gdp, in fact, net fdi inflows increased from 16 % to 28 % in the six years to 2006. progress has also been registered in other areas. particularly significant was the narrowing of the inequality of income distribution ratio from 4. 6 in 2000 to 4. 1 five years later, well below the euro area average of 4. 8. in education, the proportion of students having completed at least an upper secondary education increased from 41 % of the relevant age group to 50 % over the same period, and the proportion of students in tertiary education rose from 11 % to 16 %. there was also some improvement in the female participation rate, from 35 % to 38 %. new challenges lie ahead a sense of satisfaction is, therefore, justified. complacency, however, is not, for much remains to be done. and any further progress will have to be pursued in an external environment that has become even more challenging. in the first place, competition, mainly from asia, has eliminated any residual advantage in our labour intensive industries, and represents a growing threat even in more capital and knowledge intensive activities. another worrying development is the increasing prospect of a slowdown in global economic activity, reflected in the recent downward revisions to gdp growth forecasts by leading central banks and multilateral institutions. the full impact of the chain of events set off by the sub - prime mortgage crisis in the united states has yet to be felt, and risks being compounded by the mounting inflationary pressures in commodity markets, especially for oil and agricultural products, with as yet unpredictable consequences. given the circumstances, while the adoption of the euro will undoubtedly enable malta to face these challenges from a stronger position than if the convergence process had been slower, the euro alone will not be enough. against this background, i would be failing in my duty if i did not express concern at the insufficient recognition by public opinion of the risks that the evolving external scenario poses for the maltese economy and of the need to improve the country ’ s international competitiveness. the reaction to the budget for 2008 is a case in point. attention has been focussed primarily on the perceived adequacy or otherwise of the proposed increases in incomes and benefits. the media regularly carry suggestions for still more handouts and other measures that would result in even higher consumption rather than investment. in contrast, little is said about where the “ more ” would come from. neither has there been any serious discussion as to whether current levels of combined private and public consumption

michael c bonello : growing the economy in the euro area – a policy prescription speech by mr michael c bonello, governor of the central bank of malta, at the annual dinner of the malta institute of financial services, saint julian ’ s, 30 november 2007. * * * i would first of all like to thank the president and the council of the ifs for inviting me once again to this annual dinner and also to commend the institute for the valuable contribution it continues to make to the development of the financial services industry in malta. this is the ninth consecutive time that i have been given the opportunity to share my thoughts with the members of the institute and their guests. it is also the last time i do so as my term of office expires in september next year. as this will, therefore, be my valedictory address, i propose to cast a look back to the prospects for the maltese economy as i saw them in november 1999 upon taking up my post with a view to assessing how the economy has evolved since then and suggesting what remains to be done. on that occasion, i dwelt upon the challenges of globalization arising from three emerging trends. first, it was becoming increasingly difficult for countries to insulate their economies from processes and decisions originating elsewhere. globalization, moreover, was producing an environment in which success would only be achieved by countries that had the ability to anticipate change and the capacity to adapt their productive structures fast enough to seize the new market opportunities ahead of their competitors. finally, the increasingly free movement of the factors of production entailed a relative loss of policy autonomy, even for large and relatively self - reliant economies. i suggested that these trends were especially relevant for a small, open economy like malta ’ s, and one that was clearly living beyond its means at the time. as you might recall, less than two years later the vulnerability of our economy was clearly exposed by two external events : the collapse of the technology stocks bubble and the ensuing sharp decline in demand for electronic components ; and the increased aversion to flying following the 9 / 11 terrorist attack in new york. the impact of these shocks on the electronics and tourism sectors combined with some long - standing domestic factors to produce a stagnation in economic activity in the period 2002 – 2004. this was a stark reminder that there is no escape from the realities of a globalized world, and that the only valid response to international competition is to make the economy more efficient and