economic and social impact of the increase in energy prices. In 
2022,  such  revenue-decreasing  measures  included  cuts  to  indirect  taxes  on  energy 
consumption,  while  such  expenditure-increasing  measures  included  subsidies  to 
energy  production  to  compensate  for  the  price  increase  of  imported  electricity  and 
carbon  emissions.      The  Commission  estimates  the  net  budgetary  cost  of  these 
measures  at  2.5%  of  GDP  in  2022.  The  general  government  balance  has  also  been 
impacted  by  the  budgetary  cost  of  temporary  protection  to  displaced  persons  from 
Ukraine, which is estimated at 0.1% of GDP in 2022. At the same time, the estimated 
cost of COVID-19 temporary emergency measures dropped to 0.8% of GDP in 2022, 
from 3.2% in 2021. 

(14)  On  18  June  2021,  the  Council  recommended  that  in  2022  Malta14  maintain  a 
supportive  fiscal  stance,  including  from  the  impulse  provided  by  the  Recovery  and 
Resilience Facility, and preserve nationally financed investment.  

(15)  According  to  the  Commission  estimates,  the  fiscal  stance15  in  2022  was  broadly 
neutral, at - 0.2% of GDP, as recommended by the Council. As recommended by the 
Council, Malta continued to support the recovery with investments to be financed by 
the  Recovery  and  Resilience  Facility.  Expenditure  financed  by  Recovery  and 
Resilience  Facility  grants  and  other  EU  funds  amounted  to  0.9%  of  GDP  in  2022 
(1.1%  of  GDP  in  2021).  The  decrease  in  expenditures  financed  by  Recovery  and 
Resilience Facility grants and other EU funds in 2022 was due to a lower absorption of 
other EU funds. Nationally financed investment provided a contractionary contribution 
of  0.2  percentage  points  to  the  fiscal  stance.16  Malta  therefore  did  not  preserve 
nationally 
the  Council 
recommendation. At the same time, the growth in nationally financed primary current 
expenditure (net of new revenue measures) provided an expansionary contribution of 
0.9  percentage  points  to  the  fiscal  stance.  However,  this  significant  expansionary 
contribution  included  the  additional  impact  of  fiscal  policy  measures  to  mitigate  the 
economic and social impact of the increase in energy prices (additional net budgetary 
cost of 1.9% of GDP), as well as the costs to offer temporary protection to displaced 
persons from Ukraine (0.1% of GDP). Malta therefore sufficiently kept under control 
the growth in nationally financed current expenditure. 

investment  which  was  not 

line  with 

financed 

in 

(16)  The macroeconomic scenario underpinning the budgetary projections in  the Stability 
Programme  is  realistic  in  2023  and  thereafter.  The  government  projects  real  GDP  to 
grow by 4.1% in 2023 and 4.5% in 2024. By comparison, the Commission 2023 spring 
forecast projects a lower real GDP growth of 3.9% in 2023 and 4.1% in 2024, mainly 
due to lower contribution of net exports to growth. 

(17) 

In its 2023 Stability Programme, the government expects that the general government 
deficit  ratio  will  decrease  to  5.0%  of  GDP  in  2023.  The  decrease  in  2023  mainly 

14 

15 

16 

Council  Recommendation  of  18  June  2021  delivering  a  Council  opinion  on  the  2021  Stability 
Programme of Malta, OJ C 304, 29.7.2021, p. 83. 
The  fiscal  stance  is  measured  as  the  change  in  primary  expenditure  (net  of  discretionary  revenue 
measures), excluding Covid-19 crisis-related temporary emergency measures but including expenditure 
financed  by  non-repayable  support  (grants)  from  the  Recovery  and  Resilience  Facility  and  other  EU 
funds, 
in 
the Fiscal Statistical Tables.   
Other nationally financed capital expenditure provided a contractionary contribution of  0.3 percentage 
points of GDP.  

growth. For  more 

to  medium-term 

see  Box 1 

potential 

relative 

details 

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reflects  the  increase  in  other  revenues,  including  the  proceeds  from  the  country’s 
investor  citizenship  and  residence  schemes  while  the  decrease  of  the  subsidies, 
including  the  expected  phasing  out  of  the  national  airline  restructuring  costs,  is 
partially  compensated  by  an  increase  of  intermediate  consumption  and  gross  fixed 
capital formation. According to the Programme, the general government debt-to-GDP 
ratio  is  expected  to  increase  from  53.4%  at  the  end  of  2022  to  54.5%  at  the  end  of 
2023. The Commission 2023 spring forecast projects a government deficit of 5.1% of 
GDP  for  2023.  This  is  in  line  with  the  deficit  projected  in  the  Stability  Programme. 
The Commission 2023 spring forecast projects a similar general government debt-to-
GDP ratio, of 54.8% at the end of 2023. 

(18)  The government balance in 2023 is expected to continue to be impacted by the fiscal 
measures adopted to mitigate the economic and social impact of the increase in energy 
prices.  They  consist  of  measures  extended  from  2022  in  particular  of  cuts  to  indirect 
taxes  on  energy  consumption  and  subsidies  to  energy  production  to  compensate  for  the 
price increase of imported electricity and carbon emissions. The net budgetary cost of the 
support measures is projected in the Commission 2023 spring forecast at 1.7% of GDP 
in  202317.  The  measures  in  2023  do  not  appear  targeted  to  the  most  vulnerable 
households  or  firms,  and  do  not  fully  preserve  the  price  signal  to  reduce  energy 
demand  and  increase  energy  efficiency.  As  a  result,  the  amount  of  targeted  support 
measures,  to  be  taken  into  account  in  the  assessment  of  compliance  with  the 
recommendation  for  2023,  is  estimated  in  the  Commission  2023  spring  forecast  at 
0.1%  of  GDP  in  2023  (compared  to  0.1%  of  GDP  in  2022).  Finally,  the  2023 
government  balance  is  expected  to  benefit  from  the  phasing  out  of  COVID-19 
temporary emergency measures of 0.8% of GDP. 

(19)  On 12 July 2022, the Council recommended18 that Malta take action to ensure in 2023 
that  the  growth  of  nationally  financed  primary  current  expenditure  is  in  line  with  an 
overall neutral  policy stance19, taking into account  continued temporary  and targeted 
support to households and firms most vulnerable to energy price hikes and to people 
fleeing Ukraine. Malta should  stand ready to  adjust  current  spending to  the evolving 
situation. Malta was also recommended to expand public investment for the green and 
digital  transitions,  and  for  energy  security  taking  into  account  the  REPowerEU 
initiative, including by making use of the Recovery and Resilience Facility and other 
Union funds. 

(20) 

In  2023,  the  fiscal  stance  is  projected  in  the  Commission  2023  spring  forecast  to  be 
contractionary  (+ 0.4% of GDP), in  a context  of high inflation. This  follows broadly 
neutral  fiscal  stance  in  2022  (- 0.2%  of  GDP).  The  growth  in  nationally  financed 
primary  current  expenditure  (net  of  discretionary  revenue  measures)  in  2023  is 
projected to provide a contractionary contribution of 0.8 % of GDP to the fiscal stance. 
In sum, the projected growth of nationally financed primary current expenditure is in 
line  with  the  Council  recommendation.  Expenditure  financed  by  Recovery  and 
Resilience  Facility  grants  and  other  EU  funds  amounted  to  1.6%  of  GDP  in  2023, 
while  nationally  financed  investment  provided  a  contractionary  contribution  to  the 

17 

18 

19 

The  figure represents the level of annual budgetary cost of those  measures, including current revenue 
and expenditure as well as – where relevant – capital expenditure measures. 
Council Recommendation of 12 July 2022 on the National Reform Programme of Malta and delivering 
a Council opinion on the 2022 Stability Programme of Malta  OJ C 334, 1.9.2022, p. 146.  
Based  on  the  Commission  spring  2023  forecast,  the  medium-term  (10-year  average)  potential  output 
growth of Country, which is used to measure the fiscal stance, is estimated at 9.5% in nominal terms. 

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fiscal  stance  of  0.3  percentage  points20.  Therefore,  Malta  plans  to  finance  additional 
investment through the Recovery and Resilience Facility and other EU funds, but it is 
not  projected  to  preserve  nationally  financed  investment.  It  plans  to  finance  public 
investment for the green and digital transitions, and for energy security, notably for the 
renovation  of  private  and  public  buildings  including  hospitals  and  schools,  the 
electrification  of  the  transport  sector  and  projects  related  to  the  digitalisation  of  the 
public administration and the private sector, which are partly funded by the Recovery 
and Resilience Facility and other EU funds.  

(21)  According  to  the  Stability  Programme  the  general  government  deficit  is  expected  to 
decline to 4.3% of GDP in 2024. The decrease in 2024 mainly reflects the reduction of 
subsidies,  including  the  phasing  out  of  the  national  airline  early  retirement  schemes, 
and  the  contained  growth  of  the  wage  bill  and  of  the  intermediate  consumption 
expenditure  compensated  partially  by  the  increase  of  interest  expenditures.  The 
programme expects the general government debt-to-GDP ratio to increase to 55.7% at 
the end of 2024. Based on policy measures known at the cut-off date of the forecast, 
the Commission 2023 spring forecast projects a government deficit of 4.5% of GDP in 
2024.  This  is  in  line  with  the  deficit  projected  in  the  programme.  The  Commission 
2023  spring  forecast  projects  a  similar  general  government  debt-to-GDP  ratio,  of 
56.1% at the end of 2024.  

(22)  The  Stability  Programme  envisages  the  phasing  out  of  some  of  the  energy  support 
measures  in  2024.  The  Commission  currently  assumes  net  cost  of  energy  support 
measures  of  1.5%  of  GDP.  This  hinges  upon  the  assumption  of  no  renewed  energy 
price  increases.  Most  of  the  energy  support  measures  that  are  currently  planned  to 
remain  in  place  in  2024  do  not  appear  targeted  to  vulnerable  households  or  firms. 
They  do  not  fully  preserve  the  price  signal  to  reduce  energy  demand  and  increase 
energy efficiency. 

(23)  Council Regulation (EC) No 1466/97 calls for an annual improvement in the structural 
budget balance toward the medium-term objective by 0.5% of GDP as a benchmark21.  
Taking  into  account  fiscal  sustainability  considerations22  and  the  need  to  reduce  the 
deficit  to  below  the  3%  of  GDP  reference  value,  an  improvement  in  the  structural 
balance  of  at  least  0.5%  of  GDP  for  2024  would  be  appropriate.  To  ensure  such  an 
improvement,  the  growth  in  net  nationally  financed  primary  expenditure  in  2024 
should not exceed 5.9%, as reflected in this recommendation.  

At the same time, the remaining energy support measures (currently estimated by the 
Commission  at  1.7%  of  GDP  in  2023)  should  be  phased  out  contingent  on  energy 
market developments and starting from the least targeted ones, and the related savings 
should be used to reduce the government deficit. Based on Commission estimates, this 
would lead to a growth in net primary expenditure lower than recommended for 2024. 

20 

21 

22 

Other  nationally  financed  capital  expenditure  is  projected  to  provide  a  neutral  contribution  of  0.0 
percentage points of GDP.  
Cf. Article 5 of Council Regulation (EC) No 1466/97, which also requires an adjustment of  more than 
0.5%  of  GDP  for  Member  States  with  a  government  debt  exceeding  60%  of  GDP,  or  with  more 
pronounced debt sustainability risks. 
The Commission estimated that Malta would need an average annual increase in the structural primary 
balance as a share of GDP of 0.3 percentage points to achieve a plausible debt reduction or ensure that 
government  debt  is  kept  at  prudent  levels  in  the  medium  term.  This  estimate  was  based  on  the 
Commission autumn 2022 forecast. The starting point  for this estimate  was the projected government 
deficit and debt for 2024. 

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(24)  Assuming  unchanged  policies,  the  Commission  2023  spring  forecast  projects  net 
nationally financed primary expenditure to grow by 3.3% in 2024 which is below the 
recommended  growth  rate.  The  adjustment  projected  in  the  Commission  forecast  is 
less than the savings from the full phasing out of energy support measures, which is 
largely due to most of such measures remaining in place. 

(25)  According  to  the  programme,  government  investment  is  expected  to  decrease  from 
3.8% of GDP in 2023 to 3.1% of GDP in 2024. The lower investment reflects lower 
nationally  financed  investment  and  investment  financed  by  the  EU  other  than  the 
Recovery and Resilience Facility.  The programme refers to reforms and investments, 
that  are  expected  to  contribute  to  fiscal  sustainability  and  sustainable  and  inclusive 
growth.  These  include  high-value  added  investments  and  structural  reforms  towards 
the  green,  digital  and  energy  transitions  including  health  and  governance,  which  are 
also part of the Recovery and Resilience Plan.  

(26)  The Stability Programme outlines a medium-term fiscal path until 2026. According to 
the programme, the general government deficit is expected to decline to 3.6% of GDP 
in 2025 and to 2.9% by 2026. The general government deficit is therefore planned to 
not exceed 3% of GDP in 2026. According to the programme, the general government 
debt-to-GDP ratio is expected to increase from 55.7% at the end of 2024 to 56.1% by 
the end of 2026. 

(27) 

In accordance with Article 19(3), point (b) and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. The implementation 
of Malta’s recovery and resilience plan is well underway. Malta submitted 1 payment 
request,  corresponding  to  19  milestones  and  targets  in  the  plan  and  resulting  in  an 
overall disbursement of EUR 52.3 million (in grants) on 8 March 2023. On 26 April 
2023,  Malta  submitted  an  amendment  of  its  plan,  together  with  the  REPowerEU 
chapter.  The  newly  proposed  REPowerEU  chapter  is  expected  to  address  the 
challenges  related  to  energy  supply  and  security,  and  to  speed  up  the  transition  to 
renewable energy sources. Furthermore, Malta is proposing some modifications to the 
original  plan  in  view  of  the  decreased  total  allocation  and  to  adjust  to  objective 
circumstances.  These  amendments  are  currently  being  assessed  by  the  Commission 
and,  once  adopted,  are  then  subject  to  Council  approval.  The  swift  inclusion  of  the 
new  REPowerEU  chapter  in  the  recovery  and  resilience  plan  will  allow  additional 
reforms  and  investments  to  be  financed  in  support  of  Malta’s  strategic  objectives  in 
the field of energy and the green transition. The systematic and effective involvement 
of  local  and  regional  authorities,  social  partners  and  other  relevant  stakeholders 
remains  important  for  the  successful  implementation  of  the  recovery  and  resilience 
plan,  as  well  as  other  economic  and  employment  policies  going  beyond  the  plan,  to 
ensure broad ownership of the overall policy agenda.  

(28)  The Commission approved all of Malta’s cohesion policy programming documents in 
2022. Proceeding with the swift implementation of the cohesion policy programmes in 
complementarity  and  synergy  with  the  recovery  and  resilience  plan,  including  the 
REPowerEU  chapter,  is  key  to  achieving  the  green  and  digital  transition,  increasing 
economic and social resilience as well as achieving balanced territorial development in 
Malta. 

(29)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan,  Malta  faces  a  number  of  additional  challenges  related  to  features  of  the  tax 
system that facilitate aggressive tax planning, energy policy and the green transition.  

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(30)  Tackling aggressive tax planning remains key to improving the efficiency and fairness 
of  tax  systems.  In  view  of  the  spillover  effects  of  aggressive  tax  planning  strategies 
between  Member  States,  coordinated  action  to  complement  EU  legislation  through 
national policies by all Member States is paramount. Malta has taken steps to address 
aggressive tax planning practices by implementing previously agreed international and 
European  initiatives.  Malta  further  commits  to  tackling  the  issue  in  its  recovery  and 
resilience  plan.  The  commitments  to  introduce  transfer  pricing  rules  and  to 
commission  an  independent  study  on  outbound  and  inbound  payments  (i.e.  between 
EU residents and third-country residents), to be followed up by legislation in line with 
the study’s findings, point in the right direction. However, until withholding taxes on 
interest, dividends and royalty payments made by Malta-based companies to zero and 
low-tax  jurisdictions  (hereby  intended  to  mean  as  any  jurisdiction  with  a  statutory 
corporate income tax rate below 9%, the lowest statutory corporate income tax rate in 
the EU), or equivalent defensive measures, are applied by Malta – to ensure that firms 
cannot shift their profits untaxed to third countries, the risks of double non-taxation of 
these  profits  remain  high.  Furthermore,  the  treatment  of  resident  non-domiciled 
companies  continues  to  pose  a  risk  of  double  non-taxation  for  both  companies  and 
individuals.  The  issue  will  only  be  partly  addressed  by  compliance  with  the  EU 
Minimum  Tax  Directive,  which  will  only  apply  to  large  corporations  once 
implemented by Malta. 

(31)  Fossil  fuels  continue  to  play  a  major  role  in  Malta’s  economy,  making  it  highly 
dependent on energy imports and exposed to global price developments, although the 
country does not directly import oil or gas from Russia. In 2021, fossil fuels comprised 
the bulk of Malta’s electricity generation, while renewables accounted for only 11.9%. 
Malta  has  sizeable  offshore  solar  and  wind  energy  potential,  which  is  unused.  The 
government’s commitment to adopt offshore renewable energy technologies in future 
as well as indicate its non-binding share to  the EU’s offshore renewable targets,  is  a 
positive  policy  shift,  but  concrete  projects  have  yet  to  be  identified.  Electricity  grid 
capacity and flexibility is a bottleneck for the integration of renewables and increasing 
the efficiency, reliability and security of the power supply. This requires investment in 
grid  modernisation,  including  from  Malta’s  REPowerEU  grant  budget.  Malta  is 
improving its security of energy supply by building a second electricity interconnector 
with Italy.  

(32)  Malta’s contribution to the EU’s energy efficiency targets for 2030 is low and energy 
consumption  in  residential  buildings  continues  to  increase.  Malta  could  scale  up 
energy efficiency measures and reduce energy demand by: encouraging the installation 
of solar panels on all new buildings; ensuring the deployment of suitable solar energy 
installations  on  all  new  public  and  non-residential  buildings  with  a  useful  floor  area 
over 250 m2; addressing legal obstacles, and providing additional economic incentives 
to  houseowners.  The  use  of  digital  technology,  such  as  applications  to  monitor  and 
regulate  energy  use,  could  help  increase  energy  efficiency.  Effective  implementation 
of the new national regulatory framework for the construction industry would increase 
the  quality  (including  the  energy  efficiency)  of  buildings  and  safety  of  construction 
process.  Malta’s  consumption  of  natural  gas  has  increased  by  12.7%  in  the  period 
August  2022  -  March  2023,  compared  with  the  average  gas  consumption  over  the 
same period in the last 5 years, in opposite trend to the 15% reduction target. Despite 

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(33) 

the exemption granted to Malta, Malta is encouraged to enhance efforts to temporarily 
reduce gas demand until 31 March 202423.  

In addition, in light of the sustained reliance on private cars, road transport emissions 
continue  to  grow,  forming  Malta’s  largest  source  of  non-ETS  greenhouse  gas 
emissions. The share of zero-emission vehicles is much lower than the EU average and 
is  increasing  very  slowly.  Reducing  emissions  and  traffic  congestion  would  require 
Malta  to  improve  public  transport  (punctuality,  decreased  journey  time),  deploy 
intelligent  transport  systems  (to  improve  traffic  flows,  safety  and  enforcement  of 
traffic rules), and invest in ‘soft mobility’ infrastructure for safe alternatives to private 
car use (such as safe, segregated and interconnected pavements and cycling/e-scooter 
routes). 

(34)  Labour  and  skills  shortages  in  sectors  and  occupations  key  for  the  green  transition, 
including  manufacturing,  deployment  and  maintenance  of  net-zero  technologies,  are 
creating  bottlenecks  in  the  transition  to  a  net-zero  economy.  High-quality  education 
and  training  systems  that  respond  to  changing  labour  market  needs  and  targeted 
upskilling and reskilling measures are key to reducing skills shortages and promoting 
labour inclusion and reallocation.  To unlock untapped labour supply,  these measures 
need  to  be  accessible,  in  particular  for  individuals  and  in  sectors  and  regions  most 
affected by the green transition. In 2022, shortages of workers were reported in Malta 
for six occupations that required specific skills or knowledge for the green transition, 
including manufacturing workers and construction workers. 

(35) 

(36) 

In light of the Commission’s assessment, the Council has examined the 2023 Stability 
Programme and its opinion24 is reflected in recommendation (1) below.  

In view of the close interlinkages between the economies of euro area Member States 
and  their  collective  contribution  to  the  functioning  of  the  Economic  and  Monetary 
Union,  the  Council  recommended  that  the  euro  area  Member  States  take  action, 
including through their recovery and resilience plans, to (i) preserve debt sustainability 
and refrain from broad-based support to aggregate demand in 2023, better target fiscal 
measures taken to mitigate the impact of high energy prices and reflect on appropriate 
ways to wind down support as energy price pressures diminish; (ii) sustain high public 
investment and promote private investment to support the green and digital transition; 
(iii)  support  wage  developments  that  mitigate  the  loss  in  purchasing  power  while 
limiting  second-round  effects  on  inflation,  further  improve  active  labour  market 
policies  and  address  skills  shortages;  (iv)  improve  the  business  environment  and 
ensure that energy support to companies is cost-effective, temporary, targeted to viable 
firms  and  that  it  maintains  incentives  for  the  green  transition;  and  (v)  preserve 
macro-financial  stability  and  monitor  risks  while  continuing  to  work  on  completing 
the Banking Union. For Malta, recommendations (1), (2), (3) and (4) contribute to the 
implementation of the first, second, third and fourth euro area recommendations.  

HEREBY RECOMMENDS that Malta take action in 2023 and 2024 to:  

1. 

23 
24 

Wind  down  the  energy  support  measures  in  force  by  the  end  of  2023,  using  the 
related  savings  to  reduce  the  government  deficit.  Should  renewed  energy  price 
increases  necessitate  support  measures,  ensure  that  these  are  targeted  at  protecting 

Council Regulation (EU) 2022/1369. 
Under Articles 5(2) and 9(2) of Council Regulation (EC) No 1466/97. 

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vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. 

Ensure  prudent  fiscal  policy,  in  particular  by  limiting  the  nominal  increase  in 
nationally financed net primary expenditure in 2024 to not more than 5.9%. 

Preserve nationally financed public investment and ensure the effective absorption of 
RRF  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  

For  the  period  beyond  2024,  continue  to  pursue  a  medium-term  fiscal  strategy  of 
gradual  and  sustainable  consolidation,  combined  with  investments  and  reforms 
conducive  to  higher  sustainable  growth,  to  achieve  a  prudent  medium-term  fiscal 
position.  

Continue  the  steady  implementation  of  its  recovery  and  resilience  plan  and  swiftly 
finalise  the  addendum,  including  the  REPowerEU  chapter,  with  a  view  to  rapidly 
initiating  its  implementation.  Proceed  with  the  speedy  implementation  of  cohesion 
policy  programmes,  in  close  complementarity  and  synergy  with  the  recovery  and 
resilience plan. 

Effectively  address  features  of  the  tax  system  that  may  facilitate  aggressive  tax 
planning by individuals and multinationals, including by ensuring sufficient taxation 
of  outbound  payments  of  interest,  royalties  and  dividends,  and  amend  the  rules  for 
non-domiciled companies. 

Reduce  reliance  on  fossil  fuels  by  accelerating  the  deployment  of  renewables, 
including  offshore  wind  and  solar  energy,  and  upgrade  and  expand  the  capacity  of 
the  electricity  grid  system,  including  transmission,  distribution  and  battery  storage. 
Reduce  energy  demand  through  improved  energy  efficiency,  particularly  in 
residential  buildings.  Reduce  emissions  from  road  transport  by  addressing  traffic 
congestion through improved service quality in public transport, intelligent transport 
systems and investing in ‘soft mobility’ infrastructure. Step up policy efforts aimed 
at the provision and acquisition of the skills needed for the green transition. 

2. 

3. 

4. 

Done at Brussels, 

For the Council 
The President 

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