reduction in economy - wide marginal costs in turn should lower overall prices, boosting competitiveness and exports. in line with other analyses, the study also shows that even if not debt - neutral, using fiscal space to finance government investment has the strongest effects on real activity in the short - to - medium run. a debt - financed 1 percentage point increase in the government investment - to - gdp ratio increases real gdp by 1. 5 percentage points from its baseline level by the fifth year. even if the investment ratio returns to its pre - shock level, gdp would still exceed its baseline level by around 1 % by the tenth year. thus, an expansion in public gfcf expenditure can help mitigate the negative impact that weaker external demand might have on malta ’ s economy. further investment in human capital is also necessary. malta ’ s positive economic record is also partly reflected by a growing influx of foreign workers. these now account for around a fourth of all employment. although foreigners, including non - eu nationals, are present in all sectors and at all levels, their employment has increased mainly in professional and administrative support services, and not as is sometimes claimed, in sectors characterised by lower skill levels. the increased employment of foreign nationals across occupations has enabled organisations to grow and venture in new areas. a sudden reversal of this pattern could stall activity in several sectors. efforts to upgrade the country ’ s infrastructure should therefore be complemented by measures that prevent a disorderly depletion of foreign human resources and enhance the skills of maltese nationals. * * * favourable economic developments, although easing somewhat, are expected to continue to buttress financial stability. lending volumes remain supportive of interest income but pressures on margins persist due to the low interest rate environment. notwithstanding, profitability remains a challenge for traditional banking models such as those of our banks. in fact, though still comparing favourably with their european peers, the profitability of domestic banks has been slimming. in addition to the limitations on their ability to generate more interest income, banks have to contend with ‘ no - fee ’ alternative products being developed by fintech players which operate with a lower cost base and hail from a less intrusive regulatory environment. concurrently, banks are facing a more rigorous and intrusive supervisory approach coupled with more rigorous standards of anti money laundering and combating the financing of terrorism. this is absolutely necessary and has our full and active support. of course, this changing environment requires significant investment in technologies and human resources with added pressure on

deferrals in private investment plans. therefore, overall investment is projected to fall significantly in 2020. however, as the level of uncertainty recedes, private investment is expected to bounce back. furthermore, the eu budget as well as ngeu funds will provide a substantial boost to government investment during the next year. one of the surprising aspects of this recession has been the extraordinary resilience of the labour market in malta. despite the unprecedented decline in economic activity in 2020, overall employment levels have held up very well. following an increase in unemployment levels in april and may, thereafter unemployment embarked on a gradual downward path. the unemployment rate, though above pre - pandemic levels, remains very low historically and the lowest in the euro area. nonetheless, the outlook remains surrounded by an elevated degree of uncertainty and risks remain firmly tilted to the downside. these relate mainly to the response of consumers and firms when a number of support measures came to an end. furthermore, the recovery in exports may be slower than expected if international tourism – and foreign demand generally – take longer than expected to recover, or if sectors worst hit by the pandemic fail to restructure to remain competitive. turning to the banking sector, the local banks entered the covid - 19 crisis from a solid financial position since they were operating with ample liquidity and high capital ratios, good profitability and declining npls. however, the banking sector, just like virtually all other businesses, was certainly not immune to the effects of the spread of covid - 19. it presented banks with unprecedented challenges, both from an operational perspective and financially. firstly, banks have focused on keeping their employees and customers physically safe and followed the guidelines and recommendations issued by the authorities. the banks ensured that all their business functions continued to operate as seamlessly as possible with the least possible impact on customer services. in particular, their digital banking platforms allowed their customers to continue to undertake banking transactions from the safety of their own homes. overall, domestic banks responded positively to this challenge and they are proving to be instrumental in supporting both businesses and households, and in providing credit to facilitate the economic recovery. banks were pro - active and had voluntarily already began providing moratoria before the coming into effect of directive no. 18. this was necessary to support both businesses and households that had experienced a sudden stop or reduction in income flows as a result of the pandemic. by the end of august, outstanding resident loans subject to moratoria had peaked