It is important to recognise that the bulk of migrant workers are in managerial, professional and technical occupations, although there is a growing number of foreign workers in elementary occupations in the hotel and restaurant sector, and in clerical and other support duties. BIS central bankers’ speeches  3  These workers enhance the human capital stock, bringing new skills and knowledge, while also helping to avoid bottlenecks in the labour supply in expanding sectors, including in tourism related jobs. The buoyant performance in output and employment has dampened concerns about macroeconomic imbalances. The current account of the balance of payments turned positive in 2012 and has remained in surplus on an annual basis since then, as shown in Chart 5. The shift into surplus in recent years was driven by exports of services on the back of a strong performance in tourism and the development of new areas of economic activity. Chart 5: Current account  Imbalances in the public sector have also been narrowing. Malta has successfully emerged from the European Commission’s excessive deficit procedure, and this year Government is aiming at a deficit of 1.6% and a declining national debt of 68.3% of GDP. Next year, the deficit is targeted at 1.1% of GDP, while the national debt is forecast to decline to 65.2%. Although the economy is small and highly dependent on foreign trade, resource flexibility and ongoing structural change strengthened its ability to adjust to external shocks, so that Malta emerged from the crisis with strong economic fundamentals.

Instead, imbalances in the labour market would be counteracted by means of a counter-cyclical policy. Substantial emphasis was placed on the importance of wage formation for developments in employment. Only when wage growth dropped below the level of our trading partners did unemployment begin to fall and the manufacturing sector began to pick up. Thus, the fixed exchange rate policy was not introduced in order to strengthen the internationally exposed business sector. On the contrary, it was a breach in the approach whereby monetary policy and “exchange rate policy” had been oriented towards safeguarding these sectors. The fixed exchange rate was an intermediate target for achieving low and stable inflation. The exchange rate remained stable until the autumn of 1996, partly because wage growth was low and aggregate demand did not contribute to pressures in the economy. Gradually, the krone began to fluctuate more. The experience of the last half of the 1990s showed that monetary policy cannot fine-tune the exchange rate. Developments in international financial markets provided fertile ground for more pronounced fluctuations. And more fundamentally, when labour market pressures rose and incomes policy failed, exchange rate developments were no longer providing signals for wage formation and fiscal policy. High petroleum revenues, fiscal slippage and expectations of increased use of petroleum revenues contributed to this. Therefore, the exchange rate was no longer suitable as a nominal anchor. The introduction of new guidelines for economic policy in March 2001 and the conduct of fiscal policy have altered the interplay between economic policy components.