Malta’s key enabler: A digital and green transition

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by Keith Zahra


The annual country specific recommendations issued by the European Commission tend to pass under the radar except for the experts within the respective line Ministries around Europe. However, it is undeniable that in the current economic fallout resulting from the almost-three month long social restrictions around the continent, a coordinated European economic response is crucial to relaunch economic activity, mitigate damage to the economic and social fabric, and to reduce divergences and imbalances. European economic and employment policy coordination therefore constitutes a crucial element of the recovery strategy.


Even though the different proposals for the EU’s 27 member states appear to vary, a closer look shows that they are ultimately structured around two objectives: in the short-term, mitigating the coronavirus pandemic’s severe negative socio-economic consequences; and in the short to medium-term, achieving sustainable and inclusive growth which facilitates the green transition and the digital transformation.


The European Commission is seeking to use this opportunity of relaunching economies to push forward an agenda that has long been in the pipeline, centring around the four dimensions of competitive sustainability – stability, fairness, environmental sustainability and competitiveness – while also, as expected in the current circumstances, placing a specific emphasis on health. The recommendations also reflect the Commission’s commitment to integrating the United Nations’ Sustainable Development Goals.


Recovery and investment must go hand-in-hand, reshaping the EU economy faced with the digital and green transitions, as we will see later with regard to the recommendations made for Malta. Over and above, the EU is seeking once again to invest in people and skills, supporting the corporate sector (in particular small and medium-sized enterprises) and taking action against aggressive tax planning and money laundering.


What’s in it for Malta


The Commission comes forward with a number of proposals but also takes stock of the current situation. According to the Commission forecast, unemployment is expected to rise to 5.9% in 2020 and to recover to 4.4% in 2021. In order to mitigate the serious impacts of the crisis on employment, Malta took emergency measures, in consultation with social partners, to prevent lay-offs by favouring short time work instead. The adoption of short-time work arrangements on a more permanent basis would also protect jobs in the transition towards economic recovery. Ensuring adequate support and access to social protection for all workers, including the self-employed, and accounting for a possibly extended duration of unemployment are crucial. Malta’s social protection system also needs to ensure that adequate support is provided to foreign workers in finding alternative employment; in retaining work permits when possible and accessing other social services.


The EU also calls on Government to ensure effective implementation of liquidity support to affected businesses, including the self-employed. It recommends the pursuing at an early stage of public investment projects and the promotion. private investment to foster the economic recovery.


Placing higher importance on research and innovation and better embedding it in the business environment will support the sustainability of Malta’s knowledge based economic model.


In this context, it calls on the authorities to focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, sustainable transport, waste management, research and innovation. In the context of the recovery, the EU urges Malta to work harder on its environmental credentials, particularly referring to the pollution caused by the construction and transport industries.


As in practically every report commissioned by international institutions, the Commission refers to current shortcomings in institutional capacity and governance and urges reforms to enhance judicial independence. In particular, the EU wants to see efforts to adequately assess and mitigate money laundering risks and to ensure effective enforcement of the anti-money laundering framework. The EU insisted that shortcomings in the investigation and prosecution of money laundering remain a challenge. Enhancing the national supervision of internationally oriented financial businesses licensed in Malta would strengthen the overall governance framework.


In its report, the Commission also looks into the measures taken by Malta in the wake of the economic fallout from the coronavirus pandemic. Positively, it concludes that the measures taken by Malta are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak.


Malta went into this crisis with a healthier financial position than most of its peers.  The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

Keith Zahra