those than rely on cuts to transfers, have smaller contractionary effects than tax - based adjustments ”. see imf world economic outlook october 2010, chapter 3, p. 113. see also european central bank “ the effectiveness of euro area fiscal policies ” monthly bulletin july 2010. of gdp was dedicated to investment. a substantial increase in productive investment, particularly in physical and human capital, is clearly necessary. the budget for 2011 recognizes this need, projecting a marked increase of 15 % in capital spending. this is encouraging because in recent years growth has mainly occurred in recurrent spending. between 2004 and 2009, this expanded at an annual average of 5. 3 %. on the other hand, government investment remained broadly unchanged during this period and declined in the last two years, in part because actual outlays often fell short of targets. the dual challenge of maintaining a high level of investment spending while reducing the budget deficit, therefore, implies that it is recurrent expenditures that must be cut. progress has already been made by reducing subsidies, through the privatisation of the shipyard and by aligning utility rates more closely to production costs. for next year, however, while an increase of less than 1 % in recurrent spending is planned, few specific cuts have been identified. in this context, the latest annual report of the national audit office suggests there is ample scope for controlling expenditures more effectively and for improving revenue collection. 13 while taxpayers have every right to expect value for their money, a substantial, durable fiscal correction requires a fundamental reappraisal of the role of the state in providing services. the need to prioritize expenditure programmes has not been fully addressed. as a result, the most difficult challenges, such as how to ensure sustainable funding for tertiary education, pensions and health services, remain to be tackled. 14 domestic consumption must return to a sustainable level. it is an inevitable adjustment for economies like ours that have lived beyond their means for far too long. fortunately, we need to adopt much less drastic measures than those countries that have had to make deep cuts in public sector staffing levels, wages and social benefits in order to stave off the financial collapse of the state itself. and yet, people in malta continue to expect the government to hand out money it does not have. this attitude must change, for not only can it lead to bankruptcy, but it is also indefensible on moral grounds. politicians, trade unions, ngos and other opinion shapers must explain that we do

michael c bonello : population ageing - a major challenge for policymakers speech by mr michael c bonello, governor of the central bank of malta, at the opening session of two workshops on pension reform, organised in floriana, malta, by the world bank institute, 9 june 2003. * * * i should first of all like to thank the world bank institute for choosing malta as the venue for this workshop and to welcome you all to our country. your presence here continues a centuries - old tradition whereby malta exploits its location at the centre of the mediterranean and its reputation for hospitality to bring people and ideas together. malta is currently undergoing a rapid transformation in a bid to seize the opportunities arising from accession to the european union and from the further consolidation of its trading relationship with its southern and eastern neighbours. the economy, albeit small, has a number of vibrant sectors ranging from high - tech manufacturing to world - class conference tourism. as in the case with many other countries, however, the long - term prospects for economic development in malta will be inevitably affected by the impact of population ageing. given that the population support ratio, defined as the number of persons of working age to those of pension age, is expected to halve over the next 25 years to just over 2, this impact is likely to be significant. the global and regional dimensions of population ageing malta is by no means an exception in this regard. by the middle of this century, the median age of the world population is expected to increase by 10 years to 36 years. globally, the proportion of persons aged 60 years and older is forecast to double. the fastest growing group of the older population is made up of those who are 80 years old or more. this age category is projected to increase more than five - fold over the next 50 years. while ageing is indeed a global phenomenon, it is likely to represent a more onerous challenge for developing countries than for developed ones. the majority of persons aged 60 and over will be found increasingly in developing countries ; and as the pace of population ageing is much faster in these countries, they will have less time to adjust to its effects than the developed countries. developing countries, moreover, will have to meet this challenge starting from a lower level of socio - economic development. for instance, the elderly in developing countries will be living mostly in rural areas and hence will face additional difficulties compared to their counterparts in developed countries who tend to live in urban centres. these differences imply that the