IMF: Malta’s economic growth will remain high despite moderation

Malta’s economic growth is expected to remain among Europe’s highest, according to an IMF mission, although a slight moderation is expected.

The IMF said growth is forecast to decline from 7.5% in 2023 to 4% by 2025, reflecting a softening in tourism demand and a maturing gaming sector.

Inflation has eased to 2.25%, yet persistent pressures in services, coupled with tight labour markets, underscore the need for careful policy management. 

The IMF said Malta’s economic strength has been bolstered by an influx of foreign workers and tourists, though this rapid expansion has also increased strain on infrastructure and housing.

However, the IMF warned that tight labour markets could amplify wage and inflationary pressures domestically, with geopolitical risks like the conflicts in Ukraine and the Middle East posing further uncertainties. 

Fiscal priorities

Malta’s fiscal deficit is set to shrink under the government’s consolidation plan, targeting a reduction from 4% in 2024 to 2.6% by 2027. Key to this strategy is the gradual phasing out of energy subsidies, which currently account for 20% of the fiscal deficit.

With global energy prices declining, fixed energy price policies are being replaced by targeted subsidies, freeing up fiscal space for public investment, education, and green initiatives. 

Efforts are also underway to strengthen tax administration, streamline procurement processes, and align fiscal planning with the country’s long-term strategy, “Malta Vision 2050”.

However, the IMF said concerns remain over Malta’s delayed adoption of the EU’s Minimum Tax Directive (Pillar II), which could jeopardise revenue by allowing other jurisdictions to take the lead.

Real estate risks, financial stability

While Malta’s financial system remains robust, the IMF warned that significant exposure to the real estate sector continues to pose risks. Banks are well-capitalised, yet their concentrated lending to real estate calls for enhanced oversight.

Cybersecurity is also a growing concern, with financial institutions increasingly relying on AI and digital platforms. Officials are focusing on bolstering resilience against cyber threats and strengthening anti-money laundering (AML) measures, particularly in the face of emerging risks such as trade-based money laundering.

The IMF also stressed the need for a productivity-driven growth strategy that prioritises innovation, digitalisation, and workforce development. Malta’s R&D spending remains low, prompting calls for better funding access for start-ups and the expansion of the Malta Venture Capital Fund.

Addressing skill shortages is also crucial, the IMF said. It acknowledged efforts to improve STEM education, digital skills, and adult learning are underway, supported by the National Education Strategy 2024-30. 

Meanwhile, the booming tourism sector is raising concerns about labour shortages, infrastructure bottlenecks, and environmental impacts. The Malta Tourism Strategy 2021-2030 aims to address these challenges by promoting sustainable and high-quality tourism development. 

Despite strong fundamentals, Malta’s economic outlook is not without risks. Geopolitical tensions, higher-than-expected inflation, and wage pressures could threaten stability, while unexpected boosts in tourism may provide upside potential.

Policymakers face the dual challenge of maintaining growth momentum while addressing vulnerabilities in fiscal, financial, and environmental domains.