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

which is certainly generous, but which is not socially just in the sense that it does not allocate the relatively larger share of resources to those who are most in need. the time has clearly come for a radical welfare reform which reconciles the objectives of social cohesion and intergenerational equity with financial sustainability. non - essential transfer payments, especially those which are of a universal nature and which do not represent a response to a proven need, should be cut. means - testing in the provision of social benefits should not be ruled out on the grounds of possible abuse - rather, the information technology available today should be used to ensure effective implementation. consideration should also be given to indexing all benefits to inflation, including those currently linked to wages. the system for granting certain benefits should be reviewed to prevent abuse, especially in the case of invalidity pensions. this will also help to retain older workers in the labour market. it is furthermore essential to speed up a review of the unemployment benefit system to transform it into an effective instrument of employment creation rather than of social dependence. finally, the range of services offered by the public health system should be critically assessed in the light of budget constraints. beneficiaries should be required to shoulder part of the costs involved. free medicines and free medical services induce waste and abuse. so far we have seen that outlays on wages and salaries and on social security benefits together account for fully two - thirds of government spending. a further tenth is absorbed by the interest on the public debt. here it is well to recall that this cost is currently restrained by the prevailing low level of interest rates. with a global recovery under way, however, this favourable interest rate scenario is unlikely to last much longer. and since a one percentage point rise in the rate of interest is estimated to increase debt - servicing costs by some lm3 million, it is clear that slowing down the pace of debt accumulation should be a priority. any receipts from the privatisation programme should be used for this purpose. under present conditions, therefore, the only elements of government expenditure which are susceptible to a measure of discretionary control are capital outlays, operational expenditures and other programmes, mainly consisting of malta ’ s contribution to eu - funded projects. indeed, the convergence programme indicates that around one half of the required cost savings during the next three years will come from a reduction in capital expenditure. this, however, still leaves the need for expenditure cuts by 2007 of around lm70