knowledge - based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion ” as from may next year, malta will automatically be part of a process which presents opportunities for improving supply capabilities through focused policies and for which specific funding is available. it, however, also involves a greater degree of competition, and thus constitutes a driving force for countries to move ahead rapidly with the required structural reforms. the lisbon agenda establishes numerous competitiveness indicators, as well as a set of targets to be achieved by 2010. i do not intend to dwell on these here. the federation of industry recently held a national seminar on this very issue and i am sure that these indicators and targets will continue to attract the necessary attention, not least within the malta council for economic and social development ( mcesd ). allow me, however, to make a few observations about how malta is performing in this regard. i shall do so by comparison with the international best practice benchmarks upon which most of the lisbon agenda criteria were built. so how does malta fare, especially when compared to the peer group of the new eu member states? based on data relating mainly to 2002, malta ’ s gdp grew by 1. 5 % compared to 2. 5 % in the other new member states. and this is not simply because less advanced economies than malta ’ s need to grow faster in order to catch up. indeed, the two acceding countries which are richer than malta, namely cyprus and slovenia, grew by 2. 0 % and 2. 9 %, respectively. turning now to possible reasons for malta ’ s slower growth rate, a first observation is that our unit labour costs are relatively high. on average, other new member states have labour productivity and price levels which hover around 50 % of the current eu average. in malta labour productivity is relatively higher, at 70 % of the eu average, but the price level is higher still at almost 90 %. this suggests that malta needs to increase its productivity to match its price level. a second measure relates to public finances. on average, the other new member states have fiscal positions ranging from close to balance to deficits of around 7 % of gdp. malta ’ s deficit is close to the latter figure and thus acts as a drag on the productive use of resources, and hence also on economic growth. other new member states on average spend 0. 8 % of their gdp on innovation, research and development. this compares with almost 2 % for

malta fails to offer the right combination of productivity, skills, innovative ability and cost to justify their investment. there are other early warning signals. the economy ’ s 0. 2 % average real growth rate over the past two years is the lowest of all the acceding countries. it is also low compared to that of the existing eu member states. the experience of those two years may well have been exceptional, but it nevertheless serves to remind us that the economy needs to grow consistently much faster if malta is to catch up with average eu per capita income levels within a reasonable period of time. i strongly believe that the factors making for high costs and weak growth rates should be addressed as a priority. as i have observed on other occasions, strategies to improve competitiveness in a globalising world can be devised. other countries have shown the way. what is needed is the political will and the effective collaboration of all the parties concerned. population ageing perhaps there exists no clearer example to illustrate the kind of challenge the country faces than the issue of population ageing. the impact of a rapidly ageing population in the context of a generous welfare system is inevitably a dramatic rise in spending on pensions and health care. expenditure on welfare, including on health, is already absorbing close to one - fifth of the economy ’ s annual income, or about lm300 million, and almost two - fifths of government revenue. retirement pensions alone account for more than one - fourth of this, and are the cost item which is likely to register the strongest growth in the years ahead. over the next twenty - five years it is expected that the number of workers supporting one pensioner will drop from the present 4 to just over 2, partly reflecting the fact that the proportion of pensionable age persons in the population will rise from 16. 7 % today to over 28 %. an ageing society will also further aggravate existing national saving and investment trends. the impact on private consumption and savings patterns is a result of the ‘ life cycle hypothesis ’, which holds that a rise in the proportion of the elderly in the population tends to be accompanied by a decline in national savings. indeed, the effect of population ageing on public finances is nothing but a reflection of a wider economic problem involving a reduced productive capacity. reforms to pre - empt this impact must, therefore, be implemented without delay. here again, malta need not re - invent the wheel. the world bank model involving funded pension schemes is being applied successfully